10-K 1 a2020medleycapitalcorp.htm 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K

ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2020
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: 1-35040
MEDLEY CAPITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Delaware |  | 27-4576073
(State or Other Jurisdiction of |  | (I.R.S. Employer
Incorporation or Organization) |  | Identification No.)
280 Park Avenue, 6th Floor East, New York, NY 10017 |  | 10017
(Address of Principal Executive Offices) |  | (Zip Code)

(212) 759-0777
(Registrant’s Telephone Number, Including Area Code)
_____________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.001 per share |  | MCC |  | The New York Stock Exchange
6.125% Notes due 2023 |  | MCV |  | The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ý Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No ý
The aggregate market value of the registrant’s common stock held by non-affiliates of the Registrant as of March 31, 2020 was $23,170,287. The Registrant had 2,723,709 shares of common stock, $0.001 par value, outstanding as of December 11, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant's 2021 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference in to Part III of this Form 10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant's fiscal year ended September 30, 2020.

MEDLEY CAPITAL CORPORATION
TABLE OF CONTENTS

| Page
PART I | 1
Item 1. Business | 1
Item 1A. Risk Factors | 25
Item 1B. Unresolved Staff Comments | 46
Item 2. Properties | 46
Item 3. Legal Proceedings | 46
Item 4. Mine Safety Disclosures | 47
PART II | 48
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 48
Item 6. Selected Financial Data | 48
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk | 68
Item 8. Consolidated Financial Statements and Supplementary Data | 69
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 71
Item 9A. Controls and Procedures | 71
Item 9B. Other Information | 71
PART III | 72
Item 10. Directors, Executive Officers and Corporate Governance | 72
Item 11. Executive Compensation | 72
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 72
Item 13. Certain Relationships and Related Transactions, and Director Independence | 72
Item 14. Principal Accountant Fees and Services | 72
PART IV | 73
Item 15. Exhibits and Financial Statement Schedules | 73
Signatures | 75

PART I
In this annual report on Form 10-K, except as otherwise indicated, the terms:
•“we”, “us”, “our”, “Medley Capital” and the “Company” refer to Medley Capital Corporation, a Delaware corporation, and its subsidiaries for the periods after our consummation of the formation transaction and to Medley Capital BDC LLC, a Delaware limited liability company, for the periods prior to our consummation of the formation transaction described elsewhere in this Form 10-K;
•“MCC Advisors” and the “Adviser” refer to MCC Advisors LLC, our current investment adviser; MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (“MDLY”), a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC; and
•“Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates.
Item 1. Business
GENERAL
Medley Capital Corporation is a non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year as a corporation. We are currently externally managed and advised by our investment adviser, MCC Advisors, pursuant to an investment management agreement. Effective January 1, 2021, however, we will be internally managed. See “Business – The Adviser – Internalized Management Structure”.
Our investment objective is to generate current income and capital appreciation by lending directly to privately held middle market companies, primarily through directly originated transactions to help these companies expand their business, refinance and make acquisitions. Our investment portfolio generally consists of senior secured first lien term loans, senior secured second lien term loans, preferred equity and common equity. In connection with some of our investments, we receive warrants or other equity participation features which we believe will increase the total investment returns.
We believe the middle-market private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and investors. The underlying drivers of these structural changes include: reduced participation by banks in the private debt markets, particularly within the middle-market, and demand for private debt created by committed and uninvested private equity capital. We focus on taking advantage of this structural shift by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed investment opportunities. We source investment opportunities primarily through direct relationships with financial sponsors, as well as financial intermediaries such as investment banks and commercial banks.
Our investment activities are currently managed by our investment adviser, MCC Advisors, which is registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). MCC Advisors is an affiliate of Medley and is based in New York. Our Investment Team, which currently is provided for by MCC Advisors, is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis. MCC Advisors’ team draws on its expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, and transportation, energy and natural resources, financials and real estate. In addition, MCC Advisors seeks to diversify our portfolio of loans by company type, asset type, transaction size, industry and geography.
Our current Investment Team has extensive experience in the credit business, including originating, underwriting, principal investing and loan structuring. Our Adviser, through Medley, has access to over 50 employees, including over 25 investment, origination and credit management professionals, and over 25 operations, marketing and distribution professionals, each with extensive experience in their respective disciplines.
MCC Advisors also currently serves as our administrator and provides us with office space, equipment and other office services. The responsibilities of our administrator include overseeing our financial records, preparing reports to our stockholders and reports filed with the SEC and generally monitoring the payment of our expenses and the performance of administrative and professional services rendered to us by others.
As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to continue to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after such borrowing. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing.
As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
Opportunities for co-investments may arise when MCC Advisors or an affiliated investment adviser becomes aware of investment opportunities that may be appropriate for the Company, other clients, or affiliated funds. On November 25, 2013, the Company obtained an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Medley, LLC or
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an investment adviser controlled by Medley, LLC in a manner consistent with our investment objective, strategies and restrictions, as well as regulatory requirements and other pertinent factors (the “Prior Exemptive Order”). On March 29, 2017, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “Current Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly or majority owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. Co-investment under the Current Exemptive Order is subject to certain conditions, including the condition that, in the case of each co-investment transaction, our board of directors determines that it would be in our best interest to participate in the transaction. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them.
In situations where co-investment with other funds managed by MCC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between our interests and those of other MCC Advisors clients, MCC Advisors will need to decide which client will proceed with the investment. MCC Advisors will make these determinations based on its policies and procedures, which generally require that such opportunities be offered to eligible accounts on an alternating basis that will be fair and equitable over time. Moreover, except in certain circumstances, we will be unable to invest in any issuer in which a fund managed by MCC Advisors or its affiliates has previously invested. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.
On March 26, 2013, our wholly owned subsidiary, Medley SBIC LP (“SBIC LP”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP (“Medley Small Business Fund”). In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC. See Note 5 for further information.
Our principal executive office is located at 280 Park Avenue, 6th Floor East, New York, NY 10017 and our telephone number is (212) 759-0777.
Investment Process Overview
We view our current investment process as consisting of three distinct phases described below:
Sourcing and Origination MCC Advisors sources investment opportunities through access to a network of contacts developed in the financial services and related industries by Medley. It is the Adviser’s responsibility to identify specific opportunities, to refine opportunities through rigorous due diligence of the underlying facts and circumstances while remaining flexible and responsive to client’s needs. With over 25 investment professionals based in New York involved in sourcing and origination for MCC Advisors, each investment professional is able to maintain long-standing relationships and responsibility for a specified market.
An investment pipeline is maintained to manage all prospective investment opportunities and is reviewed weekly by the Investment Committee of MCC Advisors (“Investment Committee”). The purpose of the investment pipeline, which is comprised of all prospective investment opportunities at various stages of due diligence and approval, is to evaluate, monitor and approve all of our investments, subject to the oversight of our Investment Committee.
Credit Evaluation We utilize a systematic, consistent approach to credit evaluation developed by Medley, with a particular focus on determining the value of a business in a downside scenario. The key criteria that we consider and attributes that we seek include: (i) strong and resilient underlying business fundamentals; (ii) a substantial equity cushion in the form of capital ranking junior in the right of payment to our investment; (iii) sophisticated management teams with a minimum operating history of two years; (iv) a conclusion that overall downside risk is manageable; (v) collateral support in the form of accounts receivable, inventory, machinery, equipment, real estate, IP, overall enterprise value and other assets; and (vi) limited requirements for future financing beyond the proposed commitment. The first review of an opportunity is conducted using the above-mentioned analysis to determine if the opportunity meets MCC Advisors' general investment criteria. The next three reviews performed by the Investment Committee include the following: (1) an Early Read Memo, (2) a Green Light Memo, and (3) Investment Committee approval memo. MCC Advisors maintains a rigorous in-house due diligence process. Prior to making each investment, MCC Advisors subjects each potential portfolio company to an extensive credit review process, including analysis of market and operational dynamics as well as both historical and projected financial information. Areas of additional focus include management or sponsor experience, industry and competitive dynamics, and tangible asset values. Background checks and tax compliance checks are typically required on all portfolio company management teams.
Our due diligence process typically entails:
•negotiation and execution of a term sheet;
•on-site visits;
•interviews with management, employees, customers and vendors;
•review of loan documents and material contracts, as applicable;
•obtaining background checks on all principals/partners/founders;
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•completing customer and supplier calls;
•review of tax and accounting issues related to a contemplated capital structure;
•developing a financial model with sensitivity analysis that includes a management case, expected case and downside case;
•receiving third party reports such as environmental, appraisal and consulting reports, as applicable.
Monitoring MCC Advisors views active portfolio monitoring as a vital part of our investment process. MCC Advisors utilizes an investment management system, which maintains a centralized, dynamic electronic reporting system which houses, organizes and archives all portfolio data by investment. This is the primary system that tracks all changes to investment terms and conditions. On a quarterly basis, the asset management team produces a report for each investment within the portfolio by summarizing the investment’s general information, terms and structure, financial performance, covenant package, and business updates. This feature enables MCC Advisors to track the history of every investment, while maintaining access to the most recent reporting information available, ensuring accurate reporting of the investment.
MCC Advisors will typically require portfolio companies to adhere to certain affirmative covenants requiring the following reports:

| monthly or quarterly financial statements |  | annual audits and management letters
| monthly or quarterly covenant certificates |  | quarterly industry updates
| monthly or quarterly management discussion & analysis |  | quarterly customer and supplier concentration updates
| monthly or quarterly bank statements |  | quarterly backlog/pipeline reports
| annual insurance certificates |  | annual budgets and forecasts.

MCC Advisors holds regular portfolio reviews where the Investment Committee reviews each transaction in detail and reassesses the risk rating presently assigned.
Rating Criteria In addition to external risk management research and internal monitoring tools, we use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our portfolio. We use a five-level numeric rating scale. The following is a description of the conditions associated with each investment rating:

Credit Rating |  | Definition
1 |  |  | Investments that are performing above expectations.
2 |  |  | Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination.
|  | All new loans are rated ‘2’.
3 |  |  | Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected.
|  | Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.
4 |  | Investments that are performing below expectations and for which risk has increased materially since origination.
|  | Some loss of interest or dividend is expected but no loss of principal.
|  | In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).
5 |  | Investments that are performing substantially below expectations and whose risks have increased substantially since origination.
|  | Most or all of the debt covenants are out of compliance and payments are substantially delinquent.
|  | Some loss of principal is expected.

Investment Committee
The purpose of the Investment Committee, which is comprised of a minimum of three members selected from senior members of MCC Advisors’ Investment Team, is to evaluate and approve all of our investments. The Investment Committee process is intended to bring the diverse experience and perspectives of the committee’s members to the analysis and consideration of each investment. The Investment Committee serves to provide investment consistency and adherence to our core investment philosophy and policies. The Investment Committee also determines appropriate investment sizing and suggests ongoing monitoring requirements.
In addition to reviewing investments, Investment Committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and deal flow are reviewed on a regular basis. Members of the investment team are encouraged to share information and views on credits with the Investment Committee early in their analysis. We believe this process improves the quality of the analysis and assists the investment team members to work more efficiently.
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Each transaction is presented to the Investment Committee in a formal written report. All of our new investments and the exit or sale of an existing investment must be approved by a majority vote of the Investment Committee, although unanimous agreement is sought.
Investment Structure
Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment. We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio company’s capital structure.
We structure our investments, which typically have maturities of three to seven years, as follows:
Senior Secured First Lien Term Loans We structure these investments as senior secured loans. We obtain security interests in the assets of the portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of first-priority liens on the assets of the portfolio company borrower. Our senior secured loans may provide for amortization of principal with the majority of the amortization due at maturity.
Senior Secured Second Lien Term Loans We structure these investments as junior, secured loans. We obtain security interests in the assets of these portfolio companies that serves as collateral in support of the repayment of such loans. This collateral generally takes the form of second-priority liens on the assets of a portfolio company. These loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.
Senior Secured First Lien Notes We structure these investments as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of such loans. This collateral generally takes the form of priority liens on the assets of a portfolio company. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or ("PIK") interest), with amortization of principal due at maturity. PIK interest represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual basis to the extent such amounts are expected to be collected.
Warrants and Minority Equity Securities In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection with a debt investment. As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.
Unitranche Loans We structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and subordinated notes as senior secured loans. We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral generally takes the form of first-priority liens on the assets of a portfolio company. Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.
Unsecured Debt We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest income. These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or PIK interest), with amortization of principal due at maturity. Subordinated notes generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. Subordinated notes are generally more volatile than secured loans and may involve a greater risk of loss of principal. Subordinated notes often include a PIK feature, which effectively operates as negative amortization of loan principal.
We tailor the terms of each investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its operating results. We seek to limit the downside potential of our investments by:
•selecting investments that we believe have a low probability of loss of principal;
•requiring a total return on our investments (including both interest and potential equity appreciation) that we believe will compensate us appropriately for credit risk; and
•negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with the preservation of our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or rights to a seat on the board of directors under some circumstances.
We expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company.
Managerial Assistance
As a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. MCC Advisors provides such managerial assistance on our behalf to portfolio companies that request this assistance. We may receive fees for these services and will reimburse MCC Advisors,
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as our administrator, for its allocated costs in providing such assistance, subject to the review and approval by our board of directors, including our independent directors.
Leverage
Through any credit facility that we may enter into in the future, we may borrow funds to make additional investments, a practice known as “leverage,” to attempt to increase return to our stockholders. The amount of leverage that we employ at any particular time will depend on our Adviser's and our board of directors’ assessments of market and other factors at the time of any proposed borrowing. We are also subject to certain regulatory requirements relating to our borrowings. For a discussion of such requirements, see “Regulation - Senior Securities.”
We may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material.
Competition
Our primary competitors to provide financing to private middle-market companies are public and private funds, commercial and investment banks, commercial finance companies, other BDCs, SBICs and private equity and hedge funds. Some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to maintain our favorable RIC tax treatment.
Employees
We do not have any employees. Our day-to-day investment operations are managed by our Adviser. Our Adviser employs over 25 investment professionals, including its principals. In addition, we reimburse our administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under an administration agreement, including the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
Administration
We have entered into an administration agreement, pursuant to which MCC Advisors furnishes us with office facilities, equipment and clerical, bookkeeping, recordkeeping and other administrative services at such facilities. Under our administration agreement, MCC Advisors performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC.
Termination of Agreements and Plan of Mergers
On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra Income Corporation (“Sierra”), pursuant to which the Company would, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra, with Sierra as the surviving company in the merger (the “MCC Merger”). In addition, on July 29, 2019, Sierra and MDLY entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, Sierra, and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY would, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”).
On May 1, 2020, the Company received a notice of termination from Sierra of the Amended MCC Merger Agreement. Under the Amended MCC Merger Agreement, either party could have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger had not been consummated by March 31, 2020. Representatives of Sierra informed the Company that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of the Company and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.
In addition, on May 1, 2020, MDLY received a notice of termination from Sierra of the Amended MDLY Merger Agreement. Under the Amended MDLY Merger Agreement, either party could have, subject to certain conditions, terminate the Amended MDLY Merger Agreement if the MDLY Merger had not been consummated by March 31, 2020. Representatives of Sierra informed MDLY that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MDLY and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.
Information Available
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We maintain a website at http://www.medleycapitalcorp.com. We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or the SEC. Information contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.
Summary of Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the information in “Item 1A. Risk Factors”, including, but not limited to, the following risks:
Risks Related to our Business
•We have determined to internalize our operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently with lower costs, but this may not be the case.
•As an internally managed BDC, we will be dependent upon our management team and other professionals and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization.
•We may suffer credit losses.
•Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us.
•The lack of liquidity in our investments may adversely affect our business.
•A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments.
•We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
•Our ability to enter into transactions with our affiliates will be restricted, which may limit the scope of investments available to us.
•We will be exposed to risks associated with changes in interest rates.
•Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio.
•Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
•If our investments are not managed effectively, we may be unable to achieve our investment objective.
•We may experience fluctuations in our periodic operating results.
•Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
•We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
•We may be required to pay incentive fees on income accrued, but not yet received in cash.
•We may not be able to pay you distributions and our distributions may not grow over time.
•The highly competitive market in which we operate may limit our investment opportunities.
•Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.
•Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.
•There are significant potential conflicts of interest that could affect our investment returns.
•There may be conflicts of interest related to obligations MCC Advisors’ senior management and Investment Team and members of its Investment Committee have to other clients.
•MCC Advisors may, from time to time, possess material non-public information, limiting our investment discretion.
•Our incentive fee structure may create incentives for MCC Advisors that are not fully aligned with the interests of our stockholders.
•Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us.
•Our incentive fee may induce our investment adviser to make certain investments, including speculative investments.
•We may be obligated to pay our investment adviser incentive compensation even if we incur a loss and may pay more than 20% of our net capital gains because we cannot recover payments made in previous years.
•The valuation process for certain of our portfolio holdings creates a conflict of interest.
•Other arrangements with MCC Advisors may create conflicts of interest.
6

•The investment management agreement and administration agreement with MCC Advisors were not negotiated on an arm’s length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
•Our ability to sell or otherwise exit investments in which affiliates of MCC Advisors also have an investment may be restricted.
•We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions.
•A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.
•Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.
Risks Related to our Investments
•We may not realize gains from our equity investments.
•Our investments are very risky and highly speculative.
•Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment.
•Continuation of the current decline in oil and natural gas prices for a prolonged period of time could have a material adverse effect on the Company.
•Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields.
•We may acquire indirect interests in loans rather than direct interests, which would subject us to additional risk.
•Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted.
•Our ability to invest in public companies may be limited in certain circumstances.
•Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
•Our ability to invest in public companies may be limited in certain circumstances.
•Hedging transactions may expose us to additional risks.
•The disposition of our investments may result in contingent liabilities.
•If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments.
Risks Related to our Operations as a BDC and a RIC
•Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.
•Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.
•We cannot predict how tax reform legislation will affect the Company, our investments, or our stockholders, and any such legislation could adversely affect our business.
•Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company.
•If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
•We will become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements.
Risks Relating to an Investment in our Securities
•Investing in our securities may involve an above average degree of risk.
•Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount to their NAV.
•The market price of our common stock may fluctuate significantly.
•Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
•Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
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•The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock.
•The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
•The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
•The indenture under which the Notes were issued contains limited protection for holders of the Notes.
•An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them.
•If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
•If we issue preferred stock, the NAV and market value of our common stock may become more volatile.
•Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.
General Risk Factors
•We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations.
•Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.
•Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
•Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.
•Economic recessions or downturns could impair our portfolio companies and harm our operating results.
INVESTMENTS
We have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, unitranche, senior secured first lien notes, subordinated notes and warrants and minority equity securities by investing approximately $10 million to $50 million of capital, on average, in the securities of middle-market companies.
The following table shows the portfolio composition by industry grouping at fair value at September 30, 2020 (dollars in thousands):

| Fair Value |  | Percentage
Construction & Building | $ | 51,964 |  |  | 21.1 | %
Multisector Holdings | 41,019 |  |  | 16.6 |
High Tech Industries | 26,165 |  |  | 10.6 |
Healthcare & Pharmaceuticals | 23,481 |  |  | 9.5 |
Services: Business | 21,841 |  |  | 8.9 |
Hotel, Gaming & Leisure | 12,337 |  |  | 5.0 |
Wholesale | 12,278 |  |  | 5.0 |
Containers, Packaging & Glass | 11,987 |  |  | 4.8 |
Consumer goods: Durable | 9,520 |  |  | 3.8 |
Banking, Finance, Insurance & Real Estate | 6,557 |  |  | 2.7 |
Consumer goods: Non-durable | 6,164 |  |  | 2.5 |
Environmental Industries | 5,846 |  |  | 2.4 |
Energy: Oil & Gas | 5,626 |  |  | 2.3 |
Metals & Mining | 3,530 |  |  | 1.4 |
Forest Products & Paper | 2,991 |  |  | 1.2 |
Aerospace & Defense | 2,942 |  |  | 1.2 |
Media: Broadcasting & Subscription | 1,110 |  |  | 0.5 |
Automotive | 1,043 |  |  | 0.4 |
Retail | 343 |  |  | 0.1 |
Total | $ | 246,744 |  |  | 100.0 | %

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The following table shows the portfolio composition by industry grouping at fair value at September 30, 2019 (dollars in thousands):

| Fair Value |  | Percentage
Multisector Holdings | $ | 69,949 |  |  | 17.6 | %
Construction & Building | 59,608 |  |  | 15.0 |
Services: Business | 49,512 |  |  | 12.5 |
High Tech Industries | 38,254 |  |  | 9.6 |
Healthcare & Pharmaceuticals | 25,698 |  |  | 6.5 |
Energy: Oil & Gas | 23,632 |  |  | 6.0 |
Hotel, Gaming & Leisure | 21,127 |  |  | 5.3 |
Wholesale | 13,850 |  |  | 3.5 |
Services: Consumer | 13,278 |  |  | 3.3 |
Containers, Packaging & Glass | 12,637 |  |  | 3.2 |
Capital Equipment | 10,680 |  |  | 2.7 |
Automotive | 10,375 |  |  | 2.6 |
Banking, Finance, Insurance & Real Estate | 10,000 |  |  | 2.5 |
Aerospace & Defense | 8,604 |  |  | 2.2 |
Consumer goods: Non-durable | 6,326 |  |  | 1.6 |
Consumer goods: Durable | 6,170 |  |  | 1.6 |
Environmental Industries | 3,991 |  |  | 1.0 |
Metals & Mining | 3,436 |  |  | 0.9 |
Forest Products & Paper | 2,830 |  |  | 0.7 |
Media: Broadcasting & Subscription | 2,408 |  |  | 0.6 |
Chemicals, Plastics & Rubber | 2,277 |  |  | 0.6 |
Media: Advertising, Printing & Publishing | 1,715 |  |  | 0.4 |
Retail | 532 |  |  | 0.1 |
Total | $ | 396,889 |  |  | 100.0 | %

The following table sets forth certain information as of September 30, 2020 for each portfolio company in which we had an investment. Other than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request and the board observer or participation rights we may receive in connection with our investment.

Name of Portfolio Company |  | Sector |  | Security Owned |  | Maturity |  | Interest Rate(1) |  | Principal Due at Maturity |  | Fair Value |  | % of Net Assets
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan A |  | 9/30/2021 |  | 6.00 | % |  | $ | 9,946,741 |  |  | $ | — |  |  | 0.0 | %
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan B |  | 9/30/2021 |  | 9.00 | % |  | 25,937,520 |  |  | — |  |  | 0.0 | %
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan C |  | 9/30/2021 |  | 6.00 | % |  | 1,231,932 |  |  | 1,166,763 |  |  | 0.8 | %
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Revolving Credit Facility |  | 9/30/2021 |  | 6.00 | % |  | 3,554,069 |  |  | 3,554,069 |  |  | 2.4 | %
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Senior Secured First Lien Term Loan |  | 7/22/2020 |  | 10.00 | % |  | 11,105,630 |  |  | 1,110,563 |  |  | 0.7 | %
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Preferred Equity Series A |  |  |  |  |  | 1,600,000 |  |  | — |  |  | 0.0 | %
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Preferred Equity Series AA |  |  |  |  |  | 800,000 |  |  | — |  |  | 0.0 | %
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Preferred Equity Series AAA |  |  |  |  |  | 971,200 |  |  | — |  |  | 0.0 | %
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Alpine SG, LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan |  | 11/16/2022 |  | 6.75 | % |  | 4,715,809 |  |  | 4,466,815 |  |  | 3.0 | %
Alpine SG, LLC |  | High Tech Industries |  | Senior Secured Incremental First Lien Term Loan |  | 11/16/2022 |  | 9.50 | % |  | 472,087 |  |  | 472,087 |  |  | 0.3 | %

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Name of Portfolio Company |  | Sector |  | Security Owned |  | Maturity |  | Interest Rate(1) |  | Principal Due at Maturity |  | Fair Value |  | % of Net Assets
Alpine SG, LLC |  | High Tech Industries |  | Senior Secured First Lien Delayed Draw Term Loan |  | 11/16/2022 |  | 6.75 | % |  | 2,277,293 |  |  | 2,157,052 |  |  | 1.4 | %
Alpine SG, LLC |  | High Tech Industries |  | Revolving Credit Facility |  | 11/16/2022 |  | 9.50 | % |  | 1,000,000 |  |  | 947,200 |  |  | 0.6 | %
American Dental Partners, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan |  | 9/25/2023 |  | 9.50 | % |  | 4,387,500 |  |  | 3,948,750 |  |  | 2.6 | %
Autosplice, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan |  | 12/17/2021 |  | 9.00 | % |  | 12,780,349 |  |  | 11,898,505 |  |  | 7.9 | %
Avantor, Inc. |  | Wholesale |  | Equity |  |  |  |  |  | — |  |  | 12,277,988 |  |  | 8.2 | %
Be Green Packaging, LLC |  | Containers, Packaging & Glass |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Black Angus Steakhouses, LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Delayed Draw Term Loan |  | 12/31/2020 |  | 10.00 | % |  | 758,929 |  |  | 758,929 |  |  | 0.5 | %
Black Angus Steakhouses, LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan |  | 12/31/2020 |  | 10.00 | % |  | 8,412,596 |  |  | 5,047,557 |  |  | 3.4 | %
Black Angus Steakhouses, LLC |  | Hotel, Gaming & Leisure |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Caddo Investors Holdings 1 LLC |  | Forest Products & Paper |  | Equity |  |  |  |  |  | — |  |  | 2,990,776 |  |  | 2.0 | %
CM Finance SPV, LLC |  | Banking, Finance, Insurance & Real Estate |  | Unsecured Debt |  | 6/24/2021 |  | 3.00 | % |  | 101,463 |  |  | 101,463 |  |  | 0.1 | %
CPI International, Inc. |  | Aerospace & Defense |  | Senior Secured Second Lien Term Loan |  | 7/28/2025 |  | 8.25 | % |  | 2,607,062 |  |  | 2,219,392 |  |  | 1.5 | %
Crow Precision Components, LLC |  | Aerospace & Defense |  | Equity |  |  |  |  |  | — |  |  | 723,131 |  |  | 0.5 | %
CT Technologies Intermediate Holdings, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan |  | 12/1/2022 |  | 10.00 | % |  | 7,500,000 |  |  | 6,832,500 |  |  | 4.5 | %
DataOnline Corp. |  | High Tech Industries |  | Senior Secured First Lien Term Loan |  | 11/13/2025 |  | 7.25 | % |  | 4,962,500 |  |  | 4,786,331 |  |  | 3.2 | %
DataOnline Corp. |  | High Tech Industries |  | Revolving Credit Facility |  | 11/13/2025 |  | 7.25 | % |  | 535,714 |  |  | 510,357 |  |  | 0.3 | %
Dream Finders Homes, LLC |  | Construction & Building |  | Preferred Equity |  |  |  | 8.00 | % |  | 4,531,472 |  |  | 3,928,786 |  |  | 2.6 | %
Dynamic Energy Services International LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan |  | 12/31/2021 |  | 13.74 | % |  | 12,930,235 |  |  | 905,116 |  |  | 0.6 | %
Dynamic Energy Services International LLC |  | Energy: Oil & Gas |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Footprint Acquisition, LLC |  | Services: Business |  | Preferred Equity |  |  |  | 8.75 | % |  | 3,969,998 |  |  | 3,969,998 |  |  | 2.6 | %
Footprint Acquisition, LLC |  | Services: Business |  | Equity |  |  |  |  |  | — |  |  | 1,960,830 |  |  | 1.3 | %
Global Accessories Group, LLC |  | Consumer goods: Non-durable |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Impact Group, LLC |  | Services: Business |  | Senior Secured First Lien Term Loan |  | 6/27/2023 |  | 8.37 | % |  | 3,219,964 |  |  | 2,994,565 |  |  | 2.0 | %
Impact Group, LLC |  | Services: Business |  | Senior Secured First Lien Delayed Draw Term Loan |  | 6/27/2023 |  | 8.37 | % |  | 9,330,056 |  |  | 8,676,952 |  |  | 5.8 | %
InterFlex Acquisition Company, LLC |  | Containers, Packaging & Glass |  | Senior Secured First Lien Term Loan |  | 8/18/2022 |  | 9.00 | % |  | 12,098,406 |  |  | 11,987,100 |  |  | 8.0 | %
JFL-NGS Partners, LLC |  | Construction & Building |  | Preferred Equity - A-2 Preferred |  |  |  | 3.00 | % |  | 1,795,034 |  |  | 1,795,034 |  |  | 1.2 | %
JFL-NGS Partners, LLC |  | Construction & Building |  | Preferred Equity - A-1 Preferred |  |  |  | 3.00 | % |  | 232,292 |  |  | 232,292 |  |  | 0.2 | %
JFL-NGS Partners, LLC |  | Construction & Building |  | Equity |  |  |  |  |  | — |  |  | 38,780,067 |  |  | 25.7 | %
JFL-WCS Partners, LLC |  | Environmental Industries |  | Preferred Equity |  |  |  | 6.00 | % |  | 1,310,649 |  |  | 1,310,649 |  |  | 0.9 | %
JFL-WCS Partners, LLC |  | Environmental Industries |  | Equity |  |  |  |  |  | — |  |  | 4,535,580 |  |  | 3.0 | %

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Name of Portfolio Company |  | Sector |  | Security Owned |  | Maturity |  | Interest Rate(1) |  | Principal Due at Maturity |  | Fair Value |  | % of Net Assets
Kemmerer Operations, LLC |  | Metals & Mining |  | Senior Secured First Lien Term Loan |  | 6/21/2023 |  | 15.00 | % |  | 2,051,705 |  |  | 2,051,705 |  |  | 1.4 | %
Kemmerer Operations, LLC |  | Metals & Mining |  | Senior Secured First Lien Delayed Draw Term Loan |  | 6/21/2023 |  | 15.00 | % |  | 515,699 |  |  | 515,699 |  |  | 0.4 | %
Kemmerer Operations, LLC |  | Metals & Mining |  | Equity |  |  |  |  |  | — |  |  | 962,717 |  |  | 0.6 | %
Lighting Science Group Corporation |  | Containers, Packaging & Glass |  | Warrants |  | 2/19/2024 |  |  |  | — |  |  | — |  |  | 0.0 | %
Manna Pro Products, LLC |  | Consumer goods: Non-durable |  | Senior Secured First Lien Term Loan |  | 12/8/2023 |  | 7.00 | % |  | 5,343,674 |  |  | 5,123,515 |  |  | 3.4 | %
Manna Pro Products, LLC |  | Consumer goods: Non-durable |  | Senior Secured First Lien Delayed Draw Term Loan |  | 12/8/2023 |  | 7.00 | % |  | 1,085,219 |  |  | 1,040,508 |  |  | 0.7 | %
MCC Senior Loan Strategy JV I LLC |  | Multisector Holdings |  | Equity |  |  |  |  |  | — |  |  | 41,018,500 |  |  | 27.2 | %
NVTN LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan |  | 12/31/2024 |  | 5.00 | % |  | 6,565,875 |  |  | 4,530,078 |  |  | 3.0 | %
NVTN LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Super Priority DDTL |  | 12/31/2024 |  | 5.00 | % |  | 2,000,000 |  |  | 2,000,000 |  |  | 1.3 | %
NVTN LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan B |  | 12/31/2024 |  | 10.25 | % |  | 14,963,195 |  |  | — |  |  | 0.0 | %
NVTN LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan C |  | 12/31/2024 |  | 13.00 | % |  | 10,014,223 |  |  | — |  |  | 0.0 | %
NVTN LLC |  | Hotel, Gaming & Leisure |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %
Path Medical, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan A |  | 10/11/2021 |  | 10.50 | % |  | 5,905,080 |  |  | 5,905,080 |  |  | 3.9 | %
Path Medical, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan B |  | 10/11/2021 |  | 14.00 | % |  | 7,783,840 |  |  | 6,794,514 |  |  | 4.5 | %
Path Medical, LLC |  | Healthcare & Pharmaceuticals |  | Warrants |  | 1/9/2027 |  |  |  | — |  |  | — |  |  | 0.0 | %
Point.360 |  | Services: Business |  | Senior Secured First Lien Term Loan |  | 7/8/2020 |  |  |  | 2,777,366 |  |  | 186,083 |  |  | 0.1 | %
RateGain Technologies, Inc. |  | Hotel, Gaming & Leisure |  | Unsecured Debt |  | 7/31/2020 |  |  |  | 704,106 |  |  | — |  |  | 0.0 | %
RateGain Technologies, Inc. |  | Hotel, Gaming & Leisure |  | Unsecured Debt |  | 7/31/2021 |  |  |  | 761,905 |  |  | — |  |  | 0.0 | %
Redwood Services Group, LLC |  | Services: Business |  | Revolving Credit Facility |  | 6/6/2023 |  | 7.00 | % |  | 700,000 |  |  | 647,500 |  |  | 0.4 | %
Sendero Drilling Company, LLC |  | Energy: Oil & Gas |  | Unsecured Debt |  | 8/31/2021 |  | 8.00 | % |  | 488,750 |  |  | — |  |  | 0.0 | %
Seotowncenter, Inc. |  | Services: Business |  | Equity |  |  |  |  |  | — |  |  | 686,834 |  |  | 0.5 | %
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan |  | 9/1/2022 |  | 7.25 | % |  | 4,776,955 |  |  | 4,733,962 |  |  | 3.1 | %
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Delayed Draw Term Loan |  | 9/1/2022 |  | 7.25 | % |  | 1,852,522 |  |  | 1,835,850 |  |  | 1.2 | %
SFP Holding, Inc. |  | Construction & Building |  | Equity |  |  |  |  |  | — |  |  | 657,578 |  |  | 0.4 | %
SMART Financial Operations, LLC |  | Retail |  | Equity |  |  |  |  |  | — |  |  | 343,000 |  |  | 0.2 | %
Stancor, Inc. |  | Services: Business |  | Equity |  |  |  |  |  | — |  |  | 150,374 |  |  | 0.1 | %
Starfish Holdco, LLC |  | High Tech Industries |  | Senior Secured Second Lien Term Loan |  | 8/18/2025 |  | 10.00 | % |  | 1,000,000 |  |  | 926,500 |  |  | 0.6 | %
URT Acquisition Holdings Corporation |  | Services: Business |  | Unsecured Debt |  | 6/23/2021 |  | 10.00 | % |  | 2,567,929 |  |  | 2,567,929 |  |  | 1.7 | %
US Multifamily, LLC |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan |  | 6/17/2021 |  | 10.00 | % |  | 5,123,913 |  |  | 5,123,913 |  |  | 3.4 | %

11

Name of Portfolio Company |  | Sector |  | Security Owned |  | Maturity |  | Interest Rate(1) |  | Principal Due at Maturity |  | Fair Value |  | % of Net Assets
US Multifamily, LLC |  | Banking, Finance, Insurance & Real Estate |  | Equity |  |  |  |  |  | — |  |  | 1,332,000 |  |  | 0.9 | %
Velocity Pooling Vehicle, LLC |  | Automotive |  | Senior Secured First Lien Term Loan |  | 4/28/2023 |  | 12.00 | % |  | 1,014,440 |  |  | 1,014,440 |  |  | 0.7 | %
Velocity Pooling Vehicle, LLC |  | Automotive |  | Equity |  |  |  |  |  | — |  |  | 12,841 |  |  | 0.0 | %
Velocity Pooling Vehicle, LLC |  | Automotive |  | Warrants |  | 3/30/2028 |  |  |  | — |  |  | 15,354 |  |  | 0.0 | %
Walker Edison Furniture Company LLC |  | Consumer goods: Durable |  | Senior Secured First Lien Term Loan |  | 9/26/2024 |  | 7.25 | % |  | 3,519,878 |  |  | 3,519,878 |  |  | 2.3 | %
Walker Edison Furniture Company LLC |  | Consumer goods: Durable |  | Equity |  |  |  |  |  | — |  |  | 6,000,000 |  |  | 4.0 | %
Watermill-QMC Midco, Inc. |  | Automotive |  | Equity |  |  |  |  |  | — |  |  | — |  |  | 0.0 | %

(1)All interest is payable in cash and/or PIK, and all London Interbank Offering Rate (“LIBOR”) represents 1 Month LIBOR and 3 Month LIBOR unless otherwise indicated. For each debt investment, we have provided the current interest rate as of September 30, 2020.
As of September 30, 2020, our income-bearing investment portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 12.6% of our income-bearing investment portfolio bore interest at fixed rates. As of September 30, 2019, the weighted average yield based upon cost of our total portfolio was approximately 9.5%. The weighted average yield of our total portfolio does not represent the total return to our stockholders. The weighted average yield on income producing investments is computed based upon a combination of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive fees or general fund related expenses. For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating rate floor and/or cap in place on that loan.
Overview of Portfolio Companies
Set forth below is a brief description of the business of our portfolio companies as of September 30, 2020:

Portfolio Company |  | Brief Description of Portfolio Company
1888 Industrial Services, LLC |  | 1888 Industrial Services, LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies in the Denver-Julesburg Basin and Permian Basin. 1888 builds, repairs, modifies and maintains oil and gas production equipment, sites, wells and pipelines.
Access Media Holdings, LLC |  | Access Media Holdings, LLC (d/b/a Access Media 3, Inc.) headquartered in Oak Brook, IL, is a triple-play provider of digital satellite television, high speed internet and voice services to the residential multi-dwelling unit market in the United States.
Alpine SG, LLC |  | Alpine SG, LLC ("Alpine SG") is an aggregator of niche, vertically oriented software businesses. Each acquired business operates independently with oversight from the Alpine SG management team.
American Dental Partners, Inc. |  | American Dental Partners, Inc., founded in 1995 and headquartered in Wakefield, MA, provides dental groups with critical administrative functions, enabling dentists to focus on clinical care.
Autosplice, Inc. |  | Autosplice, Inc. (“Autosplice”), founded in 1954 and headquartered in San Diego, CA, is a global supplier of highly engineered, mission-critical electrical interconnectors to OEMs and Tier 1 suppliers. Autosplice serves a wide variety of end-markets, providing the automotive, industrial, telecommunications, medical, transportation, consumer, and other applications.
Avantor, Inc. |  | Avantor, Inc. is a global provider of products and services to the biopharma, healthcare, education & government, and advanced technologies & applied materials industries.
Be Green Packaging, LLC |  | Be Green Packaging, LLC, founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and packaging for the food service and consumer packaged goods end markets.
Black Angus Steakhouses, LLC |  | Black Angus Steakhouses, LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska, New Mexico, Washington, and Hawaii.
Caddo Investors Holdings 1 LLC |  | Caddo Investors Holdings 1 LLC (d/b/a TexMark Timber Treasury, L.P.), consists of ~1.1 million acres of high quality and relatively young timber lands located in East Texas.
CM Finance SPV LLC |  | CM Finance SPV LLC is a wholly-owned subsidiary of Investcorp Credit Management BDC, Inc., a specialty finance company that invests primarily in the debt of U.S. middle-market companies.
CPI International, Inc. |  | CPI International, Inc., headquartered in Palo Alto, CA. develops and manufactures microwave, radio frequency, power, and control products for critical communications, defense and medical applications.
Crow Precision Components, LLC |  | Crow Precision Components, LLC is a Fort Worth, TX based forger of aluminum and steel used for mission critical aircraft components, among other end markets.

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Portfolio Company |  | Brief Description of Portfolio Company
CT Technologies Intermediate Holdings, Inc. |  | CT Technologies Intermediate Holdings, Inc., founded in 1976 and located in Alpharetta, GA, is a provider of outsourced release-of-information services, which involves the interaction between healthcare providers, who possess protected medical information, and authorized requestors, who are entitled to receive that information for various commercial, legal, or personal purposes.
DataOnline Corp. |  | DataOnline Corp. ("DataOnline") is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote industrial assets. DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications & web-based applications.
Dream Finders Homes, LLC |  | Dream Finders Homes, LLC ("DFH"), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets. DFH builds both single-family homes and townhomes.
Dynamic Energy Services International LLC |  | Dynamic Energy Services International LLC, headquartered in New Orleans, LA, is a provider of full-service fabrication, construction and maintenance services to a broad range of worldwide markets including oil and gas, industrial and petrochemical markets.
Footprint Acquisition, LLC |  | Footprint Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers.
Global Accessories Group, LLC |  | Global Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections. These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets.
Impact Group, LLC |  | Impact Group, LLC is a Boise, Idaho based sales and marketing agency providing outsourced sales, marketing and merchandising services to consumer packaged goods manufacturers.
InterFlex Acquisition Company, LLC |  | InterFlex Acquisition Company, LLC, headquartered in Wilkesboro, NC, is a comprehensive provider of specialized printed and converted flexible packaging solutions for food and consumer packaged goods producers throughout the USA and UK.
JFL-NGS Partners, LLC |  | JFL-NGS Partners, LLC (d/b/a NorthStar Group Services, Inc.), is a one-stop provider of demolition and environmental remediation services including demolition, asset & scrap recovery, abatement of asbestos, lead, and mold, and disaster response.
JFL-WCS Partners, LLC |  | JFL-WCS Partners, LLC (d/b/a Waste Control Specialists LLC) operates a state-of-the-art facility for the processing, treatment, storage and disposal of LLRW, hazardous waste, and mixed hazardous and radioactive wastes.
Kemmerer Operations, LLC |  | Kemmerer Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal.
Lighting Science Group Corporation |  | Lighting Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company. LSG designs, develops and markets general illumination products that exclusively use LEDs as their light source. The LSG’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures).
Manna Pro Products, LLC |  | Manna Pro Products, LLC (“Manna Pro”), founded in 1985 and headquartered in Chesterfield, MO, is a manufacturer and distributor of pet nutrition and care products. Manna Pro targets five core animal end markets: dog & cat, horse, backyard chicken, other backyard pets and deer.
MCC Senior Loan Strategy JV I LLC |  | MCC Senior Loan Strategy JV I LLC commenced operations on July 15, 2015 and generates current income and capital appreciation by investing primarily in the debt of privately-held middle market companies in the United States with a focus on senior secured first lien term loans (see Note 3 "Investments" in Item 8. "Consolidated Financial Statements and Supplementary Data").
NVTN LLC |  | NVTN LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment” restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations. DLR has developed an identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high foot traffic locations.
Path Medical, LLC |  | Path Medical, LLC, founded in 1993, is a provider of fully-integrated acute trauma treatment and diagnostic imaging solutions to patients injured in automobile and non-work related accidents throughout Florida.
Point.360 |  | Point.360, headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout Los Angeles supporting all aspects of postproduction.
RateGain Technologies, Inc. |  | RateGain Technologies, Inc. provides hospitality and travel technology solutions for revenue management decision support, rate intelligence, electronic distribution and brand engagement helping customers across the world in streamlining their operations and sales.
Redwood Services Group, LLC |  | Redwood Services Group, LLC is a group of regional IT managed service providers that provide fully outsourced IT services to small and medium sized businesses.
Sendero Drilling Company, LLC |  | Sendero Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX.
Seotowncenter, Inc. |  | Seotowncenter, Inc. is a tech-enabled business services company that delivers white label search engine optimization and local search and digital campaign fulfillment to the small and midsize business market.
SFP Holding, Inc. |  | SFP Holding, Inc. is a provider of fire and life safety security systems.
SMART Financial Operations, LLC |  | SMART Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail pawn store chains and a pawn industry consulting firm.
Stancor, Inc. |  | Stancor, Inc., founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories, and parts.
Starfish Holdco, LLC |  | Starfish Holdco, LLC (d/b/a Syncsort or Precisely) through its subsidiaries is a global software company specializing in Big Data, high speed sorting products, data protection, data quality and integration software and services, for mainframe, power systems and open system environments to enterprise customers.

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Portfolio Company |  | Brief Description of Portfolio Company
URT Acquisition Holdings Corporation |  | URT Acquisition Holdings Corporation (d/b/a United Road Towing or “URT”) headquartered in Mokena, IL is an integrated towing company in the United States. URT provides a complete range of towing, vehicle storage and vehicle auction services.
US Multifamily, LLC |  | US Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located in the Southeastern United States.
Velocity Pooling Vehicle, LLC |  | Velocity Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for the powersports industry. The Company's brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others.
Walker Edison Furniture Company LLC |  | Walker Edison Furniture Company LLC ("Walker Edison") is an e-commerce furniture platform exclusively selling through the websites of top online retailers. Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount category including TV stands, bedroom furniture, chairs & tables, desks and other.
Watermill-QMC Midco, Inc. |  | Watermill-QMC Midco, Inc. (d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies for specialty automotive production, prototype and factory assist applications.

THE ADVISER
MCC Advisors currently serves as our investment adviser and is registered with the SEC as an investment adviser under the Advisers Act. Subject to the overall supervision of our board of directors, MCC Advisors manages the day-to-day operations of, and provides investment advisory and management services to us pursuant to an investment management agreement by and between the Company and MCC Advisors. Effective January 1, 2021, however, we will be internally managed. See “- Internalized Management Structure” below.
Investment Management Agreement
Under the terms of our investment management agreement, MCC Advisors:
•determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
•identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and
•executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.
MCC Advisors’ services under the investment management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.
Pursuant to our investment management agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the investment management agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.
The following discussion of our base management fee and two-part incentive fee reflects the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the investment management agreement. The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.
Base Management Fee
For providing investment advisory and management services to us, MCC Advisors receives a base management fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears. The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter. On May 4, 2018, MCC Advisors voluntarily elected to waive $380,000 of the base management fee payable for the quarter ended March 31, 2018, which is shown on the Consolidated Statements of Operations.
Incentive Fee
The incentive fee has two components, as follows:
Incentive Fee Based on Income
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The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.
Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”
The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.
Quarterly Incentive Fee Based on Income
The incentive fee on net investment income for each quarter is determined as follows:
•No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;
•100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and
•17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.
The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).
The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.
Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own
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common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.
For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.
The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.
Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, when applicable, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.
For the year ended September 30, 2020, the Company incurred net base management fees payable to MCC Advisors of $6.4 million and did not incur any incentive fees related to pre-incentive fee net investment income.
The following is a graphical representation of the calculation of the income-related portion of the incentive fee effective as of January 1, 2016 pursuant to the Fee Waiver Agreement:
Pre-incentive Fee Net Investment Income
(Expressed as a Percentage of the Value of Net Assets)
Examples of Quarterly Incentive Fee Calculation
Example 1: Income Related Portion of Incentive Fee:
•Quarter 1
•Net Asset Value at the start of Quarter 1 = $100.0 million (1 million shares)
•Quarter 1 Ordinary Income = $5.0 million
•Quarter 1 Issue 1 million shares at $101 per share = $1.0 million
•Quarter 1 Capital Gain = $1.0 million
•Quarter 1 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)
•Quarter 1 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)
•Quarter 2
•Net Asset Value at the start of Quarter 2 = $100.0 million (1 million shares)
•Quarter 2 Ordinary Income = $1.5 million
•Quarter 2 Capital Gain = $1.0 million
•Quarter 2 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)
•Quarter 2 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)
•Quarter 3
•Net Asset Value at the start of Quarter 3 = $100.0 million (1 million shares)
•Quarter 3 Ordinary Income = $4.0 million
•Quarter 3 Repurchase 500,000 shares at $99 per share = $0.50 million
•Quarter 3 Capital Loss = ($8.0) million
•Quarter 3 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)
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•Quarter 3 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)
•Quarter 4
•Net Asset Value at the start of Quarter 4 = $100.0 million (1 million shares)
•Quarter 4 Ordinary Income = $4.0 million
•Quarter 4 Capital Gain = $3.0 million
•Quarter 4 Hurdle Amount = $1.5 million (calculated based on a quarterly 1.5% hurdle rate)
•Quarter 4 Catchup Amount = $1.81818 million (calculated based on a quarterly 1.81818% rate)
Determination of Incentive Fee Based on Income:
In Quarter 1, the Ordinary Income of $5.0 million exceeds the Hurdle Amount of $1.50 million and the Catchup Amount of $1.8182 million. There is $2 million of Net Capital Gains, including a capital gain of $1 million and accretion to the Company’s net asset value of $1 million as a result of issuing shares at a transaction price that exceeds the net asset value per share. As a result, an Incentive Fee based on income of $875,000 ((100% of $318,182) + (17.5% of $3,181,818)) is payable to our investment adviser for Quarter 1.
In Quarter 2, the Quarter 2 Ordinary Income of $1.50 million does not exceed the Quarter 2 Hurdle Amount of $1.50 million, but the aggregate Ordinary Income for the Trailing Twelve Quarters of $6.50 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $3.0 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $3.6364 million. There are no Net Capital Losses. As a result, an Incentive Fee based on income of $262,500 ($1,137,500 (100% of $636,364) + (17.5% of 2,863,636) minus $875,000 paid in Quarter 1) would be payable to our investment adviser for Quarter 2.
In Quarter 3, the aggregate Ordinary Income of the Trailing Twelve Quarters of $10.5 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $4.5 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $5.4545 million. However, there is an aggregate Net Capital Loss of ($4.5) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals $(87,500), calculated as follows:
(17.5% x ($10.5 million minus $4.5 million)) minus $1,137,500 paid in Quarters 1 and 2. Because the Incentive Fee Cap is a negative value, there is no Incentive Fee based on income payable to the adviser for Quarter 3.
In Quarter 4, the aggregate Ordinary Income of the Trailing Twelve Quarters of $14.50 million exceeds the aggregate Hurdle Amount for the Trailing Twelve Quarters of $6.0 million and the aggregate Catchup Amount for the Trailing Twelve Quarters of $7.2727 million. The calculation of the Incentive Fee based on income would be $1.40 million ($2,537,500 (100% of $1,272,727) + (17.5% of $7,227,272) minus $1,137,500 million paid in Quarters 1 and 2). However, there is an aggregate Net Capital Loss of $(1.50) million for the Trailing Twelve Quarters. As a result, the Incentive Fee Cap would apply. The Incentive Fee Cap equals $1,137,500 calculated as follows:
(17.5% X ($14.5 million minus $1.5 million)) minus $1,137,500. Because the Incentive Fee Cap is positive but less than the Incentive Fee based on Income of $1.40 million calculated prior to the Incentive Fee Cap, an Incentive Fee based on Income of $1,137,500 is payable to our investment adviser for Quarter 4.
Example 2: Capital Gains Portion of Incentive Fee:
Alternative 1:
Assumptions
Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)
Year 2: Investment A sold for $50 million and fair market value, or FMV, of Investment B determined to be $32 million
Year 3: FMV of Investment B determined to be $25 million
Year 4: Investment B sold for $31 million
The capital gains portion of the incentive fee would be:
Year 1: None
Year 2: Capital gains incentive fee of $6.0 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)
Year 3: None; $5.0 million (20.0% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6.0 million (previous capital gains fee paid in Year 2) (the $1.0 million difference would not be deducted from future capital gains incentive fees)
Year 4: Capital gains incentive fee of $200,000; $6.2 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6.0 million (capital gains fee paid in Year 2)
Alternative 2:
Assumptions
Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)
Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million
Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million
Year 4: FMV of Investment B determined to be $35 million
Year 5: Investment B sold for $20 million
The capital gains portion of the incentive fee would be:
Year 1: None
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Year 2: Capital gains incentive fee of $5.0 million; 20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less $5 million unrealized capital depreciation on Investment B)
Year 3: Capital gains incentive fee of $1.4 million; $6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation on Investment B)) less $5.0 million capital gains fee received in Year 2
Year 4: None
Year 5: None; $5.0 million of capital gains incentive fee (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3 (the $1.4 million difference would not be deducted from future capital gains incentive fees)
As noted above, in order to ensure that the Company will pay MCC Advisors a lesser base management fee and incentive fee on net investment income on a cumulative basis, as calculated beginning January 1, 2016, the Company will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to the Fee Waiver Agreement, and pay lesser of those two amounts. Set forth below is a description of the base management fee and the incentive fee on net investment income payable to MCC Advisors prior to the Fee Waiver Agreement.
Base Management Fee — Prior to Fee Waiver Agreement
The base management fee was calculated at an annual rate of 1.75% of our gross assets, and is payable quarterly in arrears. The base management fee is based on the average value of our gross assets at the end of the two most recently completed calendar quarters.
Incentive Fee — Prior to Fee Waiver Agreement
The incentive fee based on net investment income was calculated as 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets calculated as of the end of the calendar quarter immediately preceding the calendar quarter for which the incentive fee is being calculated, exceeds a 2.0% (which is 8.0% annualized) hurdle rate but also includes a “catch-up” provision. Under this provision, in any calendar quarter, our investment adviser receives no incentive fee until our net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if the hurdle rate did not apply. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter including the base management fee, expenses payable under the administration agreement, and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash.
Payment of Our Expenses
All investment professionals and staff of MCC Advisors, when, and to the extent, engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of such personnel allocable to such services, is provided and paid for by MCC Advisors. We bear all other costs and expenses of our operations and transactions, including those relating to:
•our organization and continued corporate existence;
•calculating our net asset value (“NAV”) (including the cost and expenses of any independent valuation firms);
•expenses, including travel expense, incurred by MCC Advisors or payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;
•interest payable on debt incurred to finance our investments;
•the costs of all offerings of common shares and other securities;
•the base management fee and any incentive management fee;
•distributions on our shares;
•administration fees payable under our administration agreement;
•the allocated costs incurred by MCC Advisors as our administrator in providing managerial assistance to those portfolio companies that request it;
•amounts payable to third parties relating to, or associated with, making investments;
•transfer agent and custodial fees;
•all registration and listing fees;
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•U.S. federal, state and local taxes;
•independent directors’ fees and expenses;
•costs of preparing and filing reports or other documents with the SEC or other regulators;
•the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
•our fidelity bond;
•directors and officers/errors and omissions liability insurance, and any other insurance premiums;
•indemnification payments;
•direct costs and expenses of administration, including audit and legal costs; and
•all other expenses reasonably incurred by us or MCC Advisors in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs (including travel expenses).
We reimburse MCC Advisors for costs and expenses incurred for office space rental, office equipment and utilities allocable to the performance by MCC Advisors of its duties under the administration agreement, as well as any costs and expenses incurred relating to any non-investment advisory, administrative or operating services provided to us or in the form of managerial assistance to portfolio companies that request it.
From time to time, MCC Advisors pays amounts owed by us to third party providers of goods or services. We subsequently reimburse MCC Advisors for such amounts paid on our behalf.
Limitation of Liability and Indemnification
The investment management agreement provides that MCC Advisors and its officers, directors, employees and affiliates are not liable to us or any of our stockholders for any act or omission by it or its employees in the supervision or management of our investment activities or for any loss sustained by us or our stockholders, except that the foregoing exculpation does not extend to any act or omission constituting willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement. The investment management agreement also provides for indemnification by us of MCC Advisors’ members, directors, officers, employees, agents and control persons for liabilities incurred by it in connection with their services to us, subject to the same limitations and to certain conditions.
Duration and Termination
The investment management agreement was initially approved by our board of directors on November 3, 2010 and was executed on January 11, 2011. Pursuant to its terms and under the 1940 Act, the investment management agreement had an initial two-year term, and then was subject to an annual approval by our board of directors. Unless terminated earlier as described below, it will continue in effect from year to year if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The investment management agreement will automatically terminate in the event of its assignment. The investment management agreement may be terminated by either party without penalty upon not more than 30 days’ written notice to the other.
Board Approval of the Investment Management Agreement
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the investment management agreement through the later of April 1, 2020 or so long as the Amended MCC Merger Agreement, was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the investment management agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company. In that regard, on May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the investment management agreement would have been terminated effective as of May 31, 2020, without further action by our board of directors. On May 21, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended June 30, 2020. On June 15, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended September 30, 2020. On September 29, 2020, our board of directors, including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended December 31, 2020.
Expense Support Agreement
On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses, and other expenses approved by the special committee of the board of directors, comprised solely of directors who are not “interested persons” of the Company as such term is defined in Section 2(a)(19) of the 1940 Act (the “Special Committee”) (as described in Note 10)) at $667,000 per month (the “Cap”). Under the Expense Support
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Agreement, the Cap became effective on June 1, 2020 and expired on September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.
Administration Agreement
On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. Pursuant to the administration agreement, MCC Advisors furnishes us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company. We reimburse MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staff. From time to time, our administrator may pay amounts owed by us to third-party service providers and we will subsequently reimburse our administrator for such amounts paid on our behalf. For the years ended September 30, 2020, 2019 and 2018, we incurred $2.2 million, $3.3 million, and $3.6 million in administrator expenses, respectively.
License Agreement
We have entered into a license agreement with Medley Capital LLC under which Medley Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Medley”. Under this agreement, we will have a right to use the “Medley” name for so long as MCC Advisors or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “Medley” name. This license agreement will remain in effect for so long as the investment management agreement with MCC Advisors is in effect.
Internalized Management Structure
On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021. The new management structure will replace the current investment management and administration agreements with MCC Advisors, which expire on December 31, 2020. The board approved the establishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard Amster, to oversee the transition to the internalized management structure.
To lead the internalized management team, the board appointed David Lorber, who has served as an independent director of the Company since April 2019, as interim Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating Officer of Alcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc. in February 2020, as Chief Financial Officer of the Company, each effective January 1, 2021. Mr. Lorber will be paid an annual base salary of $425,000, and Ms. McMillan will be paid an annual base salary of $300,000, and each will be eligible for a discretionary cash bonus.
The internalized management team will be responsible for the day-to-day management and operations of the Company, under the oversight of the board. As part of the team, we have engaged a senior investment professional with significant credit experience to serve as the lead portfolio strategist, and retained Alaric Compliance Services, LLC, whose officer will serve as the Company’s Chief Compliance Officer. The Company has also entered into a fund accounting servicing agreement and an administration servicing agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services. The remainder of the team members are in the process of being assembled.
REGULATION
General
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities.”
As a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred stock we may issue in the future, of at least 200%. However, in March 2018, the Small Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements are met. Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective on the one-year anniversary of such approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. The Company has not sought stockholder or independent director approval to reduce its coverage ratio to 150%.
On March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering and communication processes that are available to operating companies. The rules and amendments specified by the SBCA became self-implementing on March 24, 2019. On April 8, 2020, the SEC adopted rules and amendments to implement certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication processes available to BDCs relating to: (i) the shelf offering process to permit the use of short-form registration statements on Form N-2 and incorporation by reference; (ii) the ability to qualify for well-known seasoned issuer status; (iii) the immediate or automatic effectiveness of certain filings made in connection with continuous public offerings; and (iv) communication processes and prospectus delivery. In addition, the SEC adopted rules that will require BDCs to comply with certain structured data and inline XBRL requirements. The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to
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file short-form registration statements on Form N-2, like the Company, must comply with the Inline XBRL structure data requirements for its financial statements, registration statement cover page, and certain prospectus information by August 1, 2022
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following:
(1)Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:
▪is organized under the laws of, and has its principal place of business in, the United States;
▪is not an investment company (other than a small business investment company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
▪satisfies either of the following:
•has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; or
•is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company.
(2)Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
(3)Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities.
(4)Securities of any eligible portfolio company which we control.
(5)Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
(6)Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.
The regulations defining and interpreting qualifying assets may change over time. We may adjust our investment focus needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.
Managerial Assistance to Portfolio Companies
A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in “Regulation — Qualifying Assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% requirement, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance. Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in highly rated commercial paper, U.S. Government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects
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an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, certain diversification tests in order to qualify as a RIC for U.S. federal income tax purposes will typically require us to limit the amount we invest with any one counterparty. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance. In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Related to our Business—If we use borrowed funds to make investments or fund our business operations, we will be exposed to risks typically associated with leverage which will increase the risk of investing in us.”
Code of Ethics
We and MCC Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. The code of ethics is available at our website, www.medleycapitalcorp.com, and is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov.
Privacy Policy
We are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).
We restrict access to nonpublic personal information about our stockholders to our investment adviser’s employees with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to MCC Advisors. The Proxy Voting Policies and Procedures of MCC Advisors are set forth below. The guidelines are reviewed periodically by MCC Advisors and our independent directors, and, accordingly, are subject to change.
MCC Advisors is registered with the SEC as an investment adviser under the Advisers Act. As an investment adviser registered under the Advisers Act, MCC Advisors will have fiduciary duties to us. As part of this duty, MCC Advisors recognizes that it must vote client securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders. MCC Advisors’ Proxy Voting Policies and Procedures have been formulated to ensure decision-making consistent with these fiduciary duties.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Proxy Policies
MCC Advisors evaluates routine proxy matters, such as proxy proposals, amendments or resolutions on a case-by-case basis. Routine matters are typically proposed by management and MCC Advisors will normally support such matters so long as they do not measurably change the structure, management control, or operation of the corporation and are consistent with industry standards as well as the corporate laws of the state of incorporation.
MCC Advisors also evaluates non-routine matters on a case-by-case basis. Non-routine proposals concerning social issues are typically proposed by stockholders who believe that the corporation’s internally adopted policies are ill-advised or misguided. If MCC Advisors has determined that management is generally socially responsible, MCC Advisors will generally vote against these types of non-routine proposals. Non-routine proposals concerning financial or corporate issues are usually offered by management and seek to change a corporation’s legal, business or financial structure. MCC Advisors will generally vote in favor of such proposals provided the position of current stockholders is preserved or enhanced. Non-routine proposals concerning stockholder rights are made regularly by both management and stockholders. They can be generalized as involving issues that transfer or realign board or stockholder voting power. MCC Advisors typically would oppose any proposal aimed solely at thwarting potential takeovers by requiring, for example, super-majority approval. At the same time, MCC Advisors believes stability and continuity promote profitability. MCC Advisors’ guidelines in this area seek a balanced view and individual proposals will be carefully assessed in the context of their particular circumstances.
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If a vote may involve a material conflict of interest, prior to approving such vote, MCC Advisors must consult with its Chief Compliance Officer to determine whether the potential conflict is material and if so, the appropriate method to resolve such conflict. If the conflict is determined not to be material, MCC Advisors’ employees shall vote the proxy in accordance with MCC Advisors’ proxy voting policy.
Proxy Voting Records
You may obtain information about how we voted proxies by making a written request for proxy voting information to:
Chief Compliance Officer
Medley Capital Corporation
280 Park Avenue, 6th Floor East
New York, NY 10017
Other
Under the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, issue and sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities. However, we currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue shares of our common stock at a price below NAV per share.
In addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration.
We expect to be periodically examined by the SEC for compliance with the 1940 Act.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We and MCC Advisors adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We and MCC Advisors have designated a Chief Compliance Officer to be responsible for administering the policies and procedures.
Election to Be Taxed as a RIC
As a BDC, we have elected and qualified to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Distribution Requirement”).
Taxation as a RIC
As a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely distribute to stockholders. We will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed to our stockholders.
Medley Capital will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least the sum of 98% of its ordinary income in any calendar year, 98.2% of its capital gain net income for each one-year period ending on October 31, and any income and capital gain net income that the Company recognized in preceding years, but were not distributed during such years, and on which the Company did not pay U.S. federal income tax. Depending on the level of investment company taxable income (“ICTI”) earned in a tax year and the amount of net capital gains recognized in such tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. In order to eliminate our liability for income tax, and to the extent necessary to maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S. federal excise tax purposes, the Company accrues U.S. federal excise tax, if any, on estimated excess taxable income as taxable income is earned.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
•qualify to be treated as a BDC under the 1940 Act at all times during each taxable year;
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•derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”); and
•diversify our holdings so that at the end of each quarter of the taxable year:
•at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
•no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships (the “Diversification Tests”).
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income and franchise or withholding liabilities.
Any underwriting fees paid by us are not deductible. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Distribution Requirement, even though we will not have received any corresponding cash amount.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Business — Regulation — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Distribution Requirement or the excise tax requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Some of the income and fees that we may recognize will not satisfy the 90% Income Test. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay corporate level U.S. federal income tax on their earnings, which ultimately will reduce our return on such income and fees.
Failure to Qualify as a RIC
If we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent year we may be subject to regular corporate level U.S. federal income tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years.
Company Investments
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for purposes of the 90% annual gross income requirement described above. We will monitor our transactions and may make certain tax elections and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a RIC.
Investments we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount, timing and character of distributions to stockholders. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such income each year to avoid U.S. federal income and excise taxes. Since in certain circumstances we may recognize income before or without receiving cash representing
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such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S. federal income and excise taxes. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S. federal income tax.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long term or short term, depending on how long we held a particular warrant.
In the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. In that case, our yield on those securities would be decreased. We do not expect to satisfy the requirements necessary to pass through to our stockholders their share of the foreign taxes paid by us.
If we purchase shares in a ‘‘passive foreign investment company’’ (a ‘‘PFIC’’), we may be subject to U.S. federal income tax on a portion of any ‘‘excess distribution’’ or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us to our stockholders. Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such distributions or gains. If we invest in a PFIC and elect to treat the PFIC as a ‘‘qualified electing fund’’ under the Code (a ‘‘QEF’’), in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we can elect to mark-to-market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S. federal excise tax.
Income inclusions from a QEF will be ‘‘good income’’ for purposes of the 90% Income Test provided that they are derived in connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year in which the income is included in our income.
Item 1A. Risk Factors
Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Form 10-K, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. The risks described below, as well as additional risks and uncertainties presently unknown by us or currently not deemed significant could negatively affect our business, financial condition and results of operations. In such case, our NAV and the trading price of our common stock or other securities could decline, and you may lose all or part of your investment.
RISK RELATING TO OUR BUSINESS AND STRUCTURE
Certain Risks in the Current Environment
We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations.
From time to time, capital markets may experience periods of disruption and instability. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of coronavirus (“COVID-19”) that began in December 2019. Some economists and major investment banks have expressed concern that the continued spread of the COVID-19 globally could lead to a world-wide economic downturn. Even after the COVID-19 pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. The COVID-19 outbreak continues to have, and any future outbreaks could have, an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. With respect to the U.S. credit markets (in particular for middle market loans), the COVID-19 outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things: (i) increased draws by borrowers on revolving lines of credit and other financing instruments; (ii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iii) greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility; and (iv) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle-market businesses. These and future market disruptions and/or illiquidity could have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments. We may have to access, if available, alternative markets for debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.
For example, between 2008 and 2009, the U.S. and global capital markets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign governments, these events contributed to worsening
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general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our independent directors. Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. The current market and future market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in a rising interest rate environment. If any of these conditions appear, they may have an adverse effect on our business, financial condition, and results of operations. These events could limit our investment originations, limit our ability to increase returns to equity holders through the effective use of leverage, and negatively impact our operating results.
In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell our investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations.
Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity.
We also face an increased risk of investor, creditor or portfolio company disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on economic and market conditions.
Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.
Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies. In December 2019, COVID-19 surfaced in China and has since spread and continues to spread to other countries, including the United States. COVID-19 spread quickly and has been identified as a global pandemic by the World Health Organization The COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. In response, beginning in March 2020, in affected jurisdiction including the United States, unprecedented actions were and continue to be taken by governmental authorities and businesses, including quarantines, “stay at home” orders, travel and hospitality restrictions and bans, and the temporary closures and limited operations of many businesses (including corporate offices, retail stores, restaurants, fitness clubs, manufacturing facilities and factories, and other businesses). The actions to contain the COVID-19 pandemic vary by country and by state in the United States. COVID-19 has caused the effective cessation of all business activity deemed non-essential by such governmental authorities. While certain state and local governments across the United States have taken steps to re-open their economies by lifting “stay at home” orders and re-opening businesses, a number of states and local governments have needed to pause or slow the re-opening or impose new shut-down orders as the number of cases of COVID-19 has continued to rise. COVID-19 and the resulting economic dislocations have had and continue to have adverse consequences for the business operations and financial performance of some of our portfolio companies, which may, in turn impact the valuation of our investments and have adversely affected, and threaten to continue to adversely affect, our operations. Local, state and federal and numerous non-U.S. governmental authorities have imposed travel and hospitality restrictions and bans, business closures or limited business operations and other quarantine measures on businesses and individuals that remain in effect on the date of this Annual Report on Form 10-K. We cannot predict the full impact of COVID-19, including the duration and the impact of the closures and restrictions described above. As a result, we are unable to predict the duration of these business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. With respect to loans to portfolio companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for PIK interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business, or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause. Portfolio companies may also be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is heightened during such periods. Depending on the duration and extent of the disruption to the business operations of our portfolio companies, we expect some portfolio companies, particularly those in vulnerable industries, such as travel and hospitality, to experience financial distress and possibly to default on their financial obligations to us and/or their other capital providers. In addition, if such portfolio companies are subjected to prolonged and severe financial distress, we expect some of them to substantially curtail their operations, defer capital expenditures and lay off workers. These developments would be likely to permanently impair their businesses and result in a reduction in the value of our investments in them.
The Company will also be negatively affected if the operations and effectiveness of MCC Advisors or our portfolio companies (or any of the key personnel or service providers of the foregoing) are compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to business operations.
Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events
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that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the U.S. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
For example, the COVID-19 pandemic outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. The COVID-19 pandemic has impacted the U.S. credit markets (in particular for middle market loans). See “We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations” and “Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.”
Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our portfolio companies and, in many instances, the impact will be adverse and profound. The effects of the COVID-19 pandemic may materially and adversely impact (i) the value and performance of us and our portfolio companies, (ii) the ability of our borrowers to continue to meet loan covenants or repay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to repay debt obligations, on a timely basis or at all, or (iv) our ability to source, manage and divest investments and achieve our investment objectives, all of which could result in significant losses to us.
Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. The recent global outbreak of COVID-19 has disrupted economic markets, and the prolonged economic impact is uncertain. Many manufacturers of goods in China and other countries in Asia have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness. As the impact of COVID-19 spreads to other parts of the world, similar impacts may occur with respect to affected countries. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty surrounding the negotiation of trade deals between Britain and the European Union following the United Kingdom’s exit from the European Union and uncertainty between the United States and other countries, including China, with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future.
In an economic downturn, we may have non-performing assets or non-performing assets may increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our loans. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.
The occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and
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could further impact our ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition.
Risks Related to Our Business
We have determined to internalize our operating structure, including our management and investment functions, with the expectation that we will be able to operate more efficiently with lower costs, but this may not be the case.
On November 18, 2020, the board of directors approved adoption of an internalized management structure, effective January 1, 2021. There can be no assurances that internalizing our management structure will be beneficial to us and our stockholders, as we may incur the costs and experience the risks discussed below, and we may not be able to effectively replicate the services previously provided to us by our former investment adviser and administrator, MCC Advisors.
While we will no longer bear the costs of the various fees and expenses we previously paid to MCC Advisors under their investment management and administration agreements, our direct expenses will substantially increase. These will include general and administrative costs, legal, accounting and other governance expenses, SEC reporting and compliance costs, and costs and expenses related to managing our portfolio. Certain of these costs may be greater during the early stages of the transition process. We will also incur the compensation and benefits costs of our officers and other employees and consultants. In addition, we may be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances.
We may also experience operational disruptions as we transition from external to internal management, and we could fail to effectively manage our internalization over the longer term, all of which could adversely affect our performance.
If the expenses we incur as a result of our internalization are higher than the expenses we would have paid and/or reimbursed to MCC Advisors, our earnings per share may be lower, potentially decreasing the funds available for distribution, and our share value could suffer.
As an internally managed BDC, we will become dependent upon our management team and other professionals, and if we are not able to hire and retain qualified personnel, we will not realize the anticipated benefits of the internalization.
Our ability to achieve our investment objectives and to make distributions to our stockholders will depend upon the performance of our management team and professionals. In connection with internalizing our operating structure, we may experience difficulty identifying, engaging and retaining management, investment and general and administrative personnel, with the necessary expertise and credit-related investment experience.
As an internally managed BDC, our ability to offer more competitive and flexible compensation structures, such as offering both a profit-sharing plan and an equity incentive plan, will be subject to the limitations imposed by the 1940 Act, which could limit our ability to attract and retain talented investment management professionals.
If we are unable to attract and retain the necessary talent required to internally manage our Company, we will not realize the anticipated benefits of the internalization, and the results of our operation could deteriorate.
We may suffer credit losses.
Private debt in the form of secured loans to corporate and asset-based borrowers is highly speculative and involves a high degree of risk of credit loss, and therefore an investment in our securities may not be suitable for someone with a low tolerance for risk. These risks are likely to increase during an economic recession, such as the economic recession or downturn that the United States and many other countries have recently experienced or are experiencing.
Because we use borrowed funds to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk of investing in us.
We have borrowed funds, including through the issuance of $77.8 million and $74.0 million in aggregate principal amount of 6.125% unsecured notes due March 30, 2023 (the "2023 Notes") and 6.50% unsecured notes due January 30, 2021 (the "2021 Notes" and together with the 2023 Notes, the "Notes"), respectively, to leverage our capital structure, which is generally considered a speculative investment technique. In addition, although we voluntarily satisfied and terminated our Revolving Credit Facility in September 2018, we may replace the facility with another revolving or other credit facility. As a result:
•our common stock may be exposed to an increased risk of loss because a decrease in the value of our investments may have a greater negative impact on the value of our common stock than if we did not use leverage;
•if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;
•our ability to pay distributions on our common stock may be restricted if our asset coverage ratio with respect to each of our outstanding senior securities representing indebtedness and our outstanding preferred shares, as defined by the 1940 Act, is not at least 200% and any amounts used to service indebtedness or preferred stock would not be available for such distributions;
•any credit facility to which we became a party may be subject to periodic renewal by our lenders, whose continued participation cannot be guaranteed;
•any credit facility to which we became a party may contain covenants restricting our operating flexibility;
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•we, and indirectly our stockholders, bear the cost of issuing and paying interest or dividends on such securities; and
•any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common shares.
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt securities or preferred stock and/or borrow money from banks and other financial institutions, which we collectively refer to as “senior securities”, only in amounts such that our asset coverage ratio equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after each issuance of senior securities.
For a discussion of the terms of the Notes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources.”
As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
The lack of liquidity in our investments may adversely affect our business.
We anticipate that our investments generally will be made in private companies. Substantially all of these securities will be subject to legal and other restrictions on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or MCC Advisors has material non-public information regarding such portfolio company.
A substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments.
The debt and equity securities in which we invest for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of our board of directors. Most, if not all, of our investments (other than cash and cash equivalents) will be classified as Level 3 under Accounting Standards Codification Topic 820 - Fair Value Measurements and Disclosures. This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. We have retained the services of independent valuation firms to review the valuation of these loans and securities. The types of factors that our board of directors may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such loans and securities.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. We also have not adopted any policy restricting the percentage of our assets that may be invested in a single portfolio company. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our income tax diversification requirements under Subchapter M of the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
Our ability to enter into transactions with our affiliates will be restricted, which may limit the scope of investments available to us.
We are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our independent directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company, without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by our investment adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
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We may, however, co-invest with our investment adviser and its affiliates’ other clients in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations. For example, we may co-invest with such accounts consistent with guidance promulgated by the SEC staff permitting us and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that MCC Advisors, acting on our behalf and on behalf of other clients, negotiates no term other than price. We may also co-invest with our investment adviser’s other clients as otherwise permissible under regulatory guidance, applicable regulations and MCC Advisors’ allocation policy. Under this allocation policy, a fixed percentage of each opportunity, which may vary based on asset class and from time to time, will be offered to us and similar eligible accounts, as periodically determined by MCC Advisors and approved by our board of directors, including our independent directors. The allocation policy further provides that allocations among us and these other accounts will generally be made pro rata based on each account’s capital available for investment, as determined, in our case, by MCC Advisors. It is our policy to base our determinations as to the amount of capital available for investment based on such factors as the amount of cash on-hand, existing commitments and reserves, if any, the targeted leverage level, the targeted asset mix and diversification requirements and other investment policies and restrictions set by our board of directors or imposed by applicable laws, rules, regulations or interpretations. We expect that these determinations will be made similarly for other accounts. However, we can offer no assurance that investment opportunities will be allocated to us fairly or equitably in the short-term or over time.
In addition, we have received an order from the SEC that permits us to negotiate the terms of co-investments with other funds managed by MCC Advisors or its affiliates subject to the conditions included therein. In situations where co-investment with other funds managed by MCC Advisors or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between our interests and those of other MCC Advisors clients, MCC Advisors will need to decide which client will proceed with the investment. MCC Advisors will make these determinations based on its policies and procedures, which generally require that such opportunities be offered to eligible accounts on an alternating basis that will be fair and equitable over time. Moreover, except in certain circumstances, we will be unable to invest in any issuer in which a fund managed by MCC Advisors or its affiliates has previously invested. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.
We will be exposed to risks associated with changes in interest rates.
Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.
Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio.
In the recent past, concerns have been publicized that some of the member banks surveyed by British Bankers’ Association (“BBA”) in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivative positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.
Actions by the ICE Benchmark Administration, regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. Potential changes, or uncertainty related to such potential changes may adversely affect the market LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.
On July 27, 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. We have exposure to LIBOR, including in financial instruments that mature after 2021. Our exposure arises from the value of our portfolio of LIBOR-indexed, floating-rate debt securities.
In the United States, the U.S. Federal Reserve Board and the Federal Reserve Bank of New York, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities called the Secured Overnight Financing Rate (“SOFR”). The Federal Reserve Bank of New York began publishing SOFR in April 2018. In addition, on March 25, 2020, the U.K. Financial Conduct Authority stated that, although the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed, the outbreak of COVID-19 has impacted the timing of many firms’ transition planning, and the U.K. Financial Conduct Authority will continue to assess the impact of the COVID-19 outbreak on transition timelines and update the marketplace as soon as possible. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere or, whether the COVID-19 outbreak will have further effect on LIBOR transition plans. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.
The Company intends to monitor the developments with respect to the scheduled phasing out of LIBOR after 2021 and work with its portfolio companies and lenders to ensure such transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
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Because we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income in the event we use our existing debt to finance our investments. In periods of rising interest rates, our cost of funds will increase to the extent we access any credit facility with a floating interest rate, which could reduce our net investment income to the extent any debt investments have fixed interest rates. We expect that our long-term fixed-rate investments will be financed primarily with issuances of equity and long-term debt securities. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.
You should also be aware that a rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates may result in an increase of the amount of incentive fees payable to MCC Advisors.
If our investments are not managed effectively, we may be unable to achieve our investment objective.
Our ability to achieve our investment objective will depend on our ability to manage our business, which, prior to the internalization of our management and investment functions that will become effective on January 1, 2021, depended, in turn, on the ability of MCC Advisors to identify, invest in and monitor companies that meet our investment criteria. MCC Advisors’ senior management team is comprised of members of the senior management team for Medley LLC, and they manage other investment funds.
Following the internalization, our ability to manage our business will depend on the new internalized management team. Accomplishing this result largely will be a function of the internalized management team's ability to provide quality and efficient services to us. They may also be required to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow our rate of investment. Any failure to manage our business effectively could have a material adverse effect on our business, financial condition and results of operations.
We may experience fluctuations in our periodic operating results.
We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rate on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates payable on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more onerous regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For U.S. federal income tax purposes, we may include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, such as PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances as a result of PIK arrangements are included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do not receive in cash.
Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to maintain our tax treatment as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to raise cash from other sources, we may fail to qualify and maintain our tax treatment as a RIC and thus become subject to corporate-level U.S. federal income tax. See “Tax Matters - Taxation of the Company”.
We may be required to pay incentive fees on income accrued, but not yet received in cash.
That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash, such as market discount, debt instruments with PIK, interest, preferred stock with PIK dividends and zero coupon securities. If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. Consequently, we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a clawback right against MCC Advisors.
We may not be able to pay you distributions and our distributions may not grow over time.
When possible, we intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay distributions. As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the
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minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from making distributions to stockholders. All distributions will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations, and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future.
The highly competitive market in which we operate may limit our investment opportunities.
A number of entities compete with us to make the types of investments that we make. We compete with other BDCs and investment funds (including public and private funds, commercial and investment banks, commercial financing companies, other SBICs and, to the extent they provide an alternative form of financing, private equity funds). Additionally, because competition for investment opportunities generally has increased among alternative investment vehicles, such as hedge funds, those entities have begun to invest in areas in which they have not traditionally invested. As a result of these new entrants, competition for investment opportunities has intensified in recent years and may intensify further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC and the tax consequences of qualifying as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. A significant part of our competitive advantage stems from the fact that the market for investments in mid-sized companies is underserved by traditional commercial banks and other financial institutions. A significant increase in the number and/or size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under the regulatory restrictions of the 1940 Act.
Because we expect to distribute substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to finance our growth and such capital may not be available on favorable terms or at all.
We have elected and qualified to be taxed for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we must meet certain requirements, including source-of-income, asset diversification and distribution requirements in order to not have to pay corporate-level U.S. on income we distribute to our stockholders as distributions, which allows us to substantially reduce or eliminate our corporate-level U.S. federal income tax liability. As a BDC, we are generally required to meet a coverage ratio of total assets to total senior securities, which includes all of our borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) at the time we issue any debt or preferred stock. This requirement limits the amount of our leverage. Because we will continue to need capital to grow our investment portfolio, this limitation may prevent us from incurring debt or issuing preferred stock and require us to raise additional equity at a time when it may be disadvantageous to do so. We cannot assure you that debt and equity financing will be available to us on favorable terms, or at all, and debt financings may be restricted by the terms of any of our outstanding borrowings. In addition, as a BDC, we are generally not permitted to issue common stock priced below NAV without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new lending and investment activities, and our NAV could decline.
Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.
Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results or value of our stock. Nevertheless, the effects could adversely affect our business and impact our ability to make distributions and cause you to lose all or part of your investment.
There are significant potential conflicts of interest that could affect our investment returns.
There may be times when MCC Advisors, its senior management and Investment Team, and members of its Investment Committee have interests that differ from those of our stockholders, giving rise to a conflict of interest. In particular, certain private investment funds managed by the senior members of MCC Advisors hold controlling or minority equity interests, or have the right to acquire such equity interests, in some of our portfolio companies. As a result, the senior members of MCC Advisors may face conflicts of interest in connection with making business decisions for these portfolio companies to the extent that such decisions affect the debt and equity holders in these portfolio companies differently. In addition, the senior members of MCC Advisors may face conflicts of interests in connection with making investment or other decisions, including granting loan waivers or concessions on our behalf with respect to these portfolio companies given that they also manage private investment funds that hold the equity interests in these portfolio companies.
There may be conflicts of interest related to obligations MCC Advisors’ senior management and Investment Team and members of its Investment Committee have to other clients.
Senior management, the Investment Team, and the Investment Committee of MCC Advisors serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds managed by MCC Advisors or its affiliates. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in our best
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interests or in the best interest of our stockholders. For example, members of the Investment Team have management responsibilities for other investment funds, accounts or other investment vehicles managed by affiliates of MCC Advisors, which gives rise to conflicts of interest.
Our investment objective may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. For example, affiliates of MCC Advisors currently manage private funds and managed accounts that are seeking new capital commitments and will pursue an investment strategy similar to our strategy, and we may compete with these and other entities managed by affiliates of MCC Advisors for capital and investment opportunities. As a result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by principals of, or affiliated with, MCC Advisors.
We have received an order from the SEC which permits us to co-invest with certain other investment funds managed by MCC Advisors or its affiliates, subject to the conditions included therein. In situations where we cannot co-invest with other investment funds managed by MCC Advisors or its affiliates, the investment policies and procedures of MCC Advisors generally require that such opportunities be offered to us and such other investment funds on an alternating basis. However, there can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
MCC Advisors may, from time to time, possess material non-public information, limiting our investment discretion.
MCC Advisors and members of its senior management and the Investment Team and the Investment Committee may serve as directors of, or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to such companies, we could be prohibited for a period of time from purchasing or selling the securities of such companies by law or otherwise, and this prohibition may have an adverse effect on us.
Our incentive fee structure may create incentives for MCC Advisors that are not fully aligned with the interests of our stockholders.
In the course of our investing activities, we will pay management and incentive fees to MCC Advisors. These fees are based on our gross assets. As a result, investors in our common stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than one might achieve through direct investments. Because these fees are based on our gross assets, MCC Advisors will benefit when we incur debt or use leverage. Additionally, under the incentive fee structure, MCC Advisors may benefit when capital gains are recognized and, because MCC Advisors determines when a holding is sold, MCC Advisors controls the timing of the recognition of such capital gains. Our board of directors is charged with protecting our interests by monitoring how MCC Advisors addresses these and other conflicts of interests associated with its management services and compensation. While they are not expected to review or approve each borrowing or incurrence of leverage, our independent directors will periodically review MCC Advisors’ services and fees as well as its portfolio management decisions and portfolio performance. In connection with these reviews, our independent directors will consider whether our fees and expenses (including those related to leverage) remain appropriate. As a result of this arrangement, MCC Advisors or its affiliates may from time to time have interests that differ from those of our stockholders, giving rise to a conflict.
The part of the incentive fee payable to MCC Advisors that relates to our net investment income will be computed and paid on income that may include interest income that has been accrued but not yet received in cash. This fee structure may be considered to involve a conflict of interest for MCC Advisors to the extent that it may encourage MCC Advisors to favor debt financings that provide for deferred interest, rather than current cash payments of interest. MCC Advisors may have an incentive to invest in deferred interest securities in circumstances where it would not have done so but for the opportunity to continue to earn the incentive fee even when the issuers of the deferred interest securities would not be able to make actual cash payments to us on such securities. This risk could be increased because MCC Advisors is not obligated to reimburse us for any incentive fees received even if we subsequently incur losses or never receive in cash the deferred income that was previously accrued.
Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us.
Borrowings, also known as leverage, magnify the potential for loss on invested equity capital. If we use leverage to partially finance our investments, which we have done historically, you will experience increased risks of investing in our securities. We issued the Notes and may issue other debt securities or enter into other types of borrowing arrangements in the future. If the value of our assets decreases, leveraging would cause our NAV to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock distributions or scheduled debt payments. Leverage is generally considered a speculative investment technique and we only intend to use leverage if expected returns will exceed the cost of borrowing.
As of September 30, 2020, there was $151.9 million of outstanding Notes. The weighted average interest rate charged on our borrowings as of September 30, 2020 was 6.4% (exclusive of debt issuance costs). We will need to generate sufficient cash flow to make these required interest payments. In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on total assets of at least 3.9% as of September 30, 2020. If we are unable to meet the financial obligations under the Notes, the holders thereof will have the right to declare the principal amount and accrued and unpaid interest on the outstanding Notes to be due and payable immediately. If we are unable to meet the financial obligations under any credit facility we enter into, the lenders thereunder would likely have a superior claim to our assets over our stockholders.
Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.
Assumed Return on Our Portfolio(1)
(net of expenses)
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| (10)% |  | (5)% |  | 0% |  | 5% |  | 10%
Corresponding net return to common stockholder | (26.8) | % |  | (16.6) | % |  | (6.4) | % |  | 3.7 | % |  | 13.9 | %

(1)Assumes $306.1 million in total assets, $151.9 million in debt outstanding, $150.6 million in net assets, and a weighted average interest rate of 6.4%. Actual interest payments may be different.
Our incentive fee may induce our investment adviser to make certain investments, including speculative investments.
The incentive fee payable by us to MCC Advisors may create an incentive for MCC Advisors to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to MCC Advisors is determined, which is calculated separately in two components as a percentage of the interest and other ordinary income in excess of a quarterly minimum hurdle rate and as a percentage of the realized gain on invested capital, may encourage MCC Advisors to use leverage or take additional risk to increase the return on our investments. The use of leverage may magnify the potential for gain or loss on amounts invested. The use of leverage is considered a speculative technique. If we borrow from banks or other lenders, we would expect that such lenders will seek recovery against our assets in the event of a default and these lenders likely will have claims on our assets that are superior to those of our equity holders. In addition, MCC Advisors receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on income, there is no minimum level of gain applicable to the portion of the incentive fee based on net capital gains. As a result, MCC Advisors may have an incentive to invest more in investments that are likely to result in capital gains as compared to income producing securities. This practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.
We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to MCC Advisors with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management and incentive fee of MCC Advisors as well as indirectly bear the management and performance fees and other expenses of any investment companies in which we invest.
We may be obligated to pay our investment adviser incentive compensation even if we incur a loss and may pay more than 20% of our net capital gains because we cannot recover payments made in previous years.
MCC Advisors will be entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our net investment income for that quarter above a threshold return for that quarter. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay MCC Advisors incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. If we pay an incentive fee of 20% of our realized capital gains (net of all realized capital losses and unrealized capital depreciation on a cumulative basis) and thereafter experience additional realized capital losses or unrealized capital depreciation, we will not be able to recover any portion of the incentive fee previously paid.
The valuation process for certain of our portfolio holdings creates a conflict of interest.
A substantial portion of our portfolio investments are expected to be made in the form of securities that are not publicly traded. As a result, our board of directors will determine the fair value of these securities in good faith pursuant to our valuation policy. In connection with that determination, investment professionals from MCC Advisors prepare portfolio company valuations based upon the most recent financial statements available and projected financial results of each portfolio company. In addition, certain members of our board of directors, including Brook Taube and Seth Taube, have a pecuniary interest in MCC Advisors. The participation of MCC Advisors’ investment professionals in our valuation process, and the pecuniary interest in MCC Advisors by certain members of our board of directors, could result in a conflict of interest as the management fee that we will pay MCC Advisors is based on our gross assets.
Other arrangements with MCC Advisors may create conflicts of interest.
We utilize MCC Advisors’ office space and pay to MCC Advisors our allocable portion of overhead and other expenses incurred by MCC Advisors in performing its obligations under the administration agreement, such as our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. This results in conflicts of interest that our board of directors must monitor.
The investment management agreement and administration agreement with MCC Advisors were not negotiated on an arm’s length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
The investment management agreement and the administration agreement were negotiated between related parties. Consequently, their terms, including fees payable to MCC Advisors, may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
Our ability to sell or otherwise exit investments in which affiliates of MCC Advisors also have an investment may be restricted.
We may be considered affiliates with respect to certain of our portfolio companies. Certain private funds advised by the senior members of MCC Advisors also hold interests in these portfolio companies and as such these interests may be considered a joint enterprise under applicable regulations. To the extent that our interests in these portfolio companies may need to be restructured in the future or to the extent that we choose to exit certain of these transactions, our ability to do so will be limited.
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We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions.
Our business is highly dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:
•sudden electrical or telecommunications outages;
•natural disasters such as earthquakes, tornadoes and hurricanes;
•disease pandemics (including the COVID-19 outbreak);
•events arising from local or larger scale political or social matters, including terrorist acts; and
•cyber-attacks.
These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders.
A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.
The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data.
We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering, malware and computer virus attacks, or system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation.
Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. Cybersecurity failures or breaches by our investment adviser and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, also have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputation damages, reimbursement of other compensation costs, or additional compliance costs. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.
Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks. We currently do not maintain insurance coverage relating to cybersecurity risks, and we may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully insured.
We and our service providers are currently impacted by quarantines and similar measures being enacted by governments in response to COVID-19, which are obstructing the regular functioning of business work forces (including requiring employees to work from external locations and their homes). Accordingly, the risks described above are heightened under current conditions.
Our business and operations could be negatively affected if we become subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution of investment strategy and impact our stock price.
In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist
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stockholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.
Risks Related to Our Investments
We may not realize gains from our equity investments.
When we make a debt investment, we may acquire warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
Our investments are very risky and highly speculative.
We invest primarily in senior secured first lien term loans and senior secured second lien term loans issued by private middle-market companies.
Senior Secured Loans There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.
Equity Investments When we invest in senior secured first lien term loans or senior secured second lien term loans, we may receive warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. The warrants or equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our warrants or equity interests, and any gains that we do realize on the disposition of any warrants or equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in private middle-market companies involves a number of significant risks. See “Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment” below.
Our investments in private middle-market portfolio companies may be risky, and you could lose all or part of your investment.
Investments in private middle-market companies involve a number of significant risks. Generally, little public information exists about these companies, and we are required to rely on the ability of the Investment Team to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Private middle-market companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, private middle-market companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. Private middle-market companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and MCC Advisors may, in the ordinary course of business, be named as defendants in litigation arising from our investments in these types of companies.
We intend to invest primarily in secured debt issued by our portfolio companies. In the case of our senior secured first lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with the debt securities in which we invest. With respect to our senior secured second lien term loans, the portfolio companies usually have, or may be permitted to incur, other debt that ranks above or equally with the debt securities in which we invest. In the case of debt ranking above the senior secured second lien term loans in which we invest, we would be subordinate to such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company and therefore the holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the
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loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: (1) the ability to cause the commencement of enforcement proceedings against the collateral; (2) the ability to control the conduct of such proceedings; (3) the approval of amendments to collateral documents; (4) releases of liens on the collateral; and (5) waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
Continuation of the current decline in oil and natural gas prices for a prolonged period of time could have a material adverse effect on the Company.
As of September 30, 2020, approximately 2.3% of our portfolio at fair value is invested in energy-related businesses. A decline in oil and natural gas prices would adversely affect the credit quality of these investments. A decrease in credit quality would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect the Company's financial position and results of operations. Should the current decline in oil and natural gas prices persist, it is likely that the Company's energy-related portfolio companies' abilities to satisfy financial or operating covenants imposed by the Company or other lenders will be adversely affected, thereby negatively impacting the Company's financial condition and their ability to satisfy their debt service and other obligations to the Company. The COVID-19 outbreak has adversely impacted energy-related businesses and accordingly the foregoing risks are heightened under the current conditions.
Our portfolio companies may prepay loans, which prepayment may reduce stated yields if capital returned cannot be invested in transactions with equal or greater expected yields.
Our loans to portfolio companies are prepayable at any time, and most of them at no premium to par. It is uncertain as to when each loan may be prepaid. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such company the ability to replace existing financing with less expensive capital. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for us below the stated yield to maturity contained herein if the capital returned cannot be invested in transactions with equal or greater expected yields.
We may acquire indirect interests in loans rather than direct interests, which would subject us to additional risk.
We may make or acquire loans or investments through participation agreements. A participation agreement typically results in a contractual relationship only with the counterparty to the participation agreement and not with the borrower. MCC Advisors has adopted best execution procedures and guidelines to mitigate credit and counterparty risk when we acquire a loan through a participation agreement. In investing through participations, we will generally not have a right to enforce compliance by the borrower with the terms of the loan agreement against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, we will be exposed to the credit risk of both the borrower and the counterparty selling the participation. In the event of insolvency of the counterparty, we, by virtue of holding participation interests in the loan, may be treated as its general unsecured creditor. In addition, although we may have certain contractual rights under the loan participation that require the counterparty to obtain our consent prior to taking various actions relating to the loan, we cannot guarantee that the counterparty will seek such consent prior to taking various actions. Further, in investing through participation agreements, we may not be able to conduct the due diligence on the borrower or the quality of the loan with respect to which it is buying a participation that we would otherwise conduct if we were investing directly in the loan, which may result in us being exposed to greater credit or fraud risk with respect to the borrower or the loan than we expected when initially purchasing the participation. See “Risks Related to Our Business - There are significant potential conflicts of interest that could affect our investment returns” above.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted.
Following an initial investment in a portfolio company, provided that there are no restrictions imposed by the 1940 Act, we may make additional investments in that portfolio company as “follow-on” investments in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our initial investment.
We have the discretion to make any follow-on investments, subject to the availability of capital resources. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Our failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our RIC tax treatment. We also may be restricted from making follow-on investments in certain portfolio companies to the extent that affiliates of ours hold interests in such companies.
Our ability to invest in public companies may be limited in certain circumstances.
To maintain our tax treatment as a BDC, we are not permitted to acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange
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may be treated as qualifying assets only if such issuer has a market capitalization that is less than $250 million at the time of such investment. In addition, we may invest up to 30% of our portfolio in opportunistic investments which will be intended to diversify or complement the remainder of our portfolio and to enhance our returns to stockholders. These investments may include private equity investments, securities of public companies that are broadly traded and securities of non-U.S. companies. We expect that these public companies generally will have debt securities that are non-investment grade.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
Although it is anticipated that most of our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability.
Hedging transactions may expose us to additional risks.
We may engage in currency or interest rate hedging transactions. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transaction may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.
While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek or be able to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.
The disposition of our investments may result in contingent liabilities.
We currently expect that a significant portion of our investments will involve lending directly to private companies. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us.
If we invest in the securities and obligations of distressed and bankrupt issuers, we might not receive interest or other payments.
We may invest in the securities and obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer of those obligations might not make any interest or other payments. We may not realize gains from our equity investments.
Risks Related to Our Operations as a BDC and a RIC
Regulations governing our operation as a BDC may limit our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition and results of operations.
Our business requires a substantial amount of capital to operate and grow. We may acquire additional capital from the issuance of senior securities (including debt and preferred stock), the issuance of additional shares of our common stock or from securitization transactions. However, we may not be able to raise additional capital in the future on favorable terms or at all. Additionally, we may only issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such issuance or incurrence. If our assets decline in value and we fail to satisfy this test, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial condition and results of operations. As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from
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making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
•Senior Securities. As a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred securities, such securities would rank “senior” to common stock in our capital structure, resulting in preferred stockholders having separate voting rights and possibly rights, preferences or privileges more favorable than those granted to holders of our common stock. Furthermore, the issuance of preferred securities could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for our common stockholders or otherwise be in your best interest.
•Additional Common Stock. Our board of directors may decide to issue common stock to finance our operations rather than issuing debt or other senior securities. As a BDC, we are generally not able to issue our common stock at a price below NAV without first obtaining required approvals from our stockholders and our independent directors. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities at the relevant time. We may also make rights offerings to our stockholders at prices per share less than the NAV per share, subject to the requirements of the 1940 Act. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease, and such stockholders may experience dilution.
Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect on our business, results of operations or financial condition.
Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties.
The impact of financial reform legislation on us is uncertain.
The Dodd-Frank Reform Act became effective on July 21, 2010. Many provisions of the Dodd-Frank Reform Act have delayed effective dates or have required extensive rulemaking by regulatory authorities. The recent presidential and congressional elections may cause uncertainty regarding the implementation of the Dodd-Frank Reform Act and other financial reform rulemaking. Given the uncertainty associated with the manner in which and whether the provisions of the Dodd-Frank Act will be implemented, repealed, amended, or replaced, the full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act or any changes to the regulations already implemented thereunder may require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations or financial condition. While we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially adverse to us and our stockholders.
We cannot predict how tax reform legislation will affect the Company, our investments, or our stockholders, and any such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on the Company. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Congress passed tax reform legislation in December 2017, which the President signed into law. This legislation made many changes to the Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Stockholders are urged to consult with their tax advisors regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
Legislation that became effective in 2018 may allow the Company to incur additional leverage, which could increase the risk of investing in the Company.
The 1940 Act generally prohibits the Company from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of MCC’s assets). However, in March 2018, the SBCA was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150%, if certain requirements are met. Under the 1940 Act, the Company is allowed to increase its leverage capacity if our stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Acts allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such proposal. In either case, we would be required to make certain disclosures on
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our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.
Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, our stockholders will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the NAV attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect the Company’s ability to pay common stock dividends, scheduled debt payments or other payments related to our securities.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. See “Regulation”. Our intent is that a substantial portion of the investments that we acquire will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs and possibly lose our tax treatment as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
We will become subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a regulated investment company under Subchapter M of the Code or satisfy regulated investment company distribution requirements.
We have elected, and intend to qualify annually thereafter, to be treated as a RIC under Subchapter M of the Code. No assurance can be given that we will be able to maintain our qualification as a RIC. To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
•The annual distribution requirement for a RIC is satisfied if we timely distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized short-term capital gains in excess of realized net long-term capital losses. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income.
•The source of income requirement is satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code), or the 90% Income Test.
•The asset diversification requirement is satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”). In addition, no more than 25% of the value of our assets can be invested in the securities, other than U.S Government securities or securities of other RICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships,” or the Diversification Tests.
If we fail to qualify for RIC tax treatment for any reason or are subject to corporate-level U.S. federal income tax, the resulting corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, to the extent we had unrealized gains, we would have to establish deferred tax liabilities for taxes, which would reduce our NAV accordingly. In addition, our stockholders would lose the tax credit realized when we, as a RIC, decide to retain the net realized capital gain and make deemed distributions of net realized capital gains, and pay taxes on behalf of our stockholders at the end of the tax year. The loss of this pass-through tax treatment could have a material adverse effect on the total return of an investment in our common stock
Risks Relating to an Investment in Our Securities
Investing in our securities may involve an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk and, therefore, an investment in our securities may not be suitable for someone with lower risk tolerance.
Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount to their NAV.
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Shares of closed-end investment companies, including business development companies, may, at times, trade at a discount from NAV. This characteristic of closed-end investment companies and business development companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our common stock will trade at, above or below NAV.
The market price of our common stock may fluctuate significantly.
The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
•significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of the companies;
•changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to BDCs or RICs;
•loss of our qualification as a RIC or BDC;
•changes in earnings or variations in operating results;
•changes in the value of our portfolio of investments;
•changes in accounting guidelines governing valuation of our investments;
•any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;
•departure of MCC Advisors’ or any of its affiliates’ key personnel;
•operating performance of companies comparable to us;
•general economic trends and other external factors;
•loss of a major funding source; and
•the length and duration of the COVID-19 outbreak in the U.S. as well as worldwide and the magnitude of the economic impact of that outbreak.
Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.
Sales of substantial amounts of our common stock, or the availability of such common stock for sale, could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.
Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
The Delaware General Corporation Law, our certificate of incorporation and our bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock.
The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to subscribe for or convertible into shares of our common stock.
While we currently do not have the requisite stockholder approval to sell shares of our common stock at a price or prices below our then current NAV per share, we may seek such approval in the future. In addition, at our 2012 Annual Meeting of Stockholders, we received approval from our stockholders to authorize the Company, with the approval of our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set forth in the proxy statement. Such authorization has no expiration.
Any decision to sell shares of our common stock below its then current NAV per share or issue securities to subscribe for or convertible into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests.
If we were to sell shares of our common stock below its then current NAV per share, such sales would result in an immediate dilution to the NAV per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.
If we issue warrants or securities to subscribe for or convertible into shares of our common stock, subject to certain limitations, the exercise or conversion price per share could be less than NAV per share at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of the NAV
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per share at the time of exercise or conversion. This dilution would include reduction in NAV per share as a result of the proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest than the increase in our assets resulting from such issuance.
Further, if our current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above or below the then current NAV per share, their voting power will be diluted. For example, if we sell an additional 10% of our shares of common stock at a 5% discount from NAV, a stockholder who does not participate in that offering for its proportionate interest will suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV.
The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
The Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of the Company and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiary we may acquire or create in the future. Any assets of our subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish. Although our subsidiaries currently do not have any indebtedness outstanding, they may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.
The indenture under which the Notes were issued contains limited protection for holders of the Notes.
The indenture under which the Notes were issued offers limited protection to holders of the Notes. The terms of the indenture and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes place no restrictions on our or our subsidiaries’ ability to:
•issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a)(1) of the 1940 Act, or any successor provisions. These provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowings. As of September 30, 2020 the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company is prohibited from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities;
•pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) of the 1940 Act, as modified by Section 61(a)(1) of the 1940 Act, or any successor provisions. These provisions generally prohibit us from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock if our asset coverage, as defined in the 1940 Act, is below 200% at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase. As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company is prohibited from declaring any cash dividend or distribution upon any class of our capital stock, or purchasing any such capital stock;
•sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);
•enter into transactions with affiliates;
•create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;
•make investments; or
•create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
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In addition, the indenture does not require us to offer to purchase the Notes in connection with a change of control or any other event.
Furthermore, the terms of the indenture and the Notes generally do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity other than as described under the indenture. Any changes, while unlikely, to the financial tests in the 1940 Act could affect the terms of the Notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes. Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
An active trading market for the Notes may not develop or be sustained, which could limit the market price of the Notes or your ability to sell them.
Although the Notes are listed on the New York Stock Exchange ("NYSE") under the symbols “MCV,” in the case of the 2023 Notes, and “MCX,” in the case of the 2021 Notes, we cannot provide any assurances that an active trading market will develop or be sustained for the Notes or that you will be able to sell your Notes. At various times, the Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. To the extent an active trading market is not sustained, the liquidity and trading price for the Notes may be harmed.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
Any default under the agreements governing our indebtedness that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the debt that we may incur in the future to avoid being in default. If we breach our covenants under our debt and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under such debt, the lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt. Because any future credit facility will likely have customary cross-default provisions, if the indebtedness under the Notes or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.
If we issue preferred stock, the NAV and market value of our common stock may become more volatile.
If we issue preferred stock, we cannot assure you that such issuance would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock would likely cause the NAV and market value of our common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of our common stock than if we had not issued preferred stock. Any decline in the NAV of our investments would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in NAV to the holders of our common stock than if we were not leveraged through the issuance of preferred stock. This greater NAV decrease would also tend to cause a greater decline in the market price for our common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of our common stock and may at times have disproportionate influence over our affairs.
Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.
Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors at all times and in the event dividends become two full years in arrears, would have the right to elect a majority of our directors until such arrearage is completely eliminated. In addition, preferred stockholders would have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly would be able to veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of any credit facility to which MCC is a party, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.
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GENERAL RISK FACTORS
We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations.
From time to time, capital markets may experience periods of disruption and instability. The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of coronavirus (“COVID-19”) that began in December 2019. Some economists and major investment banks have expressed concern that the continued spread of the COVID-19 globally could lead to a world-wide economic downturn. Even after the COVID-19 pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. The COVID-19 outbreak continues to have, and any future outbreaks could have, an adverse impact on the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. With respect to the U.S. credit markets (in particular for middle market loans), the COVID-19 outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things: (i) increased draws by borrowers on revolving lines of credit and other financing instruments; (ii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iii) greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility; and (iv) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle-market businesses. These and future market disruptions and/or illiquidity could have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments. We may have to access, if available, alternative markets for debt and equity capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.
For example, between 2008 and 2009, the U.S. and global capital markets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular.
Equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our independent directors. Volatility and dislocation in the capital markets can also create a challenging environment in which to raise or access debt capital. The current market and future market conditions similar to those experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in a rising interest rate environment. If any of these conditions appear, they may have an adverse effect on our business, financial condition, and results of operations. These events could limit our investment originations, limit our ability to increase returns to equity holders through the effective use of leverage, and negatively impact our operating results.
In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell our investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations.
Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the market dislocations or avert severe and prolonged reductions in economic activity.
We also face an increased risk of investor, creditor or portfolio company disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on economic and market conditions.
Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.
Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies. In December 2019, COVID-19 surfaced in China and has since spread and continues to spread to other countries, including the United States. COVID-19 spread quickly and has been identified as a global pandemic by the World Health Organization. The COVID-19 pandemic continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets. In response, beginning in March 2020, in affected jurisdiction including the United States, unprecedented actions were and continue to be taken by governmental authorities and businesses, including quarantines, “stay at home” orders, travel and hospitality restrictions and bans, and the temporary closures and limited operations of many businesses (including
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corporate offices, retail stores, restaurants, fitness clubs, manufacturing facilities and factories, and other businesses). The actions to contain the COVID-19 pandemic vary by country and by state in the United States. COVID-19 has caused the effective cessation of all business activity deemed non-essential by such governmental authorities. While certain state and local governments across the United States have taken steps to re-open their economies by lifting “stay at home” orders and re-opening businesses, a number of states and local governments have needed to pause or slow the re-opening or impose new shut-down orders as the number of cases of COVID-19 has continued to rise. COVID-19 and the resulting economic dislocations have had and continue to have adverse consequences for the business operations and financial performance of some of our portfolio companies, which may, in turn impact the valuation of our investments and have adversely affected, and threaten to continue to adversely affect, our operations. Local, state and federal and numerous non-U.S. governmental authorities have imposed travel and hospitality restrictions and bans, business closures or limited business operations and other quarantine measures on businesses and individuals that remain in effect on the date of this Annual Report on Form 10-K. We cannot predict the full impact of COVID-19, including the duration and the impact of the closures and restrictions described above. As a result, we are unable to predict the duration of these business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. With respect to loans to portfolio companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for PIK interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business, or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause. Portfolio companies may also be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is heightened during such periods. Depending on the duration and extent of the disruption to the business operations of our portfolio companies, we expect some portfolio companies, particularly those in vulnerable industries, such as travel and hospitality, to experience financial distress and possibly to default on their financial obligations to us and/or their other capital providers. In addition, if such portfolio companies are subjected to prolonged and severe financial distress, we expect some of them to substantially curtail their operations, defer capital expenditures and lay off workers. These developments would be likely to permanently impair their businesses and result in a reduction in the value of our investments in them.
The Company will also be negatively affected if the operations and effectiveness of MCC Advisors or our portfolio companies (or any of the key personnel or service providers of the foregoing) are compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to business operations.
Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the U.S. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
Following the 2020 U.S. Presidential election, the executive branch of the federal government is under transition until and following President-elect Biden’s inauguration in January 2021. There is some uncertainty regarding the impact on federal legislative efforts remains at the time of this Annual Report on Form 10-K as the Senate majority will not be decided until January 2021 and the House of Representatives lost several Democratic members.
For example, the COVID-19 pandemic outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. The COVID-19 pandemic has impacted the U.S. credit markets (in particular for middle market loans). See “We are currently operating in a period of capital markets disruptions and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business, financial condition and operations” and “Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of our operations.”
Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our portfolio companies and, in many instances, the impact will be adverse and profound. The effects of the COVID-19 pandemic may materially and adversely impact (i) the value and performance of us and our portfolio companies, (ii) the ability of our borrowers to continue to meet loan covenants or repay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to repay debt obligations, on a timely basis or at all, or (iv) our ability to source, manage and divest investments and achieve our investment objectives, all of which could result in significant losses to us.
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Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. The recent global outbreak of COVID-19 has disrupted economic markets, and the prolonged economic impact is uncertain. Many manufacturers of goods in China and other countries in Asia have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness. As the impact of COVID-19 spreads to other parts of the world, similar impacts may occur with respect to affected countries. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty surrounding the negotiation of trade deals between Britain and the European Union following the United Kingdom’s exit from the European Union and uncertainty between the United States and other countries, including China, with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future.
In an economic downturn, we may have non-performing assets or non-performing assets may increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our loans. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.
The occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and could further impact our ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Properties
We do not own any real estate or other physical properties materially important to our operation. Our headquarters are currently located at 280 Park Avenue, 6th Floor East, New York, NY 10017. Our administrator furnishes us office space and we reimburse it for such costs on an allocated basis.
Item 3. Legal Proceedings
From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. Except as described below, we are not currently party to any material legal proceedings.
The Company entered into a settlement agreement with respect to (i) the lawsuit filed on May 29, 2015 in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437 (the “Direct Action”), by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against the Company, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”), and (ii) the lawsuit filed on August 29, 2016, by MVF Holdings in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The Direct Action was filed after the Company, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The Direct Action sought damages in excess of $100 million. The plaintiff in the Derivative Action asserted claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. One of the plaintiffs, MVF, is the subject of a Chapter 11 bankruptcy proceeding pending in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”), under the caption, In re Modern VideoFilm, Inc., Case No. 8:18-bk-11792-MW. The settlement was approved by the Bankruptcy Court on November 30, 2020. Absent
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appeals, the settlement and mutual releases will become effective on December 15, 2020. In accordance with the settlement agreement, the parties agreed that the terms of the settlement will remain confidential. Pursuant to the settlement agreement, the defendants are paying to the plaintiffs in the Direct Action and the Derivative Action an undisclosed amount. The Company’s contribution to the settlement payment is being funded entirely by insurance and the Company is not expected to fund any portion of the settlement.
Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (the “Medley Defendants”) were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”) (together with the Virginia Class Actions, the “Class Action Complaints”). The plaintiffs in the Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives had not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017.
On October 26, 2020, Medley Opportunity Fund II LP and Medley Capital Corporation were served with a new complaint in a putative class action lawsuit captioned Charles P. McDaniel v. Mark Curry, American Web Loan, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed October 22, 2020, in the Circuit Court of Ohio County, West Virginia, as Case No. 20-C-169 (the “West Virginia Class Action”). (together with the Virginia Class Actions and the Pennsylvania Class Action, the “Class Action Complaints”). The plaintiff in the West Virginia Class Action Complaint filed his putative class action alleging claims arising West Virginia state law’s regulating interest rates and other fees in connection with consumer lending activities.
By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims.
On April 16, 2020, the parties to Class Action 1 reached a settlement reflected in a Settlement Agreement (the “Settlement Agreement”). The Settlement Agreement was subject to court approval. At a hearing on November 4, 2020, the court denied the plaintiffs’ motion to approve the settlement and ordered the parties to mediation in front of Judge Novak of the Eastern District of Virginia in December of 2020.
On October 29, 2020, the parties to the Pennsylvania Class Action reached a settlement pursuant to which AWL agreed to pay the plaintiffs $200,000 and to forgive loans that they owed AWL. The Medley Defendants obtained a full release and bore none of the settlement amount. The Pennsylvania Class Action was dismissed with prejudice on November 2, 2020.
The Medley Defendants and the other defendants believe the alleged claims asserted in the Virginia Class Action and the West Virginia putative class action are without merit and they are defending these lawsuits vigorously.
Item 4. Mine Safety Disclosures
None.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is currently traded on the New York Stock Exchange (“NYSE”) “MCC”.
As of September 30, 2020, we had 3 stockholders of record of our common stock, which did not include stockholders for whom shares are held in "nominee" or "street name."
Sales of Unregistered Securities
We did not sell any securities within the past three years that were not registered under the Securities Act of 1933.
Stock Performance Graph
This graph compares the stockholder return on our common stock from January 20, 2011 (IPO) to September 30, 2020 with that of the Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index. This graph assumes that on January 20, 2011, $100 was invested in our common stock, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph also assumes the reinvestment of all cash dividends prior to any tax effect.
The graph and other information furnished under this Part II Item 5 of this annual report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the below graph is not necessarily indicative of future stock performance.
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Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The following selected financial and other data for the years ended September 30, 2020, 2019, 2018, 2017, and 2016 (dollars in thousands, except per share amounts) is derived from the audited consolidated financial statements for such years, and included in Part II, Item 8, Consolidated Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

| For the years ended September 30
| 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
Statement of Operations data: |  |  |  |  |  |  |  |  |
Total investment income | $ | 21,522 |  |  | 46,299 |  |  | 66,820 |  |  | 96,256 |  |  | 120,749 |
Base management fees | 6,359 |  |  | 11,190 |  |  | 14,724 |  |  | 17,773 |  |  | 19,470 |
Incentive fees | — |  |  | — |  |  | — |  |  | 896 |  |  | 11,492 |
All other expenses | 17,883 |  |  | 55,976 |  |  | 40,072 |  |  | 41,309 |  |  | 39,843 |
Management fee waiver | — |  |  | — |  |  | (380) |  |  | (48) |  |  | (143) |
Incentive fee waiver | — |  |  | — |  |  | — |  |  | (44) |  |  | (3,504) |
Net investment income/(loss) | (2,720) |  |  | (20,867) |  |  | 12,404 |  |  | 36,370 |  |  | 53,591 |
Net realized gain/(loss) on investments | (49,979) |  |  | (112,173) |  |  | (89,221) |  |  | (73,086) |  |  | (39,383) |
Net unrealized appreciation/(depreciation) on investments | (10,633) |  |  | 38,498 |  |  | (32,194) |  |  | 21,644 |  |  | (42,257) |
Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | — |  |  | — |  |  | 474 |  |  | 1,092 |  |  | 87 |
Loss on extinguishment of debt | (2,481) |  |  | (2,033) |  |  | (2,387) |  |  | (1,097) |  |  | — |
Net increase/(decrease) in net assets resulting from operations | (65,813) |  |  | (96,575) |  |  | (110,924) |  |  | (15,077) |  |  | (27,962) |
Per share data: |  |  |  |  |  |  |  |  |
Net asset value per common share at year end | $ | 55.30 |  |  | 79.46 |  |  | 117.92 |  |  | 169.04 |  |  | 189.78 |
Market price at year end | 17.83 |  |  | 51.80 |  |  | 76.40 |  |  | 119.40 |  |  | 152.60 |
Net investment income/(loss) | (1.00) |  |  | (7.66) |  |  | 4.55 |  |  | 13.35 |  |  | 19.35 |
Net realized and unrealized gain/(loss) on investments | (22.25) |  |  | (27.04) |  |  | (44.58) |  |  | (18.88) |  |  | (29.48) |
Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | — |  |  | — |  |  | 0.17 |  |  | 0.40 |  |  | 0.03 |
Loss on extinguishment of debt | (0.91) |  |  | (0.75) |  |  | (0.88) |  |  | (0.40) |  |  | — |
Net increase/(decrease) in net assets resulting from operations | (24.16) |  |  | (35.45) |  |  | (40.74) |  |  | (5.53) |  |  | (10.10) |
Dividends paid | — |  |  | 3.00 |  |  | 10.40 |  |  | 15.20 |  |  | 22.40 |
Statement of Assets and Liabilities data: |  |  |  |  |  |  |  |  |
Total investments at fair value | $ | 246,744 |  |  | 396,889 |  |  | 655,430 |  |  | 836,991 |  |  | 914,184 |
Cash and cash equivalents | 56,522 |  |  | 68,245 |  |  | 75,666 |  |  | 108,572 |  |  | 104,485 |
Other assets(2) | 2,837 |  |  | 21,133 |  |  | 10,500 |  |  | 13,997 |  |  | 12,211 |
Total assets | 306,103 |  |  | 486,267 |  |  | 741,596 |  |  | 959,560 |  |  | 1,030,880 |
Total liabilities | 155,483 |  |  | 269,834 |  |  | 420,417 |  |  | 499,131 |  |  | 513,961 |
Total net assets | 150,620 |  |  | 216,433 |  |  | 321,179 |  |  | 460,429 |  |  | 516,919 |
Other data: |  |  |  |  |  |  |  |  |
Weighted average annual yield on debt investments(1) | 8.5 | % |  | 9.5 | % |  | 9.9 | % |  | 10.8 | % |  | 11.8 | %
Total return based on market value(3) | (65.58) | % |  | (29.91) | % |  | (27.82) | % |  | (12.73) | % |  | 19.37 | %
Total return based on net asset value(4) | (30.41) | % |  | (29.47) | % |  | (21.29) | % |  | (0.68) | % |  | 0.42 | %
Number of investments at year end | 42 |  |  | 51 |  |  | 67 |  |  | 64 |  |  | 58 |

(1)The weighted average yield is based upon original cost on our income bearing debt investments.
(2)On January 1, 2016, we adopted Accounting Standards Update (“ASU”) 2015-03 which requires that debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset. Adoption of ASU 2015-03 requires the changes to be applied retrospectively.
(3)Total return is historical and assumes changes in share price, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(4)T otal return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(5)Per share data has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this annual report on Form 10-K.
Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refer to Medley Capital Corporation.
Forward-Looking Statements
Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to:
•the introduction, withdrawal, success and timing of business initiatives and strategies;
•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes in the value of our assets;
•the relative and absolute investment performance and operations of MCC Advisors;
•the impact of increased competition;
•the impact of future acquisitions and divestitures;
•our business prospects and the prospects of our portfolio companies;
•the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or MCC Advisors;
•our contractual arrangements and relationships with third parties;
•any future financings by us;
•the ability of MCC Advisors to attract and retain highly talented professionals;
•fluctuations in foreign currency exchange rates;
•the impact of changes to tax legislation and, generally, our tax position;
•the unfavorable resolution of legal proceedings;
•uncertainties associated with the impact from the COVID-19 pandemic: including its impact on the global and U.S. capital markets and the global and U.S. economy; the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the operational and financial performance of our portfolio companies, including our and their ability to achieve their respective objectives; and the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business;
•the ongoing obligations under the Membership Interest Purchase Agreement entered into by the Company, Great American Life Insurance Company, MCC Senior Loan Strategy JV I LLC (“MCC JV”), and an affiliate of Golub Capital LLC, including the indemnities contained therein, and assumptions with respect to estimates of transaction expenses incurred by the Company and the resulting net proceeds received by the Company in connection with the disposition of MCC JV; and
•risks and uncertainties relating to the ability of the Company to assemble the new internalized management team as contemplated and the ability of the new internalized management team to execute on its financial and investment strategies and the ability of the Company to realize savings and other efficiencies from the replacement of the current external management team with the new internal management structure.
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward looking statements contained in this annual report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this annual report on Form 10-K.
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission
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(“SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.
COVID-19 Developments
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) as a pandemic, and, on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, restricting travel and hospitality, and temporarily closing or limiting operations at many corporate offices, retail stores, restaurants, fitness clubs and manufacturing facilities and factories in affected jurisdictions. Such actions are creating disruption in global supply chains and adversely impacting a number of industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.
We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. Given the rapid development and fluidity of this situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. Further, the operational and financial performance of the portfolio companies in which we make investments may be significantly impacted by COVID-19, which may in turn impact the valuation of our investments. We believe our portfolio companies have taken immediate actions to effectively and efficiently respond to the challenges posed by COVID-19 and related orders imposed by state and local governments, including developing liquidity plans supported by internal cash reserves, shareholder support, and, as appropriate, accessing their ability to participate in the Paycheck Protection Program (which closed to new applications on August 8, 2020). The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown. COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company’s portfolio companies, the Company’s business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.
We have evaluated subsequent events from September 30, 2020 through the filing date of this annual report on Form 10-K. However, as the discussion in this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the Company’s financial statements for the fiscal year ended September 30, 2020, the analysis contained herein may not fully account for impacts relating to the COVID-19 pandemic. In that regard, for example, as of September 30, 2020, the Company valued its portfolio investments in conformity with U.S. GAAP based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time. Due to the overall volatility that the COVID-19 pandemic has caused during the months that followed our September 30, 2020 valuation, any valuations conducted now or in the future in conformity with U.S. GAAP could result in a lower fair value of our portfolio. The impact to our results going forward will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected at this time.
Overview
We are an externally-managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, we have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code.
We commenced operations and completed our initial public offering on January 20, 2011. Our investment activities are managed by MCC Advisors and supervised by our board of directors, of which a majority of the members are independent of us.
Our investment objective is to generate current income and capital appreciation by lending to privately-held middle market companies, primarily through directly originated transactions, to help these companies fund acquisitions, growth or refinancing. Our portfolio generally consists of senior secured first lien term loans and senior secured second lien term loans. Occasionally, we receive warrants or other equity participation features, which we believe will increase the total investment returns.
As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met) after such borrowing, with certain limited exceptions. To maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements. In addition, to maintain our RIC tax treatment, we must timely distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year.
Reverse Stock Split; Authorized Share Reduction
At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”).
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Following the Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction.
Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
The common stock began trading on a split-adjusted basis on the NYSE at the market open on July 27, 2020. The trading symbol for the common stock remains “MCC.”
The Reverse Stock Split was intended to bring the Company into compliance with the $1.00 minimum average closing share price requirement (the “Minimum Share Price Requirement”) for continued listing on the NYSE. On August 3, 2020, the Company received written notice from the NYSE that the Company has regained compliance with the Minimum Share Price Requirement after the Company’s average closing price over the 30 consecutive trading day period ending on July 31, 2020 was above $1.00 per share as required under Section 802.01C of the NYSE Listed Company Manual.
Revenues
We generate revenue in the form of interest income on the debt that we hold and capital gains, if any, on warrants or other equity interests that we may acquire in portfolio companies. We invest our assets primarily in privately held companies with enterprise or asset values between $25 million and $250 million and focus on investment sizes of $10 million to $50 million. We believe that pursuing opportunities of this size offers several benefits including reduced competition, a larger investment opportunity set and the ability to minimize the impact of financial intermediaries. We expect our debt investments to bear interest at either a fixed or floating rate. Interest on debt will be payable generally either monthly or quarterly. In some cases our debt investments may provide for a portion of the interest to be PIK. To the extent interest is PIK, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned.
Expenses
Our primary operating expenses include the payment of management and incentive fees pursuant to the investment management agreement we have with MCC Advisors and overhead expenses, including our allocable portion of our administrator’s overhead under the administration agreement. Our management and incentive fees compensate MCC Advisors for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those relating to:
•our organization and continued corporate existence;
•calculating our NAV (including the cost and expenses of any independent valuation firms);
•expenses incurred by MCC Advisors payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;
•interest payable on debt, if any, incurred to finance our investments;
•the costs of all offerings of common stock and other securities, if any;
•the base management fee and any incentive fee;
•distributions on our shares;
•administration fees payable under our administration agreement;
•the allocated costs incurred by MCC Advisors in providing managerial assistance to those portfolio companies that request it;
•amounts payable to third parties relating to, or associated with, making investments;
•transfer agent and custodial fees;
•registration fees and listing fees;
•U.S. federal, state and local taxes;
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•independent director fees and expenses;
•costs of preparing and filing reports or other documents with the SEC or other regulators;
•the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
•our fidelity bond;
•directors and officers/errors and omissions liability insurance, and any other insurance premiums;
•indemnification payments;
•direct costs and expenses of administration, including audit and legal costs; and
•all other expenses reasonably incurred by us or MCC Advisors in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs (including travel expenses).
Expense Support Agreement
On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses, and other expenses approved by the special committee of the Board, comprised solely of directors who are not “interested persons” of the Company as such term is defined in Section 2(a)(19) of the 1940 Act (the “Special Committee”) (as described in Note 10)) at $667,000 per month (the “Cap”). Under the Expense Support Agreement, the Cap became effective on June 1, 2020 and expired on September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020. For the four months ended September 30, 2020, the total management fee and the other operating expenses subject to the Cap (as described above) were $3.1 million, which resulted in $0.7 million of expense support due from MCC Advisors. The $0.7 million of expense support due has been netted against Administrator expenses payable in the accompanying Consolidated Statements of Assets and Liabilities. See "Recent Developments" and "Note 15" to the financial statements for more information.
Portfolio and Investment Activity
As of September 30, 2020 and 2019, our portfolio had a fair market value of approximately $246.7 million and $655.4 million, respectively. The following table summarizes our portfolio and investment activity during the fiscal years ended September 30, 2020 and 2019 (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019
Investments made in new portfolio companies | $ | 5,101 |  |  | $ | 6,326 |
Investments made in existing portfolio companies | 11,769 |  |  | 60,101 |
Aggregate amount in exits and repayments | (109,678) |  |  | (259,940) |
Net investment activity | $ | (92,808) |  |  | $ | (193,513) |
Portfolio Companies, at beginning of year | 51 |  |  | 64 |
Number of new portfolio companies | 2 |  |  | 15 |
Number of exited portfolio companies | (11) |  |  | (12) |
Portfolio companies, at end of year | 42 |  |  | 67 |
Number of investments in existing portfolio companies | 23 |  |  | 22 |

The following table summarizes the amortized cost and the fair value of our average portfolio company investment, including the equity investment in the MCC Senior Loan Strategy JV I LLC (“MCC JV”), and largest portfolio company investment, excluding the equity investment in the MCC JV, as of September 30, 2020 and 2019 (dollars in thousands):

| September 30, 2020 |  | September 30, 2019(1)
| Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Average portfolio company investment | $ | 7,813 |  |  | $ | 5,875 |  |  | $ | 9,170 |  |  | $ | 7,782 |
Largest portfolio company investment | 37,987 |  |  | 40,807 |  |  | 38,395 |  |  | 41,855 |

(1) The September 30, 2019 presentation has been revised to conform to the current year presentation.
The following table summarizes the amortized cost and the fair value of investments as of September 30, 2020 (dollars in thousands):
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| Amortized Cost |  | Percentage |  | Fair Value |  | Percentage
Senior Secured First Lien Term Loans | $ | 178,843 |  |  | 54.5 | % |  | $ | 106,463 |  |  | 43.2 | %
Senior Secured Second Lien Term Loans | 15,476 |  |  | 4.7 |  |  | 13,927 |  |  | 5.6 |
Unsecured Debt | 4,601 |  |  | 1.4 |  |  | 2,669 |  |  | 1.1 |
MCC Senior Loan Strategy JV I LLC | 79,888 |  |  | 24.4 |  |  | 41,019 |  |  | 16.6 |
Equity/Warrants | 49,327 |  |  | 15.0 |  |  | 82,666 |  |  | 33.5 |
Total | $ | 328,135 |  |  | 100.0 | % |  | $ | 246,744 |  |  | 100.0 | %

The following table summarizes the amortized cost and the fair value of investments as of September 30, 2019 (dollars in thousands):

| Amortized Cost |  | Percentage |  | Fair Value |  | Percentage
Senior Secured First Lien Term Loans | $ | 243,342 |  |  | 52.0 | % |  | $ | 192,770 |  |  | 48.6 | %
Senior Secured Second Lien Term Loans | 39,089 |  |  | 8.4 |  |  | 36,508 |  |  | 9.2 |
Unsecured Debt | 2,653 |  |  | 0.6 |  |  | 2,653 |  |  | 0.7 |
MCC Senior Loan Strategy JV I LLC | 78,575 |  |  | 16.8 |  |  | 69,949 |  |  | 17.6 |
Equity/Warrants | 103,989 |  |  | 22.2 |  |  | 95,009 |  |  | 23.9 |
Total | $ | 467,648 |  |  | 100.0 | % |  | $ | 396,889 |  |  | 100.0 | %

As of September 30, 2020, our income-bearing investment portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as the London Interbank Offering Rate (“LIBOR”), while 12.6% of our income-bearing investment portfolio bore interest at fixed rates. As of September 30, 2019, the weighted average yield based upon cost of our total portfolio was approximately 9.5%. The weighted average yield of our total portfolio does not represent the total return to our stockholders.
MCC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on the following categories, which we refer to as MCC Advisors’ investment credit rating:

Credit Rating |  | Definition
1 |  |  | Investments that are performing above expectations.
2 |  |  | Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination.
|  | All new loans are rated ‘2’.
3 |  |  | Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected.
|  | Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.
4 |  | Investments that are performing below expectations and for which risk has increased materially since origination.
|  | Some loss of interest or dividend is expected but no loss of principal.
|  | In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).
5 |  | Investments that are performing substantially below expectations and whose risks have increased substantially since origination.
|  | Most or all of the debt covenants are out of compliance and payments are substantially delinquent.
|  | Some loss of principal is expected.

The COVID-19 pandemic has impacted our investment ratings as of September 30, 2020, causing downgrades of certain portfolio companies. As the COVID-19 situation continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our investment portfolio. We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve loan performance and reduce credit risk.
The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of September 30, 2020 and 2019 (dollars in thousands):

|  | September 30, 2020 |  | September 30, 2019
Investment Performance Rating |  | Fair Value |  | Percentage |  | Fair Value |  | Percentage
1 |  | $ | 54,256 |  |  | 22.0 | % |  | $ | 105,231 |  |  | 26.5 | %
2 |  | 130,742 |  |  | 53.0 |  |  | 146,053 |  |  | 36.8 |
3 |  | 40,645 |  |  | 16.5 |  |  | 123,253 |  |  | 31.1 |
4 |  | 11,325 |  |  | 4.6 |  |  | 4,915 |  |  | 1.2 |
5 |  | 9,776 |  |  | 3.9 |  |  | 17,437 |  |  | 4.4 |
Total |  | $ | 246,744 |  |  | 100.0 | % |  | $ | 396,889 |  |  | 100.0 | %

Results of Operations
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Operating results for the years ended September 30, 2020, 2019, and 2018 are as follows (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Total investment income/(loss) | $ | 21,522 |  |  | $ | 46,299 |  |  | $ | 66,820 |
Total expenses, net | 24,242 |  |  | 67,166 |  |  | 54,258 |
Net investment income/(loss) before excise taxes | (2,720) |  |  | (20,867) |  |  | 12,562 |
Excise tax expense | — |  |  | — |  |  | (158) |
Net investment income/(loss) | (2,720) |  |  | (20,867) |  |  | 12,404 |
Net realized gains/(losses) from investments | (49,979) |  |  | (112,173) |  |  | (89,221) |
Net unrealized appreciation/(depreciation) on investments | (10,633) |  |  | 38,498 |  |  | (32,194) |
Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | — |  |  | — |  |  | 474 |
Loss on extinguishment of debt | (2,481) |  |  | (2,033) |  |  | (2,387) |
Net increase in net assets resulting from operations | $ | (65,813) |  |  | $ | (96,575) |  |  | $ | (110,924) |

Investment Income
For the year ended September 30, 2020, investment income totaled $21.5 million, of which $20.8 million was attributable to portfolio interest and dividend income, and $0.7 million to fee income.
For the year ended September 30, 2019, investment income totaled $46.3 million, of which $44.0 million was attributable to portfolio interest and dividend income, and $2.3 million to fee income.
For the year ended September 30, 2018, investment income totaled $66.8 million, of which $62.3 million was attributable to portfolio interest and dividend income, and $4.5 million to fee income.
Operating Expenses
Operating expenses for the years ended September 30, 2020, 2019, and 2018 are as follows (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Base management fees | $ | 6,359 |  |  | $ | 11,190 |  |  | $ | 14,724 |
Interest and financing expenses | 14,935 |  |  | 24,049 |  |  | 27,918 |
Professional fees | (4,768) |  |  | 19,323 |  |  | 4,430 |
General and administrative | 3,285 |  |  | 7,399 |  |  | 2,171 |
Administrator expenses | 2,227 |  |  | 3,324 |  |  | 3,582 |
Directors fees | 1,451 |  |  | 1,258 |  |  | 1,271 |
Insurance | 1,463 |  |  | 623 |  |  | 542 |
Expenses before waivers and reimbursements | 24,952 |  |  | 67,166 |  |  | 54,638 |
Expense support reimbursement | (710) |  |  | — |  |  | — |
Management fee waiver | — |  |  | — |  |  | (380) |
Expenses, net of waivers and reimbursements | $ | 24,242 |  |  | $ | 67,166 |  |  | $ | 54,258 |

For the year ended September 30, 2020, total operating expenses before management and incentive fee waivers decreased by $42.2 million, or 62.9%, compared to the year ended September 30, 2019.
For the year ended September 30, 2019, total operating expenses before management and incentive fee waivers increased by $12.5 million, or 22.9%, compared to the year ended September 30, 2018.
Interest and Financing Expenses
Interest and financing expenses for the year ended September 30, 2020 decreased by $9.1 million, or 37.9%, compared to the year ended September 30, 2019. The decrease in interest and financing expenses was primarily due to the voluntary repayment of $135.0 million SBA-guaranteed debentures (the “SBA Debentures”), which the Company repaid between March 28, 2019 and May 10, 2019, as well as the full repayment of $120.2 million Series A Notes (the “Israeli Notes”) between August 12, 2019 and April 14, 2020.
Interest and financing expenses for the year ended September 30, 2019 decreased by $3.9 million, or 13.9%, compared to the year ended September 30, 2018. The decrease in interest and financing expenses was primarily due to the $102.0 million repayment of the Senior Secured Term Loan Credit Facility (the “Term Loan Facility”) on January 31, 2018, the voluntary satisfaction and termination of the Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”) on September 28, 2018, the redemption of $12.0 million of 6.125% unsecured notes that mature on March 30, 2023 (the “2023 Notes”), and the voluntary repayment of $135.0 million the SBA Debentures, which the Company repaid between March 28, 2019 and May 10, 2019, partially offset by interest payments on the Israeli Notes.
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Base Management Fees and Incentive Fees
Base management fees for the year ended September 30, 2020 decreased by $4.8 million, or 43.2%, compared to the year ended September 30, 2019 due to the decline in our gross assets during the period.
Base management fees for the year ended September 30, 2019 decreased by $3.5 million, or 24.0%, compared to the year ended September 30, 2018 due to the decline in our gross assets during the period.
Professional Fees and Other General and Administrative Expenses
Professional fees and general and administrative expenses for the year ended September 30, 2020 decreased by $28.3 million, or 88.5%, compared to the year ended September 30, 2019 primarily due to insurance proceeds received related to legal expenses relating to the dismissed stockholder class action, captioned as FrontFour Capital Group LLC, et al. v Brook Taube et al, as well as a decrease in legal expenses, general and administrative expenses, administrator expenses, valuation expenses, and audit expenses, offset by an increase in independent directors expenses and insurance expenses.
Professional fees and general and administrative expenses for the year ended September 30, 2019 increased by $19.9 million, or 166.1%, compared to the year ended September 30, 2018 primarily due to an increase in legal expenses, general and administrative expenses, insurance expenses, and audit expenses in connection with the previously contemplated merger with Sierra Income Corporation ("Sierra"), offset by a decrease in administrator expenses and valuation expenses.
Net Realized Gains/Losses from Investments
We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized.
During the year ended September 30, 2020, we recognized $50.0 million of realized losses on our portfolio investments. The realized losses were primarily due to the sale of three investments and the write-off of two investments.
During the year ended September 30, 2019, we recognized $112.2 million of realized losses on our portfolio investments. The realized losses were primarily due to the non-cash restructuring transactions of two investments, the sale of two investments and the write-off of two investments, partially offset by a realized gain resulting from exercising warrants and converting junior preferred equity in one portfolio company into common shares of a new portfolio company.
During the year ended September 30, 2018, we recognized $89.2 million of realized losses on our portfolio investments. The realized losses were primarily due to the non-cash restructuring transactions of three investments, as well as the sale of one investment.
Realized loss on extinguishment of debt
In the event that we modify or extinguish our debt prior to maturity, we account for it in accordance with ASC 470-50, Modifications and Extinguishments, in which we measure the difference between the reacquisition price of the debt and the net carrying amount of the debt, which includes any unamortized debt issuance costs.
During the year ended September 30, 2020, the Company recognized a net loss on extinguishment of debt of $2.5 million, which was due to the Company's $34.1 million repayment of the Israeli Notes on December 31, 2019, $34.9 million repayment of the Israeli Notes on March 31, 2020 and $21.1 million repayment of the Israeli Notes on April 14, 2020.
During the year ended September 30, 2019, the Company recognized a net loss on extinguishment of debt of $2.0 million, which was primarily due to a loss on extinguishment of debt of $1.8 million from the pre-payment of $135.0 million of SBA Debentures in connection with SBIC LP's surrender of its SBIC license and a $0.2 million loss on extinguishment of debt from the $12.0 million partial redemption of the 2023 Notes.
During the year ended September 30, 2018, we recognized a loss on extinguishment of debt of $2.4 million from the payment of the remaining $102.0 million outstanding under the Term Loan Facility, the $13.0 million partial redemption of the 2023 Notes, the $15.0 million repayment of the SBA Debentures, and the voluntary satisfaction and termination of our Revolving Credit Facility in accordance with its terms.
Net Unrealized Appreciation/Depreciation on Investments
Net change in unrealized appreciation or depreciation on investments reflects the net change in the fair value of our investment portfolio.
For the year ended September 30, 2020, we had $10.6 million of net unrealized depreciation on investments. The net unrealized depreciation comprised of $37.1 million of net unrealized depreciation on investments, offset by $26.5 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized, partially sold or written-off during the year.
For the year ended September 30, 2019, we had $38.5 million of net unrealized appreciation on investments. The net unrealized appreciation comprised of $59.6 million of net unrealized depreciation on investments, offset by $98.1 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized or written-off during the year.
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For the year ended September 30, 2018, we had $32.2 million of net unrealized depreciation on investments. The net unrealized depreciation comprised of $72.1 million of net unrealized depreciation on investments, offset by $39.9 million of net unrealized appreciation that resulted from the reversal of previously recorded unrealized depreciation on investments that were realized or written-off during the year.
Provision for Deferred Taxes on Unrealized Depreciation on Investments
Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the years ended September 30, 2020 and 2019, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments. For the year ended September 30, 2018, the change in provision for deferred taxes on the unrealized depreciation on investments was $0.5 million.
Changes in Net Assets from Operations(1)
For the year ended September 30, 2020, we recorded a net decrease in net assets resulting from operations of $65.8 million compared to a net decrease in net assets resulting from operations of $96.6 million for the year ended September 30, 2019, and a net decrease in net assets resulting from operations of $110.9 million for the year ended September 30, 2018 as a result of the factors discussed above. Based on 2,723,709 weighted average common shares outstanding for the years ended September 30, 2020, 2019, and 2018, our per share net decrease in net assets resulting from operations was $24.16, $35.46 and $40.73 for the years ended September 30, 2020, 2019, and 2018, respectively.
(1) Per share data has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis.
Financial Condition, Liquidity and Capital Resources
As a RIC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital, including raising equity, increasing debt, and funding from operational cash flow.
Our liquidity and capital resources historically have been generated primarily from the net proceeds of public offerings of common stock, advances from the Revolving Credit Facility (which the Company voluntarily satisfied and terminated) and net proceeds from the issuance of notes as well as cash flows from operations. In the future, we may generate cash from future offerings of securities, future borrowings and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds is investments in our targeted asset classes, cash distributions to our stockholders, and other general corporate purposes.
As of September 30, 2020, we had $56.5 million in cash and cash equivalents.
In order to maintain our RIC tax treatment under the Code, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, for each taxable year we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if, pursuant to the 1940 Act, certain requirements are met). This requirement limits the amount that we may borrow. As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
Credit Facility
Term Loan Facility
The Company had a Term Loan Facility which was scheduled to mature on July 28, 2020.
On September 1, 2017, the Company reduced the Term Loan Facility commitment to $102.0 million from $174.0 million. The reduction was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.6 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On January 31, 2018, the Company voluntarily prepaid the remaining $102.0 million outstanding on the Term Loan Facility in accordance with its terms. The payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Revolving Credit Facility
The Company had a Revolving Credit Facility with ING Capital LLC, as Administrative Agent, in order to borrow funds to make additional investments.
The Revolving Credit Facility had a revolving period that was to end July 28, 2019, followed by a one year amortization period and a final maturity on July 28, 2020.
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On February 14, 2017, the Company elected to reduce the total commitment of the Revolving Credit Facility to $200.0 million from $343.5 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $1.3 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.
On February 12, 2018, the Company elected to reduce the total commitment of the Revolving Credit Facility to $150.0 million from $200.0 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $0.4 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.
On September 28, 2018, the Company voluntarily satisfied and terminated the commitments under the Revolving Credit Facility in accordance with its terms. The termination was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $1.0 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Unsecured Notes
2019 Notes
On March 21, 2012, the Company issued $40.0 million in aggregate principal amount of the 2019 Notes. The 2019 Notes bore interest at a rate of 7.125% per year, and were payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2012. The 2019 Notes were listed on the NYSE and traded thereon under the trading symbol “MCQ”. On February 22, 2017, the 2019 Notes were redeemed at par plus accrued and unpaid interest. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.5 million.
2021 Notes
On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the 2021 Notes and together with the 2023 Notes, the "U.S. Notes"). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes became redeemable in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bore interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016. The 2021 Notes were listed on the NYSE and traded thereon under the trading symbol ‘‘MCX’’.
Subsequent to fiscal year ended September 30, 2020, the Company redeemed the issued and outstanding 2021 Notes. See “Recent Developments” for more information.
2023 Notes
On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 2023 Notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company's option. On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.
On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, through the ATM debt distribution agreement.
On March 10, 2018, the Company redeemed $13.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.4 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Secured Notes
Israeli Notes
Effective as of April 14, 2020, the Company had repaid all of its outstanding Israeli Notes. Below is a description of the terms of the Israeli Notes, including covenants related thereto, that the Company was subject to during the years ended September 30, 2020 and 2019 prior to the full repayment of the Israeli Notes.
On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes. The Israeli Notes were listed on the Tel Aviv Stock Exchange (the "TASE") and denominated in New Israeli Shekels, but linked to the US Dollar at a fixed exchange rate which mitigates any currency exposure to the Company. The Israeli were not registered under the Securities Act of 1933, and could not be offered or sold in the United
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States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. In connection with this offering, we were dually listed our common stock on the TASE.
On August 12, 2019, the Company and its wholly owned subsidiaries, Medley Small Business Fund, LP (formerly known as Medley SBIC, LP) and Medley SLF, on the one hand, and the Trustee, on the other hand, entered into an amendment to the deed of trust (the “Deed”) governing the Israeli Notes (the “Amendment” together with the Deed, the "Deed of Trust"). The Amendment amended the Deed by, among other things: (a) modifying Section 2.2 of the Deed to provide for full repayment of the Israeli Notes in eight (8) equal installments, each comprising twelve and one-half percent (12.5%) of the principal amount of the Israeli Notes, beginning on August 12, 2019 (the “Effective Date”) and ending on January 31, 2021, rather than four (4) equal annual installments, each comprising twenty five percent (25%) of the principal amount of the Israeli Notes, that were payable on February 27 of each of the years 2021-2024 (inclusive); (b) changing the interest payment dates for the Israeli Notes from semi-annual to quarterly except for the initial interest payment, which was paid on the Effective Date, and the final interest payment, which will be paid on January 31, 2021; (c) decreasing the annual interest rate on the Israeli Notes by 0.25% per annum on the Effective Date and further decreasing the annual interest rate on the Israeli Notes by 0.50% per annum if the mergers of the Company, Sierra Income Corporation (“Sierra”), and MDLY (the “Mergers”) close, which further decrease will be effective upon the closing of the Mergers; (d) decreasing the minimum Total Net Asset covenant in Section 6.1.1 of the Deed from $275 million to $215 million; (e) modifying the acceleration event in Section 10.1.25 of the Deed to provide that it will occur if the credit rating on the Israeli Notes drops below (i) il/B of Maalot before November 30, 2019, (ii) il/BB- of Maalot during the period between December 1, 2019 and April 1, 2020, and (iii) il/BBB- of Maalot on or after April 1, 2020; (f) waiving the make-whole and market value payment requirements of Section 9.1.7 of the Deed for all early redemption payments on the Israeli Notes within eighteen (18) months following the Effective Date; (g) requiring each of Medley Small Business Fund and Medley SLF to guarantee all of the Company’s obligations under the Deed (including the Amendment) and the Israeli Notes and to grant security interests on all of their assets (the “Collateral”) to secure such guaranties and providing for the termination of the Medley SLF guaranty and release of the security interests in Medley SLF’s assets upon the closing of the Mergers, subject to certain limitations; (h) that the Company use principal collections from the Collateral to make early redemption payments on the Israeli Notes, which payments will be applied in inverse order of the maturity of the required principal installment payments on the Israeli Notes; (i) providing for a waiver by the Trustee and the holders of the Israeli Notes of any right to accelerate the full balance of the amount due to the holders of the Israeli Notes based on any claims, allegations, actions, and/or rights that were raised, and/or resulting or deriving from certain claims or allegations as set forth in Section 19.1 of the Amendment; (j) providing for a waiver by the Trustee and the holders of the Israeli Notes of certain claims, demands, rights, and/or actions against and/or relating to the Company, its subsidiaries and/or affiliates and their respective employees (including their respective directors, officers, members of the Company’s board of directors, employees, stockholders, stakeholders and advisors); and (k) adding other definitions, representations and covenants to the Deed and making related conforming changes to the Deed. Pursuant to the Amendment, no prepayment penalties were due or payable in connection with the payment of principal made by the Company on the Effective Date.
The Deed (including the Amendment) includes certain customary covenants, including minimum net assets of $215 million and a maximum debt to total assets ratio of 70%. The date for determining compliance with these financial covenants is the date that the Company publishes its financial statements (i.e., in a quarterly report on Form 10-Q or an annual report on Form 10-K) with the SEC. If the Company did not satisfy these financial covenants for two consecutive quarters, it would be an event of default under the Deed. If this event of default would have occurred, the Company had the right to request the trustee for the Israeli Notes (the “Trustee”) to appoint an emergency committee of the three largest noteholders for the purpose of obtaining a one-quarter extension of time to satisfy the financial covenants. If the Company did not make this request and the breach occurred, or if the emergency committee did not grant the extension, then the Trustee would be required to convene a meeting of the noteholders as described below.
In addition to not complying with the financial covenants as described above, the events of default include: (i) a change of control of the Company (defined in the Deed as MCC Advisors’ ceasing to provide investment management or advisory services to the Company); (ii) the Company not publishing a tender offer for the purchase of all of the Israeli Notes within 45 days; (iii) the Company not paying any amount due and payable to the holders of the Israeli Notes within seven business days after the payment due date; (iv) certain insolvency and receivership events with respect to the Company or with respect to all or substantially all of its assets, and (v) the Israeli Notes being delisted from the TASE or the TASE’s suspension of trading of the Israeli Notes for more than 60 days.
If an event of default occurs under the Deed, there is no automatic acceleration or mandatory redemption of the Israeli Notes. Rather, the Trustee is required to convene a meeting of the noteholders for a vote on whether to accelerate the Israeli Notes. Noteholders holding at least 50% of the principal amount of the Israeli Notes must be present at the meeting for a quorum to exist, and if a quorum exists, then the vote of a majority of the noteholders present at the meeting controls.
The foregoing description of the terms of Israeli Notes, the Deed, and the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of each of the Deed and the Amendment incorporated by reference as an exhibit to this annual report on Form 10-K.
On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company’s outstanding Israeli Notes on the TASE. Execution of the repurchase plan was subject to an open trading window for the Company and continued liquidity at that time and was expected to continue until the full authorized amount was purchased or market conditions changed. The repurchase of the Israeli Notes was not expected to result in any material tax consequences to the Company or the holders of the Israeli Notes.
During the quarter ended December 31, 2018, the Company exchanged $1.0 million United States Dollars to New Israeli Shekels at a rate of 3.73 USD/NIS in order to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading below par at the time of the repurchase, and the USD/NIS (foreign currency) spot rate was higher than the fixed exchange rate agreed upon in the deed of trust, the Company was able to repurchase and retire 3,812,000 units, which resulted in $1,119,201 aggregate principal amount of the Israeli Notes being retired. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized gain of $0.1 million and was recorded on the Consolidated Statements of Operations as a gain on extinguishment of debt.
On December 31, 2019 in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal collections in Medley SLF and Medley Small Business Fund to pre-pay an additional $19.1 million of the Israeli Notes. The pre-payment was accounted for as a
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debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a net loss on extinguishment of debt.
On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by Medley SLF and Medley Small Business Fund to pre-pay an additional $19.8 million of the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a net loss on extinguishment of debt.
On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli Notes outstanding, and as such is no longer subject to any covenants relating thereto. The Israeli Notes were redeemed at 100% of their principal amount, plus the accrued interest thereon, through April 14, 2020.
On September 13, 2020, in connection with the redemption of the Israeli Notes, the Company delisted its common stock from the TASE.
SBA Debentures
On March 26, 2013, SBIC LP received a SBIC license from the SBA. The SBIC license allowed SBIC LP to obtain leverage by issuing SBA-guaranteed debentures (“SBA Debentures”), subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA Debentures were non-recourse, interest only debentures with interest payable semi-annually and had a ten year maturity. The principal amount of SBA Debentures were not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA Debentures were fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, had a superior claim to the SBIC LP’s assets over our stockholders in the event we liquidated the SBIC LP or the SBA exercised its remedies under the SBA Debentures issued by the SBIC LP upon an event of default.
On September 1, 2018, the Company repaid $15.0 million in aggregate principal amount of the SBA Debentures. The repayment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
SBIC LP received a letter from the SBA (the “SBA Letter”), dated March 14, 2019, informing SBIC LP of certain alleged regulatory issues constituting a default under the terms of the SBIC LP’s outstanding SBA Debentures. The SBA Letter stated that SBIC LP had until March 29, 2019, fifteen (15) days from the date of the SBA Letter, to provide the SBA with certain additional information regarding the alleged regulatory issues, unless extended by the SBA. SBIC LP’s management submitted an orderly wind-down plan to the SBA to prepay the remaining $135.0 million of outstanding SBA Debentures using available cash at SBIC LP as well as the sale of assets to third parties or affiliates of SBIC LP. On March 28, 2019, SBIC LP agreed and made a repayment of $50.0 million of outstanding SBA Debentures by April 3, 2019 using available cash at SBIC LP and the cure period was extended to April 19, 2019. On April 18, 2019, SBIC LP agreed and made a repayment of $20.0 million of outstanding SBA Debentures on April 23, 2019 and an additional $30.0 million of outstanding SBA Debentures on April 30, 2019 using proceeds from the sale of certain assets and the cure period was extended to May 10, 2019. On May 10, 2019, SBIC LP made the final repayment of the remaining $35.0 million of outstanding SBA Debentures using proceeds from the sale of certain assets. In connection therewith, effective July 1, 2019, SBIC LP surrendered its SBIC license and operates as Medley Small Business Fund.
The $135.0 million in aggregate repayments made in connection with the orderly wind-down plan was accounted for as debt extinguishments in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a cumulative realized loss of $1.8 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company has a guarantee to issue up to $5.7 million in standby letters of credit through a financial intermediary on behalf of a certain portfolio company. Under this arrangement, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio company was to default on its related payment obligations. The guarantee will renew annually until cancellation. As of September 30, 2020 and 2019, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company.
As of September 30, 2020 and 2019, we had commitments under loan and financing agreements to fund up to $3.9 million to five portfolio companies and $8.9 million to seven portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and the determination of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of September 30, 2020 and 2019 is shown in the table below (dollars in thousands):
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| September 30, 2020 |  | September 30, 2019
1888 Industrial Services, LLC - Revolver | $ | 1,078 |  |  | $ | — |
Kemmerer Operations, LLC - Delayed Draw Term Loan | 908 |  |  | 908 |
NVTN LLC - DDTL | 220 |  |  | — |
NVTN LLC - Super Priority DDTL | 500 |  |  | — |
Redwood Services Group, LLC - Revolver | 1,050 |  |  | 875 |
DataOnline Corp. - Revolver | 179 |  |  | 1,890 |
Access Media Holdings, LLC - Series AAA Preferred Equity | — |  |  | 101 |
Dynamic Energy Services International LLC - Revolver | — |  |  | 3,255 |
Alpine SG, LLC - Revolver | — |  |  | 1,000 |
Black Angus Steakhouses, LLC - Delayed Draw Term Loan | — |  |  | 893 |
Total | $ | 3,935 |  |  | $ | 8,922 |

We have certain contracts under which we have material future commitments. We have entered into an investment management agreement with MCC Advisors in accordance with the 1940 Act. The investment management agreement became effective upon the pricing of our initial public offering. Under the investment management agreement, MCC Advisors has agreed to provide us with investment advisory and management services. For these services, we have agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based on our performance.
We have also entered into an administration agreement with MCC Advisors as our administrator. The administration agreement became effective upon the pricing of our initial public offering. Under the administration agreement, MCC Advisors has agreed to furnish us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to conduct our day-to-day operations. MCC Advisors will also provide on our behalf significant managerial assistance to those portfolio companies to which we are required to provide such assistance.
The following table shows our payment obligations for repayment of debt and other contractual obligations at September 30, 2020 (dollars in thousands):

| Payment Due by Period
| Total |  | Less than 1 year |  | 1 - 3 years |  | 3 - 5 years |  | More than 5 years
2021 Notes | $ | 74,013 |  |  | $ | 74,013 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2023 Notes | 77,847 |  |  | — |  |  | 77,847 |  |  | — |  |  | — |
Total contractual obligations | $ | 151,860 |  |  | $ | 74,013 |  |  | $ | 77,847 |  |  | $ | — |  |  | $ | — |

If any of the contractual obligations discussed above are terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our investment management agreement and our administration agreement. Any new investment management agreement would also be subject to approval by our stockholders.
On March 27, 2015, the Company and Great American Life Insurance Company (“GALIC”) entered into a limited liability company operating agreement to co-manage MCC Senior Loan Strategy JV I LLC (“MCC JV”). The Company and GALIC have committed to provide $100 million of equity to MCC JV, with the Company providing $87.5 million and GALIC providing $12.5 million. Approximately $89.8 million was funded as of September 30, 2020 relating to these commitments, of which $78.6 million was from the Company. As of September 30, 2020, MCC JV’s board of managers had approved advances of capital of up to $0.3 million of the remaining capital commitments, of which $0.2 million is from the Company.
MCC JV commenced operations on July 15, 2015. On August 4, 2015, MCC JV entered into a senior secured revolving credit facility (the “JV Facility”) led by Credit Suisse, AG with commitments of $100 million. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch (“DB”), and increased the total loan commitments to $200 million. The JV Facility bears interest at a rate of LIBOR (with no minimum + 2.75% per annum. On March 29, 2019, the JV Facility reinvestment period was extended to June 28, 2019 from March 30, 2019. On June 28, 2019, the JV Facility reinvestment period was extended to October 28, 2019. On October 28, 2019, the JV Facility reinvestment period was further extended from October 28, 2019 to March 31, 2020, the maturity date was extended to March 31, 2023 and the interest rate was modified from bearing an interest rate of LIBOR (with no minimum) + 2.50% per annum to LIBOR (with no minimum) + 2.75% per annum. As of September 30, 2020, there was approximately $111.3 million outstanding under the JV Facility.
As of September 30, 2020, MCC JV had total investments at fair value of $163.1 million. As of September 30, 2020, MCC JV’s portfolio was comprised of senior secured first lien term loans to 45 different borrowers. As of September 30, 2020, certain investments in one portfolio company were on non-accrual status. Subsequent to the year ended September 30, 2020, the Company, MCC JV, GALIC, and an affiliate of Golub Capital LLC entered into a Membership Interest Purchase Agreement pursuant to which a private fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in the MCC JV. In connection therewith, MCC JV repaid in full all outstanding borrowings under, and terminated, the JV Facility. See “Recent Developments” for more information.
The Company has determined that MCC JV is an investment company under ASC 946, however in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company does not consolidate its interest in MCC JV.
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Distributions
We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax, including the federal excise tax described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:
1)at least 98.0% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;
2)at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period ending on October 31st of the calendar year; and
3)income realized, but not distributed, in preceding years and on which we did not pay federal income tax.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to pay a specified level of dividends or year-to-year increases in dividends. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could limit our ability to pay dividends. All dividends will be paid at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to time. We cannot assure you that we will pay dividends to our stockholders in the future.
To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains.
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.
There were no dividend distributions during the year ended September 30, 2020:
Related Party Transactions
Concurrent with the pricing of our IPO, we entered into a number of business relationships with affiliated or related parties, including the following:
•We entered into the Investment Management Agreement with MCC Advisors. Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors, and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.
•MCC Advisors provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our administration agreement. We reimburse MCC Advisors for the allocable portion (subject to the review and approval of our board of directors) of overhead and other expenses incurred by it in performing its obligations under the administration agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
•We have entered into a license agreement with Medley Capital LLC, pursuant to which Medley Capital LLC has granted us a non-exclusive, royalty-free license to use the name “Medley.”
•Certain affiliates of MCC Advisors, Medley Capital LLC, their respective affiliates and some of their employees purchased in the IPO an aggregate of 833,333 shares of common stock at the IPO price per share of $12.00. We received the full proceeds from the sale of these shares, and no underwriting discounts or commissions were paid in respect of these shares.
On June 12, 2020, the Company entered into the Expense Support Agreement with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except
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interest expenses, certain extraordinary strategic transaction and expenses, and other expenses approved by the Special Committee) at $667,000 per month (the “Cap”). Under the Expense Support Agreement, the Cap became effective on June 1, 2020 and expired on September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.
MCC Advisors and its affiliates may in the future manage other accounts that have investment mandates that are similar, in whole and in part, with ours. MCC Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to MCC Advisors’ allocation policy, MCC Advisors or its affiliates may determine that we should invest side-by-side with one or more other accounts. We will not make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, the exemptive order granted by the SEC, or if they are inconsistent with MCC Advisors’ allocation procedures. Further, any investments made by related parties will be made in accordance with MCC Advisors’ related party transaction procedures.
On November 25, 2013, the Company obtained an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Medley, LLC or an investment adviser controlled by Medley, LLC in a manner consistent with our investment objective, strategies and restrictions, as well as regulatory requirements and other pertinent factors (the “Prior Exemptive Order”). On March 29, 2017, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “Current Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly or majority owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them.
In addition, we have adopted a formal code of ethics that governs the conduct of our and MCC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporation Law.
Investment Management Agreement
Under the terms of the Investment Management Agreement, MCC Advisors:
•determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
•identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and
•executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.
MCC Advisors’ services under the Investment Management Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.
Pursuant to the Investment Management Agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the Investment Management Agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.
The following discussion of our base management fee and two-part incentive fee reflects the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the Investment Management Agreement. The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company. In that regard, on May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020, without further action by our board of directors. On May 21, 2020, the board of directors,
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including all of the independent directors, extended the term of the Investment Management Agreement through the end of the quarter ended June 30, 2020. On June 15, 2020, the board of directors, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the quarter ended September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Investment Management Agreement through the end of quarter ending December 31, 2020. See "Recent Developments" and "Note 15" to the financial statements for more information.
Base Management Fee
For providing investment advisory and management services to us, MCC Advisors receives a base management fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears. The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter.
Incentive Fee
The incentive fee has two components, as follows:
Incentive Fee Based on Income
The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.
Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”
The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately prorated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.
Quarterly Incentive Fee Based on Income
The incentive fee on net investment income for each quarter is determined as follows:
•No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;
•100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and
•17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.
The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).
The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
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“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.
Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.
For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.
The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment management agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.
Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, when applicable, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Valuation of Portfolio Investments
We value investments for which market quotations are readily available at their market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments.
Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Our board of directors is ultimately and solely responsible for determining the fair value of the investments in our portfolio that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.
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With respect to investments for which market quotations are not readily available, our board of directors will undertake a multi-step valuation process each quarter, as described below:
•Our quarterly valuation process begins with each investment being initially valued by the valuation professionals responsible for monitoring the portfolio investment.
•Preliminary valuation conclusions are then documented and discussed with senior management.
•Independent third-party valuation firms are also employed for all of our investments for which there is not a readily available market value. At least twice annually, including at year end, the valuation for each portfolio investment is reviewed by an independent valuation firm.
•The audit committee of our board of directors reviews the preliminary valuations of the valuation professionals, senior management and independent valuation firms.
•Our audit committee reviews and the board of directors approves the valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.
In following these approaches, the types of factors that are taken into account in fair value pricing investments include available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the portfolio company’s earnings and discounted cash flows; the markets in which the portfolio company does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values.
Determination of fair values involves subjective judgments and estimates made by management. The notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.
Revenue Recognition
Our revenue recognition policies are as follows:
Investments and Related Investment Income We account for investment transactions on a trade-date basis and interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. Origination, closing and/or commitment fees associated with investments in portfolio companies are recognized as income when the investment transaction closes. Other fees are capitalized as deferred revenue and recorded into income over the respective period. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in the fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in our Consolidated Statements of Operations.
Non-accrual We place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At September 30, 2020, certain investments in eight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $21.7 million, or 8.8% of the fair value of our portfolio. At September 30, 2019, certain investments in seven portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $22.3 million, or 5.6% of the fair value of our portfolio. At September 30, 2018, certain investments in nine portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $48.1 million, or 7% of the fair value of our portfolio.
Federal Income Taxes
The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code, commencing with its first taxable year as a corporation, and it intends to operate in a manner so as to maintain its RIC tax treatment. As a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements. Once qualified as a RIC, the Company must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under Subchapter M of the Code. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which we did not pay federal income tax. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
66

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
Recent Developments
Subsequent to year ended September 30, 2020, the global outbreak of the COVID-19 pandemic has adversely affected some of the Company’s investments and continues to have adverse consequences on the U.S. and global economies. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. At the time of this filing, there is no indication of a reportable subsequent event impacting the Company’s financial statements adversely for the year ended September 30, 2020. The Company cannot predict the extent to which its financial condition and results of operations will be adversely affected at this time. The potential impact to our results will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.
On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement (the “Agreement”) pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively, on the terms and subject to the conditions set forth in the Agreement, including the representations, warranties, covenants and indemnities contained therein. The Company estimates that transaction expenses will be approximately $1.6 million resulting in net proceeds (including estimated transaction expenses) of $39.5 million. The Company is expected to record a realized loss for the quarter ending December 31, 2020 of approximately $40.3 million on its investment in MCC JV and a corresponding change in unrealized appreciation/depreciation of $38.9 million in order to reverse the previously recorded unrealized depreciation with respect to the investment. In connection with the closing of the transaction on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and terminated, the JV Facility.
On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021. The new management structure will replace the current Investment Management Agreement and the Administration Agreement, each of which expire on December 31, 2020. In further connection with the adoption by the board of directors of an internalized management structure, the board of directors appointed David Lorber as interim Chief Executive Officer of the Company, effective January 1, 2021, and Ellida McMillan as Chief Financial Officer of the Company, effective January 1, 2021. David Lorber’s base annual salary will be $425,000, with a discretionary annual bonus of up to 100% of the base annual salary. Ellida McMillan’s base annual salary will be $300,000, with a discretionary annual bonus of up to $200,000.
Also, in connection with the adoption of an internalized management structure, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services. In addition, effective January 1, 2021, the name of the Company will be changed to PhenixFIN Corporation.
On November 20, 2020 (the “Redemption Date”), the Company redeemed $74,012,825 in aggregate principal amount of the issued and outstanding 2021 Notes. The 2021 Notes were redeemed at 100% of their principal amount ($25 per 2021 Note), plus accrued and unpaid interest thereon from October 31, 2020, through, but excluding, the Redemption Date. The redemption will be accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments.
67

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments and cash and cash equivalents. Our investment income will be affected by changes in various interest rates, including LIBOR, to the extent our debt investments include floating interest rates. In the future, we expect other loans in our portfolio will have floating interest rates. In addition, U.S. and global capital markets and credit markets have experienced a higher level of stress due to the global COVID-19 pandemic, which has resulted in an increase in the level of volatility across such markets. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. For the year ended September 30, 2020, we did not engage in hedging activities.
As of September 30, 2020, 87.4% of our income-bearing investment portfolio bore interest based on floating rates. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in our operating expenses, including with respect to any income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. In contrast, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. In addition, a rise in interest rates may increase the likelihood that a portfolio company defaults on a loan. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. The composition of our floating rate debt investments by cash interest rate LIBOR floor as of September 30, 2020 was as follows (dollars in thousands):

|  | September 30, 2020
LIBOR Floor |  | Fair Value |  | % of Floating Rate Portfolio
Under 1% |  | $ | — |  |  | — | %
1% to under 2% |  | 90,958 |  |  | 100.0 |
2% to under 3% |  | — |  |  | — |
Total |  | $ | 90,958 |  |  | 100.0 | %

Based on our Consolidated Statements of Assets and Liabilities as of September 30, 2020, the following table (dollars in thousands) shows the approximate increase/(decrease) in components of net assets resulting from operations of hypothetical LIBOR base rate changes in interest rates, assuming no changes in our investment and capital structure.

Basis point increase/(decrease) |  | Interest Income(1) |  | Interest Expense |  | Net Increase/ (Decrease)
300 |  | $ | 2,200 |  |  | $ | — |  |  | $ | 2,200 |
200 |  | 1,300 |  |  | — |  |  | 1,300 |
100 |  | 300 |  |  | — |  |  | 300 |
(100) |  | — |  |  | — |  |  | — |
(200) |  | — |  |  | — |  |  | — |
(300) |  | — |  |  | — |  |  | — |

(1)Assumes no defaults or prepayments by portfolio companies over the next twelve months.
68

Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|  | Page
Report of Independent Registered Public Accounting Firm |  | F-1
Consolidated Statements of Assets and Liabilities as of September 30, 2020 and 2019 |  | F-2
Consolidated Statements of Operations for the years ended September 30, 2020, 2019 and 2018 |  | F-3
Consolidated Statements of Changes in Net Assets for the years ended September 30, 2020, 2019 and 2018 |  | F-5
Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018 |  | F-6
Consolidated Schedules of Investments as of September 30, 2020 and 2019 |  | F-7
Notes to Consolidated Financial Statements |  | F-18

69

Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Medley Capital Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities of Medley Capital Corporation (the Company), including the consolidated schedules of investments, as of September 30, 2020 and 2019, the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended September 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations, changes in its net assets, and its cash flows for each of the three years in the period ended September 30, 2020 in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 2020 and 2019, by correspondence with the custodians, directly with designees of the portfolio companies, debt agents and brokers, as applicable, or by other appropriate auditing procedures where replies were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010
New York, New York
December 11, 2020
F-1

Medley Capital Corporation
Consolidated Statements of Assets and Liabilities

| September 30, 2020 |  | September 30, 2019
ASSETS |  |  |
Investments at fair value |  |  |
Non-controlled/non-affiliated investments (amortized cost of $117,360,954 and $204,736,370, respectively) | $ | 114,321,948 |  |  | $ | 189,895,466 |
Affiliated investments (amortized cost of $92,898,755 and $108,310,029, respectively) | 84,873,023 |  |  | 99,539,605 |
Controlled investments (amortized cost of $117,874,821 and $154,601,177, respectively) | 47,548,578 |  |  | 107,453,927 |
Total investments at fair value | 246,743,549 |  |  | 396,888,998 |
Cash and cash equivalents | 56,522,148 |  |  | 68,245,213 |
Restricted cash (see Note 2) | — |  |  | 16,038,690 |
Other assets | 2,093,559 |  |  | 2,973,731 |
Interest receivable | 624,524 |  |  | 1,592,406 |
Receivable for dispositions and investments sold | — |  |  | 419,299 |
Fees receivable | 119,028 |  |  | 108,305 |
Total assets | $ | 306,102,808 |  |  | $ | 486,266,642 |
LIABILITIES |  |  |
Notes payable (net of debt issuance costs of $905,624 and $5,274,164, respectively) | $ | 150,960,662 |  |  | $ | 251,731,729 |
Accounts payable and accrued expenses | 2,108,225 |  |  | 11,956,755 |
Interest and fees payable | 801,805 |  |  | 2,904,748 |
Management and incentive fees payable (see Note 6) | 1,392,022 |  |  | 2,231,175 |
Administrator expenses payable (see Note 6) | 156,965 |  |  | 861,785 |
Deferred revenue | 10,529 |  |  | 103,583 |
Due to affiliate | 53,083 |  |  | 44,337 |
Total liabilities | $ | 155,483,291 |  |  | $ | 269,834,112 |
Guarantees and Commitments (see Note 8) |  |  |
NET ASSETS |  |  |
Common stock, par value $0.001 per share, 5,000,000 common shares authorized, 2,723,709 and 2,723,709 common shares issued and outstanding, respectively(1) | $ | 2,724 |  |  | $ | 2,724 |
Capital in excess of par value | 672,381,617 |  |  | 673,584,467 |
Total distributable earnings/(loss) | (521,764,824) |  |  | (457,154,661) |
Total net assets | 150,619,517 |  |  | 216,432,530 |
Total liabilities and net assets | $ | 306,102,808 |  |  | $ | 486,266,642 |
NET ASSET VALUE PER SHARE(1) | $ | 55.30 |  |  | $ | 79.46 |

(1)Authorized, issued and outstanding common shares and net asset value per share have been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.
See accompanying notes to consolidated financial statements.
F-2

Medley Capital Corporation
Consolidated Statements of Operations

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
INVESTMENT INCOME |  |  |  |  |
Interest from investments |  |  |  |  |
Non-controlled/non-affiliated investments: |  |  |  |  |
Cash | $ | 9,137,394 |  |  | $ | 25,368,027 |  |  | $ | 39,636,027 |
Payment-in-kind | 863,744 |  |  | 1,755,260 |  |  | 3,815,332 |
Affiliated investments: |  |  |  |  |
Cash | 1,182,294 |  |  | 2,197,555 |  |  | 2,177,167 |
Payment-in-kind | 2,425,557 |  |  | 2,604,279 |  |  | 3,398,660 |
Controlled investments: |  |  |  |  |
Cash | 84,505 |  |  | 337,956 |  |  | 1,521,820 |
Payment-in-kind | 500,767 |  |  | 2,800,890 |  |  | 3,560,572 |
Total interest income | 14,194,261 |  |  | 35,063,967 |  |  | 54,109,578 |
Dividend income (net of provisional taxes of $0, $0 and $(437,584), respectively) | 6,256,250 |  |  | 8,218,480 |  |  | 7,991,444 |
Interest from cash and cash equivalents | 378,077 |  |  | 712,017 |  |  | 245,356 |
Fee income (see Note 9) | 692,988 |  |  | 2,304,287 |  |  | 4,474,220 |
Total investment income | 21,521,576 |  |  | 46,298,751 |  |  | 66,820,598 |
EXPENSES |  |  |  |  |
Base management fees (see Note 6) | 6,358,750 |  |  | 11,189,646 |  |  | 14,723,910 |
Interest and financing expenses | 14,935,017 |  |  | 24,049,485 |  |  | 27,918,291 |
Professional fees (see Note 8) | (4,768,050) |  |  | 19,323,082 |  |  | 4,430,233 |
General and administrative | 3,285,259 |  |  | 7,398,534 |  |  | 2,170,904 |
Administrator expenses (see Note 6) | 2,226,831 |  |  | 3,323,989 |  |  | 3,582,162 |
Directors fees | 1,451,077 |  |  | 1,258,378 |  |  | 1,270,523 |
Insurance | 1,463,391 |  |  | 623,064 |  |  | 542,314 |
Expenses before expense support reimbursement and management and incentive fee waivers | 24,952,275 |  |  | 67,166,178 |  |  | 54,638,337 |
Expense support reimbursement (see Note 6) | (710,294) |  |  |  |  |
Management fee waiver (see Note 6) | — |  |  | — |  |  | (380,000) |
Total expenses net of expense support reimbursement and management and incentive fee waivers | 24,241,981 |  |  | 67,166,178 |  |  | 54,258,337 |
Net investment income before excise taxes | (2,720,405) |  |  | (20,867,427) |  |  | 12,562,261 |
Excise tax expense | — |  |  | — |  |  | (157,922) |
NET INVESTMENT INCOME/(LOSS) | (2,720,405) |  |  | (20,867,427) |  |  | 12,404,339 |
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS |  |  |  |  |
Net realized gain/(loss) from investments |  |  |  |  |
Non-controlled/non-affiliated investments | (9,973,416) |  |  | (24,762,224) |  |  | (89,221,587) |
Affiliated investments | (928,990) |  |  | (7,670,970) |  |  | — |
Controlled investments | (39,076,425) |  |  | (79,739,742) |  |  | — |
Net realized gain/(loss) from investments | (49,978,831) |  |  | (112,172,936) |  |  | (89,221,587) |
Net unrealized appreciation/(depreciation) on investments |  |  |  |  |
Non-controlled/non-affiliated investments | 9,898,237 |  |  | 20,727,499 |  |  | 14,044,097 |
Affiliated investments | 2,648,353 |  |  | (6,864,255) |  |  | (950,805) |
Controlled investments | (23,178,993) |  |  | 24,634,707 |  |  | (45,287,441) |
Net unrealized appreciation/(depreciation) on investments | (10,632,403) |  |  | 38,497,951 |  |  | (32,194,149) |
Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | — |  |  | — |  |  | 474,352 |
Loss on extinguishment of debt (see Note 5) | (2,481,374) |  |  | (2,032,655) |  |  | (2,386,957) |
Net realized and unrealized gain/(loss) on investments | (63,092,608) |  |  | (75,707,640) |  |  | (123,328,341) |
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (65,813,013) |  |  | $ | (96,575,067) |  |  | $ | (110,924,002) |
WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE(1) | $ | (24.16) |  |  | $ | (35.46) |  |  | $ | (40.73) |
WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE(1) | $ | (1.00) |  |  | $ | (7.66) |  |  | $ | 4.55 |
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (SEE NOTE 11)(1) | 2,723,709 |  |  | 2,723,709 |  |  | 2,723,709 |
DIVIDENDS DECLARED PER COMMON SHARE(2) | $ | — |  |  | $ | 3.00 |  |  | $ | 10.40 |

(1)Basic and diluted shares has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.
F-3

(2)Dividends declared per common share has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.
See accompanying notes to consolidated financial statements.
F-4

Medley Capital Corporation
Consolidated Statements of Changes in Net Assets

| Common Stock |  | Total Distributable Earnings/(Loss) |  | Total Net Assets
| Shares(1) |  | Par Amount |  | Capital in Excess of Par Value |  |
Balance at September 30, 2017 | 2,723,709 |  |  | $ | 2,724 |  |  | $ | 705,097,848 |  |  | $ | (244,671,255) |  |  | $ | 460,429,317 |
OPERATIONS |  |  |  |  |  |  |  |  |
Net investment income/(loss) | — |  |  | — |  |  | — |  |  | 12,404,339 |  |  | 12,404,339 |
Net realized gain/(loss) from investments | — |  |  | — |  |  | — |  |  | (89,221,587) |  |  | (89,221,587) |
Net unrealized appreciation/(depreciation) on investments | — |  |  | — |  |  | — |  |  | (32,194,149) |  |  | (32,194,149) |
Change in provision for deferred taxes on unrealized (appreciation)/depreciation on investments | — |  |  | — |  |  | — |  |  | 474,352 |  |  | 474,352 |
Net loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | (2,386,957) |  |  | (2,386,957) |
SHAREHOLDER DISTRIBUTIONS |  |  |  |  |  |  |  |  |
Distributions from earnings | — |  |  | — |  |  | — |  |  | (22,025,185) |  |  | (22,025,185) |
Return of Capital |  |  |  |  | (6,301,403) |  |  | — |  |  | (6,301,403) |
Tax reclassification of shareholders' equity in accordance with generally accepted accounting principals | — |  |  | — |  |  | (157,925) |  |  | 157,925 |  |  | — |
Total increase/(decrease) in net assets | — |  |  | — |  |  | (6,459,328) |  |  | (132,791,262) |  |  | (139,250,590) |
Balance at September 30, 2018 | 2,723,709 |  |  | 2,724 |  |  | 698,638,520 |  |  | (377,462,517) |  |  | 321,178,727 |
OPERATIONS |  |  |  |  |  |  |  |  |
Net investment income/(loss) | — |  |  | — |  |  | — |  |  | (20,867,427) |  |  | (20,867,427) |
Net realized gain/(loss) from investments | — |  |  | — |  |  | — |  |  | (112,172,936) |  |  | (112,172,936) |
Net unrealized appreciation/(depreciation) on investments | — |  |  | — |  |  | — |  |  | 38,497,951 |  |  | 38,497,951 |
Net loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | (2,032,655) |  |  | (2,032,655) |
SHAREHOLDER DISTRIBUTIONS |  |  |  |  |  |  |  |  |
Return of capital | — |  |  | — |  |  | (8,171,130) |  |  | — |  |  | (8,171,130) |
Tax reclassification of shareholders' equity in accordance with generally accepted accounting principals | — |  |  | — |  |  | (16,882,923) |  |  | 16,882,923 |  |  | — |
Total increase/(decrease) in net assets | — |  |  | — |  |  | (25,054,053) |  |  | (79,692,144) |  |  | (104,746,197) |
Balance at September 30, 2019 | 2,723,709 |  |  | 2,724 |  |  | 673,584,467 |  |  | (457,154,661) |  |  | 216,432,530 |
OPERATIONS |  |  |  |  |  |  |  |  |
Net investment income/(loss) | — |  |  | — |  |  | — |  |  | (2,720,405) |  |  | (2,720,405) |
Net realized gain/(loss) from investments | — |  |  | — |  |  | — |  |  | (49,978,831) |  |  | (49,978,831) |
Net unrealized appreciation/(depreciation) on investments | — |  |  | — |  |  | — |  |  | (10,632,403) |  |  | (10,632,403) |
Net loss on extinguishment of debt | — |  |  | — |  |  | — |  |  | (2,481,374) |  |  | (2,481,374) |
SHAREHOLDER DISTRIBUTIONS |  |  |  |  |  |  |  |  |
Tax reclassification of shareholders' equity in accordance with generally accepted accounting principals | — |  |  | — |  |  | (1,202,850) |  |  | 1,202,850 |  |  | — |
Total increase/(decrease) in net assets | — |  |  | — |  |  | (1,202,850) |  |  | (64,610,163) |  |  | (65,813,013) |
Balance at September 30, 2020 | 2,723,709 |  |  | $ | 2,724 |  |  | $ | 672,381,617 |  |  | $ | (521,764,824) |  |  | $ | 150,619,517 |

(1)Shares of Common Stock have been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.
See accompanying notes to consolidated financial statements.
F-5

Medley Capital Corporation
Consolidated Statements of Cash Flows

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Cash flows from operating activities |  |  |  |  |
NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS | $ | (65,813,013) |  |  | $ | (96,575,067) |  |  | $ | (110,924,002) |
ADJUSTMENTS TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES: |  |  |  |  |
Investment increases due to Payment-in-kind interest | (4,211,154) |  |  | (9,606,292) |  |  | (9,545,703) |
Net amortization of premium/(discount) on investments | (118,290) |  |  | (286,665) |  |  | (959,112) |
Amortization of debt issuance costs | 2,870,483 |  |  | 3,022,516 |  |  | 3,583,158 |
Net realized (gain)/loss from investments | 49,978,831 |  |  | 112,172,936 |  |  | 89,221,587 |
Net deferred income taxes | — |  |  | — |  |  | (911,936) |
Net unrealized (appreciation)/depreciation on investments | 10,632,403 |  |  | (38,497,951) |  |  | 32,194,149 |
Proceeds from sale and settlements of investments | 110,627,326 |  |  | 261,233,495 |  |  | 267,611,933 |
Purchases, originations and participations | (16,763,667) |  |  | (66,474,607) |  |  | (196,961,869) |
Loss on extinguishment of debt | 2,481,374 |  |  | 2,032,655 |  |  | 2,386,957 |
(Increase)/decrease in operating assets: |  |  |  |  |
Other assets | 880,172 |  |  | 446,711 |  |  | (98,620) |
Interest receivable | 967,883 |  |  | 4,784,670 |  |  | 2,993,972 |
Receivable for dispositions and investments sold | 419,299 |  |  | (259,042) |  |  | 71,638 |
Fees receivable | (10,723) |  |  | 78,971 |  |  | 578,480 |
Increase/(decrease) in operating liabilities: |  |  |  |  |
Accounts payable and accrued expenses | (9,848,530) |  |  | 9,020,922 |  |  | 1,072,287 |
Interest and fees payable | (2,102,943) |  |  | (375,270) |  |  | (479,873) |
Management and incentive fees payable, net | (839,153) |  |  | (1,116,499) |  |  | (964,330) |
Administrator expenses payable | (704,820) |  |  | 53,239 |  |  | (51,248) |
Deferred revenue | (93,054) |  |  | (88,569) |  |  | (67,400) |
Due to affiliate | 8,746 |  |  | 5,286 |  |  | (42,296) |
NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES | 78,361,170 |  |  | 179,571,439 |  |  | 78,707,772 |
Cash flows from financing activities |  |  |  |  |
Borrowings on debt | — |  |  | — |  |  | 140,775,690 |
Paydowns on debt | (106,122,925) |  |  | (163,122,780) |  |  | (217,500,000) |
Debt issuance costs paid | — |  |  | (14,361) |  |  | (6,515,112) |
Payments of cash dividends | — |  |  | (8,171,130) |  |  | (28,326,588) |
Offering costs paid | — |  |  | 354,754 |  |  | (47,739) |
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES | (106,122,925) |  |  | (170,953,517) |  |  | (111,613,749) |
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | (27,761,755) |  |  | 8,617,922 |  |  | (32,905,977) |
CASH, RESTRICTED CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 84,283,903 |  |  | 75,665,981 |  |  | 108,571,958 |
CASH, RESTRICTED CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 56,522,148 |  |  | $ | 84,283,903 |  |  | $ | 75,665,981 |
Supplemental Information: |  |  |  |  |
Interest paid during the year | $ | 14,167,477 |  |  | $ | 21,402,239 |  |  | $ | 24,676,749 |
Supplemental non-cash information: |  |  |  |  |
Non-cash purchase of investments | $ | 12,950,924 |  |  | $ | 20,576,235 |  |  | $ | 7,443,658 |
Non-cash sale of investments | $ | 12,950,924 |  |  | $ | 20,528,752 |  |  | $ | 7,443,658 |

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Cash | $ | 56,522,148 |  |  | $ | 68,245,213 |  |  | $ | 75,665,981 |
Restricted Cash | — |  |  | 16,038,690 |  |  | — |
Total cash and restricted cash shown in the statement of cash flows | $ | 56,522,148 |  |  | $ | 84,283,903 |  |  | $ | 75,665,981 |

See accompanying notes to consolidated financial statements.
F-6

Medley Capital Corporation
Consolidated Schedule of Investments
September 30, 2020

Company(1) |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value(6) |  | % of Net Assets(4)
Non-Controlled/Non-Affiliated Investments: |  |  |  |  |  |  |  |  |  |  |  |
Alpine SG, LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13) |  | 11/16/2022 |  | 4,715,809 |  |  | 4,715,809 |  |  | 4,466,815 |  |  | 3.0 | %
|  |  |  | Senior Secured Incremental First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) |  | 11/16/2022 |  | 472,087 |  |  | 472,087 |  |  | 472,087 |  |  | 0.3 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13) |  | 11/16/2022 |  | 2,277,293 |  |  | 2,277,293 |  |  | 2,157,052 |  |  | 1.4 | %
|  |  |  | Revolving Credit Facility (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)(15) |  | 11/16/2022 |  | 1,000,000 |  |  | 1,000,000 |  |  | 947,200 |  |  | 0.6 | %
|  |  |  |  |  |  |  | 8,465,189 |  |  | 8,465,189 |  |  | 8,043,154 |  |  |
American Dental Partners, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) |  | 9/25/2023 |  | 4,387,500 |  |  | 4,387,500 |  |  | 3,948,750 |  |  | 2.6 | %
|  |  |  |  |  |  |  | 4,387,500 |  |  | 4,387,500 |  |  | 3,948,750 |  |  |
Autosplice, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13) |  | 12/17/2021 |  | 12,780,349 |  |  | 12,780,349 |  |  | 11,898,505 |  |  | 7.9 | %
|  |  |  |  |  |  |  | 12,780,349 |  |  | 12,780,349 |  |  | 11,898,505 |  |  |
Avantor, Inc.(10) |  | Wholesale |  | Equity - 545,931 Common Units(16) |  |  |  | — |  |  | 9,553,793 |  |  | 12,277,988 |  |  | 8.2 | %
|  |  |  |  |  |  |  | — |  |  | 9,553,793 |  |  | 12,277,988 |  |  |
Be Green Packaging, LLC |  | Containers, Packaging & Glass |  | Equity - 417 Common Units |  |  |  | — |  |  | 416,250 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 416,250 |  |  | — |  |  |
CM Finance SPV, LLC |  | Banking, Finance, Insurance & Real Estate |  | Unsecured Debt |  | 6/24/2021 |  | 101,463 |  |  | 101,463 |  |  | 101,463 |  |  | 0.1 | %
|  |  |  |  |  |  |  | 101,463 |  |  | 101,463 |  |  | 101,463 |  |  |
CPI International, Inc. |  | Aerospace & Defense |  | Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(12) |  | 7/28/2025 |  | 2,607,062 |  |  | 2,598,252 |  |  | 2,219,392 |  |  | 1.5 | %
|  |  |  |  |  |  |  | 2,607,062 |  |  | 2,598,252 |  |  | 2,219,392 |  |  |
Crow Precision Components, LLC |  | Aerospace & Defense |  | Equity - 350 Common Units |  |  |  | — |  |  | 700,000 |  |  | 723,131 |  |  | 0.5 | %
|  |  |  |  |  |  |  | — |  |  | 700,000 |  |  | 723,131 |  |  |
CT Technologies Intermediate Holdings, Inc.(11) |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13) |  | 12/1/2022 |  | 7,500,000 |  |  | 7,500,000 |  |  | 6,832,500 |  |  | 4.5 | %
|  |  |  |  |  |  |  | 7,500,000 |  |  | 7,500,000 |  |  | 6,832,500 |  |  |
DataOnline Corp.(7) |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) |  | 11/13/2025 |  | 4,962,500 |  |  | 4,962,500 |  |  | 4,786,331 |  |  | 3.2 | %
|  |  |  | Revolving Credit Facility (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)(15) |  | 11/13/2025 |  | 535,714 |  |  | 535,714 |  |  | 510,357 |  |  | 0.3 | %
|  |  |  |  |  |  |  | 5,498,214 |  |  | 5,498,214 |  |  | 5,296,688 |  |  |
Dream Finders Homes, LLC |  | Construction & Building |  | Preferred Equity (8.00% PIK) |  |  |  | 4,531,472 |  |  | 4,531,472 |  |  | 3,928,786 |  |  | 2.6 | %

F-7

Company(1) |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value(6) |  | % of Net Assets(4)
|  |  |  |  |  |  |  | 4,531,472 |  |  | 4,531,472 |  |  | 3,928,786 |  |  |
Footprint Acquisition, LLC |  | Services: Business |  | Preferred Equity (8.75% PIK) |  |  |  | 3,969,998 |  |  | 3,969,998 |  |  | 3,969,998 |  |  | 2.6 | %
|  |  |  | Equity - 150 Common Units |  |  |  | — |  |  | — |  |  | 1,960,830 |  |  | 1.3 | %
|  |  |  |  |  |  |  | 3,969,998 |  |  | 3,969,998 |  |  | 5,930,828 |  |  |
Global Accessories Group, LLC(11) |  | Consumer goods: Non-durable |  | Equity - 3.8% Membership Interest |  |  |  | — |  |  | 151,337 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 151,337 |  |  | — |  |  |
Impact Group, LLC |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13) |  | 6/27/2023 |  | 3,219,964 |  |  | 3,219,964 |  |  | 2,994,565 |  |  | 2.0 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 7.37% Cash, 1.00% LIBOR Floor)(13) |  | 6/27/2023 |  | 9,330,056 |  |  | 9,330,056 |  |  | 8,676,952 |  |  | 5.8 | %
|  |  |  |  |  |  |  | 12,550,020 |  |  | 12,550,020 |  |  | 11,671,517 |  | — |  |
InterFlex Acquisition Company, LLC |  | Containers, Packaging & Glass |  | Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) |  | 8/18/2022 |  | 12,098,406 |  |  | 12,098,406 |  |  | 11,987,100 |  |  | 8.0 | %
|  |  |  |  |  |  |  | 12,098,406 |  |  | 12,098,406 |  |  | 11,987,100 |  |  |
Lighting Science Group Corporation |  | Containers, Packaging & Glass |  | Warrants - 0.62% of Outstanding Equity(17) |  | 2/19/2024 |  | — |  |  | 955,680 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 955,680 |  |  | — |  |  |
Manna Pro Products, LLC |  | Consumer goods: Non-durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/8/2023 |  | 5,343,674 |  |  | 5,343,674 |  |  | 5,123,515 |  |  | 3.4 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/8/2023 |  | 1,085,219 |  |  | 1,085,219 |  |  | 1,040,508 |  |  | 0.7 | %
|  |  |  |  |  |  |  | 6,428,893 |  |  | 6,428,893 |  |  | 6,164,023 |  |  |
Point.360 |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(9)(14)(21) |  | 7/8/2020 |  | 2,777,366 |  |  | 2,103,712 |  |  | 186,083 |  |  | 0.1 | %
|  |  |  |  |  |  |  | 2,777,366 |  |  | 2,103,712 |  |  | 186,083 |  |  |
RateGain Technologies, Inc. |  | Hotel, Gaming & Leisure |  | Unsecured Debt(18) |  | 7/31/2020 |  | 704,106 |  |  | 704,106 |  |  | — |  |  | 0.0 | %
|  |  |  | Unsecured Debt(18) |  | 7/31/2021 |  | 761,905 |  |  | 761,905 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 1,466,011 |  |  | 1,466,011 |  |  | — |  |  |
Redwood Services Group, LLC(7) |  | Services: Business |  | Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12 )(15) |  | 6/6/2023 |  | 700,000 |  |  | 700,000 |  |  | 647,500 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 700,000 |  |  | 700,000 |  |  | 647,500 |  |  |
Sendero Drilling Company, LLC |  | Energy: Oil & Gas |  | Unsecured Debt (8.00% Cash)(9) |  | 8/31/2021 |  | 488,750 |  |  | 465,319 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 488,750 |  |  | 465,319 |  |  | — |  |  |
Seotowncenter, Inc. |  | Services: Business |  | Equity - 3,434,169.6 Common Units |  |  |  | — |  |  | 566,475 |  |  | 686,834 |  |  | 0.5 | %
|  |  |  |  |  |  |  | — |  |  | 566,475 |  |  | 686,834 |  |  |
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) |  | 9/1/2022 |  | 4,776,955 |  |  | 4,776,955 |  |  | 4,733,962 |  |  | 3.1 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) |  | 9/1/2022 |  | 1,852,522 |  |  | 1,852,522 |  |  | 1,835,850 |  |  | 1.2 | %
|  |  |  | Equity - 101,165.93 Common Units in CI (Summit) Investment Holdings LLC |  |  |  | — |  |  | 1,067,546 |  |  | 657,578 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 6,629,477 |  |  | 7,697,023 |  |  | 7,227,390 |  |  |

F-8

Company(1) |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value(6) |  | % of Net Assets(4)
SMART Financial Operations, LLC |  | Retail |  | Equity - 700,000 Class A Preferred Units |  |  |  | — |  |  | 700,000 |  |  | 343,000 |  |  | 0.2 | %
|  |  |  |  |  |  |  | — |  |  | 700,000 |  |  | 343,000 |  |  |
Stancor, Inc. |  | Services: Business |  | Equity - 263,814.43 Class A Units |  |  |  | — |  |  | 263,814 |  |  | 150,374 |  |  | 0.1 | %
|  |  |  |  |  |  |  | — |  |  | 263,814 |  |  | 150,374 |  |  |
Starfish Holdco, LLC |  | High Tech Industries |  | Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) |  | 8/18/2025 |  | 1,000,000 |  |  | 989,935 |  |  | 926,500 |  |  | 0.6 | %
|  |  |  |  |  |  |  | 1,000,000 |  |  | 989,935 |  |  | 926,500 |  | — |  |
URT Acquisition Holdings Corporation |  | Services: Business |  | Unsecured Debt (10.00% PIK) |  | 6/23/2021 |  | 2,567,929 |  |  | 2,567,929 |  |  | 2,567,929 |  |  | 1.7 | %
|  |  |  |  |  |  |  | 2,567,929 |  |  | 2,567,929 |  |  | 2,567,929 |  |  |
Velocity Pooling Vehicle, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 11.00% PIK, 1.00% LIBOR Floor)(13) |  | 4/28/2023 |  | 1,014,440 |  |  | 951,628 |  |  | 1,014,440 |  |  | 0.7 | %
|  |  |  | Equity - 5,441 Class A Units |  |  |  | — |  |  | 302,464 |  |  | 12,841 |  |  | 0.0 | %
|  |  |  | Warrants - 0.65% of Outstanding Equity |  | 3/30/2028 |  | — |  |  | 361,667 |  |  | 15,354 |  |  | 0.0 | %
|  |  |  |  |  |  |  | 1,014,440 |  |  | 1,615,759 |  |  | 1,042,635 |  |  |
Walker Edison Furniture Company LLC |  | Consumer goods: Durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13) |  | 9/26/2024 |  | 3,519,878 |  |  | 3,519,878 |  |  | 3,519,878 |  |  | 2.3 | %
|  |  |  | Equity - 1,500 Common Units |  |  |  | — |  |  | 1,500,000 |  |  | 6,000,000 |  |  | 4.0 | %
|  |  |  |  |  |  |  | 3,519,878 |  |  | 5,019,878 |  |  | 9,519,878 |  |  |
Watermill-QMC Midco, Inc. |  | Automotive |  | Equity - 1.3% Partnership Interest(8) |  |  |  | — |  |  | 518,283 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 518,283 |  |  | — |  |  |
Subtotal Non-Controlled/Non-Affiliated Investments |  |  |  | $ | 101,082,417 |  |  | $ | 117,360,954 |  |  | $ | 114,321,948 |  |  |
Affiliated Investments:(20) |  |  |  |  |  |  |  |  |  |  |  |
1888 Industrial Services, LLC(7) |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(9)(13) |  | 9/30/2021 |  | 9,946,741 |  |  | 9,473,067 |  |  | — |  |  | 0.0 | %
|  |  |  | Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(9)(13) |  | 9/30/2021 |  | 25,937,520 |  |  | 19,468,870 |  |  | — |  |  | 0.0 | %
|  |  |  | Senior Secured First Lien Term Loan C (LIBOR + 5.00%, 1.00% LIBOR Floor)(9)(13) |  | 9/30/2021 |  | 1,231,932 |  |  | 1,191,257 |  |  | 1,166,763 |  |  | 0.8 | %
|  |  |  | Revolving Credit Facility (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13)(15) |  | 9/30/2021 |  | 3,554,069 |  |  | 3,554,069 |  |  | 3,554,069 |  |  | 2.4 | %
|  |  |  | Equity - 17,493.63 Class A Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 40,670,262 |  |  | 33,687,263 |  |  | 4,720,832 |  |  |
Access Media Holdings, LLC |  | Media: Broadcasting & Subscription |  | Senior Secured First Lien Term Loan (10.00% PIK)(9)(21) |  | 7/22/2020 |  | 11,105,630 |  |  | 8,446,385 |  |  | 1,110,563 |  |  | 0.7 | %
|  |  |  | Preferred Equity Series A |  |  |  | 1,600,000 |  |  | 1,600,000 |  |  | — |  |  | 0.0 | %
|  |  |  | Preferred Equity Series AA |  |  |  | 800,000 |  |  | 800,000 |  |  | — |  |  | 0.0 | %
|  |  |  | Preferred Equity Series AAA |  |  |  | 971,200 |  |  | 971,200 |  |  | — |  |  | 0.0 | %
|  |  |  | Equity - 16 Common Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 14,476,830 |  |  | 11,817,585 |  |  | 1,110,563 |  |  |
Black Angus Steakhouses, LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/31/2020 |  | 758,929 |  |  | 758,929 |  |  | 758,929 |  |  | 0.5 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 9.00% PIK, 1.00% LIBOR Floor)(9)(12) |  | 12/31/2020 |  | 8,412,596 |  |  | 7,767,532 |  |  | 5,047,557 |  |  | 3.4 | %

F-9

Company(1) |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value(6) |  | % of Net Assets(4)
|  |  |  | Equity - 17.9% Membership Interest |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 9,171,525 |  |  | 8,526,461 |  |  | 5,806,486 |  |  |
Caddo Investors Holdings 1 LLC(10) |  | Forest Products & Paper |  | Equity - 6.15% Membership Interest(19) |  |  |  | — |  |  | 2,528,826 |  |  | 2,990,776 |  |  | 2.0 | %
|  |  |  |  |  |  |  | — |  |  | 2,528,826 |  |  | 2,990,776 |  | — |  |
Dynamic Energy Services International LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(9)(14) |  | 12/31/2021 |  | 12,930,235 |  |  | 7,824,974 |  |  | 905,116 |  |  | 0.6 | %
|  |  |  | Equity - 12,350,000 Class A Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 12,930,235 |  |  | 7,824,974 |  |  | 905,116 |  |  |
JFL-NGS Partners, LLC |  | Construction & Building |  | Preferred Equity - A-2 Preferred (3.00% PIK) |  |  |  | 1,795,034 |  |  | 1,795,034 |  |  | 1,795,034 |  |  | 1.2 | %
|  |  |  | Preferred Equity - A-1 Preferred (3.00% PIK) |  |  |  | 232,292 |  |  | 232,292 |  |  | 232,292 |  |  | 0.2 | %
|  |  |  | Equity - 57,300 Class B Units |  |  |  | — |  |  | 57,300 |  |  | 38,780,067 |  |  | 25.7 | %
|  |  |  |  |  |  |  | 2,027,326 |  |  | 2,084,626 |  |  | 40,807,393 |  | — |  |
JFL-WCS Partners, LLC |  | Environmental Industries |  | Preferred Equity - Class A Preferred (6.00% PIK) |  |  |  | 1,310,649 |  |  | 1,310,649 |  |  | 1,310,649 |  |  | 0.9 | %
|  |  |  | Equity - 129,588 Class B Units |  |  |  | — |  |  | 129,588 |  |  | 4,535,580 |  |  | 3.0 | %
|  |  |  |  |  |  |  | 1,310,649 |  |  | 1,440,237 |  |  | 5,846,229 |  | — |  |
Kemmerer Operations, LLC(7) |  | Metals & Mining |  | Senior Secured First Lien Term Loan (15.00% PIK) |  | 6/21/2023 |  | 2,051,705 |  | — |  | 2,051,705 |  | — |  | 2,051,705 |  |  | 1.4 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK) |  | 6/21/2023 |  | 515,699 |  | — |  | 515,699 |  | — |  | 515,699 |  |  | 0.4 | %
|  |  |  | Equity - 6.7797 Common Units |  |  |  | — |  | — |  | 962,717 |  | — |  | 962,717 |  |  | 0.6 | %
|  |  |  |  |  |  |  | 2,567,404 |  |  | 3,530,121 |  |  | 3,530,121 |  |  |
Path Medical, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan A (LIBOR + 9.50% Cash, 1.00% LIBOR Floor)(12) |  | 10/11/2021 |  | 5,905,080 |  | — |  | 5,905,080 |  | — |  | 5,905,080 |  |  | 3.9 | %
|  |  |  | Senior Secured First Lien Term Loan B (LIBOR + 13% PIK, 1.00% LIBOR Floor)(9)(12) |  | 10/11/2021 |  | 7,783,840 |  | — |  | 6,599,918 |  | — |  | 6,794,514 |  |  | 4.5 | %
|  |  |  | Warrants - 7.68% of Outstanding Equity |  | 1/9/2027 |  | — |  | — |  | 499,751 |  | — |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 13,688,920 |  |  | 13,004,749 |  |  | 12,699,594 |  |  |
US Multifamily, LLC(10) |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (10.00% Cash) |  | 6/17/2021 |  | 5,123,913 |  |  | 5,123,913 |  |  | 5,123,913 |  |  | 3.4 | %
|  |  |  | Equity - 33,300 Preferred Units |  |  |  | — |  |  | 3,330,000 |  |  | 1,332,000 |  |  | 0.9 | %
|  |  |  |  |  |  |  | 5,123,913 |  |  | 8,453,913 |  |  | 6,455,913 |  |  |
Subtotal Affiliated Investments |  |  |  |  |  | $ | 101,967,064 |  |  | $ | 92,898,755 |  |  | $ | 84,873,023 |  |  |
Controlled Investments:(5) |  |  |  |  |  |  |  |  |  |  |  |
MCC Senior Loan Strategy JV I LLC(10) |  | Multisector Holdings |  | Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC |  |  |  | — |  |  | 79,887,500 |  |  | 41,018,500 |  |  | 27.2 | %
|  |  |  |  |  |  |  | — |  |  | 79,887,500 |  |  | 41,018,500 |  |  |
NVTN LLC(7) |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12) |  | 12/31/2024 |  | 6,565,875 |  |  | 6,565,875 |  |  | 4,530,078 |  |  | 3.0 | %
|  |  |  | Senior Secured First Lien Super Priority DDTL (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(9)(12) |  | 12/31/2024 |  | 2,000,000 |  |  | 1,995,374 |  |  | 2,000,000 |  |  | 1.3 | %
|  |  |  | Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(9)(12) |  | 12/31/2024 |  | 14,963,195 |  |  | 12,305,096 |  |  | — |  |  | 0.0 | %

F-10

Company(1) |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value(6) |  | % of Net Assets(4)
|  |  |  | Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(9)(12) |  | 12/31/2024 |  | 10,014,223 |  |  | 7,570,054 |  |  | — |  |  | 0.0 | %
|  |  |  | Equity - 787.4 Class A Units |  |  |  | — |  |  | 9,550,922 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 33,543,293 |  |  | 37,987,321 |  |  | 6,530,078 |  |  |
Subtotal Control Investments |  |  |  |  |  | $ | 33,543,293 |  |  | $ | 117,874,821 |  |  | $ | 47,548,578 |  |  |
Total Investments, September 30, 2020 |  |  |  |  |  | $ | 236,592,774 |  |  | $ | 328,134,530 |  |  | $ | 246,743,549 |  |  | 163.8 | %

(1)All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.
(3)Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for U.S. federal income tax purposes totaled $53,757,923, $134,877,746, and $81,119,823, respectively. The tax cost basis of investments is $327,863,372 as of September 30, 2020.
(4)Percentage is based on net assets of $150,619,517 as of September 30, 2020.
(5)Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(6)Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).
(7)The investment has an unfunded commitment as of September 30, 2020 (see Note 8), and includes an analysis of the value of any unfunded commitments.
(8)Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.
(9)The investment was on non-accrual status as of September 30, 2020.
(10)The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2020, 25.4% of the Company's portfolio investments were non-qualifying assets.
(11)A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by the Company (see Note 3).
(12)The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2020 was 0.15%.
(13)The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2020 was 0.23%.
(14)The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2020 was 0.24%.
(15)This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2020, and is recorded as a component of interest income on the Consolidated Statements of Operations.
(16)This investment represents a Level 1 security in the ASC 820 table as of September 30, 2020 (see Note 4).
(17)This investment represents a Level 2 security in the ASC 820 table as of September 30, 2020 (see Note 4).
(18)Security is non-income producing.
(19)As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.
(20)Affiliated Investments are defined by the 1940 Act as investments in companies in which the Company owns between 5% and 25% outstanding voting securities or is under common control with such portfolio company.
(21)The investment was past due as of September 30, 2020.
See accompanying notes to consolidated financial statements.
F-11

Medley Capital Corporation
Consolidated Schedule of Investments
September 30, 2019

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
Non-Controlled/Non-Affiliated Investments: |  |  |  |  |  |  |  |  |  |  |  |
Alpine SG, LLC(7) |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.50% Cash, 1.00% LIBOR Floor)(13)(22) |  | 11/16/2022 |  | $ | 5,061,750 |  |  | $ | 5,061,750 |  |  | $ | 5,020,244 |  |  | 2.3 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 5.50% Cash, 1.00% LIBOR Floor)(13)(22) |  | 11/16/2022 |  | 2,444,350 |  |  | 2,444,350 |  |  | 2,434,306 |  |  | 1.1 | %
|  |  |  | Revolving Credit Facility (LIBOR + 5.50% Cash, 1.00% LIBOR Floor)(13)(16) |  | 11/16/2022 |  | — |  |  | — |  |  | (8,200) |  |  | 0.0 | %
|  |  |  |  |  |  |  | 7,506,100 |  |  | 7,506,100 |  |  | 7,446,350 |  |  |
American Dental Partners, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13) |  | 9/25/2023 |  | 4,387,500 |  |  | 4,387,500 |  |  | 4,274,741 |  |  | 2.0 | %
|  |  |  |  |  |  |  | 4,387,500 |  |  | 4,387,500 |  |  | 4,274,741 |  |  |
Autosplice, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(13) |  | 6/17/2020 |  | 13,336,018 |  |  | 13,336,018 |  |  | 13,252,001 |  |  | 6.1 | %
|  |  |  |  |  |  |  | 13,336,018 |  |  | 13,336,018 |  |  | 13,252,001 |  |  |
Avantor, Inc.(10) |  | Wholesale |  | Equity - 942,160 Common Units(17) |  |  |  | — |  |  | 16,487,800 |  |  | 13,849,752 |  |  | 6.4 | %
|  |  |  |  |  |  |  | — |  |  | 16,487,800 |  |  | 13,849,752 |  |  |
Barry's Bootcamp Holdings, LLC |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(23) |  | 7/14/2022 |  | 7,609,499 |  |  | 7,609,499 |  |  | 7,609,499 |  |  | 3.5 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(13) |  | 7/14/2022 |  | 1,268,251 |  |  | 1,268,251 |  |  | 1,268,251 |  |  | 0.6 | %
|  |  |  | Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(16)(22) |  | 7/14/2022 |  | 4,400,000 |  |  | 4,400,000 |  |  | 4,400,000 |  |  | 2.0 | %
|  |  |  |  |  |  |  | 13,277,750 |  |  | 13,277,750 |  |  | 13,277,750 |  |  |
Be Green Packaging, LLC |  | Containers, Packaging & Glass |  | Equity - 417 Common Units |  |  |  | — |  |  | 416,250 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 416,250 |  |  | — |  |  |
Black Angus Steakhouses, LLC(7) |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(23) |  | 4/24/2020 |  | 7,341,518 |  |  | 7,341,518 |  |  | 7,307,747 |  |  | 3.4 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13) |  | 4/24/2020 |  | — |  |  | — |  |  | (4,107) |  |  | 0.0 | %
|  |  |  | Revolving Credit Facility (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(13)(16) |  | 4/24/2020 |  | 892,857 |  |  | 892,857 |  |  | 890,804 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 8,234,375 |  |  | 8,234,375 |  |  | 8,194,444 |  |  |
Capstone Nutrition Development, LLC |  | Healthcare & Pharmaceuticals |  | Equity - 13,833.1916 Common Units |  |  |  | — |  |  | 1,383,319 |  |  | 1,383,319 |  |  | 0.6 | %
|  |  |  |  |  |  |  | — |  |  | 1,383,319 |  |  | 1,383,319 |  |  |
CPI International, Inc. |  | Aerospace & Defense |  | Senior Secured Second Lien Term Loan (LIBOR + 7.25% Cash, 1.00% LIBOR Floor)(12) |  | 7/28/2025 |  | 3,010,025 |  |  | 2,998,111 |  |  | 2,937,483 |  |  | 1.4 | %
|  |  |  |  |  |  |  | 3,010,025 |  |  | 2,998,111 |  |  | 2,937,483 |  |  |
Crow Precision Components, LLC |  | Aerospace & Defense |  | Equity - 350 Common Units |  |  |  | — |  |  | 700,000 |  |  | 666,998 |  |  | 0.3 | %

F-12

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
|  |  |  |  |  |  |  | — |  |  | 700,000 |  |  | 666,998 |  |  |
CT Technologies Intermediate Holdings, Inc.(11) |  | Healthcare & Pharmaceuticals |  | Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/1/2022 |  | 7,500,000 |  |  | 7,500,000 |  |  | 6,345,750 |  |  | 2.9 | %
|  |  |  |  |  |  |  | 7,500,000 |  |  | 7,500,000 |  |  | 6,345,750 |  |  |
DataOnline Corp.(7) |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)(22) |  | 7/31/2025 |  | 15,840,000 |  |  | 15,840,000 |  |  | 15,607,152 |  |  | 7.2 | %
|  |  |  | Revolving Credit Facility (LIBOR + 5.75% Cash, 1.00% LIBOR Floor)(13)(16) |  | 7/31/2024 |  | — |  |  | — |  |  | (18,900) |  |  | 0.0 | %
|  |  |  |  |  |  |  | 15,840,000 |  |  | 15,840,000 |  |  | 15,588,252 |  |  |
Dermatologists of Southwestern Ohio, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(12)(23) |  | 4/20/2022 |  | 1,065,457 |  |  | 1,065,457 |  |  | 1,056,614 |  |  | 0.5 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(12)(23) |  | 4/20/2022 |  | 404,248 |  |  | 404,248 |  |  | 400,893 |  |  | 0.2 | %
|  |  |  |  |  |  |  | 1,469,705 |  |  | 1,469,705 |  |  | 1,457,507 |  |  |
Dream Finders Homes, LLC |  | Construction & Building |  | Senior Secured First Lien Term Loan B (10.00% Cash) |  | 4/1/2020 |  | 1,613,455 |  |  | 1,613,455 |  |  | 1,613,455 |  |  | 0.7 | %
|  |  |  | Preferred Equity (8.00% PIK) |  |  |  | 4,185,480 |  |  | 4,185,480 |  |  | 3,315,319 |  |  | 1.5 | %
|  |  |  |  |  |  |  | 5,798,935 |  |  | 5,798,935 |  |  | 4,928,774 |  |  |
FKI Security Group, LLC |  | Capital Equipment |  | Senior Secured First Lien Term Loan (LIBOR + 8.50% Cash, 1.00% LIBOR Floor)(13)(23) |  | 3/30/2020 |  | 10,906,250 |  |  | 10,906,250 |  |  | 10,680,491 |  |  | 4.9 | %
|  |  |  |  |  |  |  | 10,906,250 |  |  | 10,906,250 |  |  | 10,680,491 |  |  |
Footprint Acquisition, LLC |  | Services: Business |  | Preferred Equity (8.75% PIK) |  |  |  | 7,281,664 |  |  | 7,281,664 |  |  | 7,281,664 |  |  | 3.4 | %
|  |  |  | Equity - 150 Common Units |  |  |  | — |  |  | — |  |  | 3,347,965 |  |  | 1.5 | %
|  |  |  |  |  |  |  | 7,281,664 |  |  | 7,281,664 |  |  | 10,629,629 |  |  |
Freedom Powersports, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 10.00% Cash, 1.50% LIBOR Floor)(13) |  | 11/11/2019 |  | 9,450,000 |  |  | 9,450,000 |  |  | 9,450,000 |  |  | 4.4 | %
|  |  |  |  |  |  |  | 9,450,000 |  |  | 9,450,000 |  |  | 9,450,000 |  |  |
Global Accessories Group, LLC(11) |  | Consumer goods: Non-durable |  | Equity - 3.8% Membership Interest |  |  |  | — |  |  | 151,337 |  |  | 151,339 |  |  | 0.1 | %
|  |  |  |  |  |  |  | — |  |  | 151,337 |  |  | 151,339 |  |  |
The Imagine Group, LLC |  | Media: Advertising, Printing & Publishing |  | Senior Secured Second Lien Term Loan (LIBOR + 8.75% Cash, 1.00% LIBOR Floor)(12) |  | 6/21/2023 |  | 3,000,000 |  |  | 2,968,775 |  |  | 1,715,100 |  |  | 0.8 | %
|  |  |  |  |  |  |  | 3,000,000 |  |  | 2,968,775 |  |  | 1,715,100 |  |  |
Impact Group, LLC |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(13)(23) |  | 6/27/2023 |  | 3,254,623 |  |  | 3,254,623 |  |  | 3,104,911 |  |  | 1.4 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(13)(23) |  | 6/27/2023 |  | 9,430,010 |  |  | 9,430,010 |  |  | 8,996,229 |  |  | 4.2 | %
|  |  |  |  |  |  |  | 12,684,633 |  |  | 12,684,633 |  |  | 12,101,140 |  |  |
InterFlex Acquisition Company, LLC |  | Containers, Packaging & Glass |  | Senior Secured First Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12)(23) |  | 8/18/2022 |  | 13,259,175 |  |  | 13,259,175 |  |  | 12,637,320 |  |  | 5.8 | %
|  |  |  |  |  |  |  | 13,259,175 |  |  | 13,259,175 |  |  | 12,637,320 |  |  |
L & S Plumbing Partnership, Ltd. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 7.50% Cash, 1.00% LIBOR Floor)(13)(22) |  | 2/15/2022 |  | 5,345,754 |  |  | 5,345,754 |  |  | 5,345,754 |  |  | 2.5 | %
|  |  |  |  |  |  |  | 5,345,754 |  |  | 5,345,754 |  |  | 5,345,754 |  |  |

F-13

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
Lighting Science Group Corporation |  | Containers, Packaging & Glass |  | Warrants - 0.56% of Outstanding Equity(18) |  | 2/19/2024 |  | — |  |  | 955,680 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 955,680 |  |  | — |  |  |
Manna Pro Products, LLC |  | Consumer goods: Non-durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/8/2023 |  | 5,398,622 |  |  | 5,398,622 |  |  | 5,132,470 |  |  | 2.4 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(12) |  | 12/8/2023 |  | 1,096,209 |  |  | 1,096,209 |  |  | 1,042,166 |  |  | 0.5 | %
|  |  |  |  |  |  |  | 6,494,831 |  |  | 6,494,831 |  |  | 6,174,636 |  |  |
Point.360 |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.00% PIK)(9)(15) |  | 7/8/2020 |  | 2,563,464 |  |  | 2,103,712 |  |  | 590,366 |  |  | 0.3 | %
|  |  |  |  |  |  |  | 2,563,464 |  |  | 2,103,712 |  |  | 590,366 |  |  |
Quantum Spatial, Inc. |  | Aerospace & Defense |  | Senior Secured First Lien Term Loan (LIBOR + 5.25% Cash, 1.00% LIBOR Floor)(12) |  | 9/5/2024 |  | 5,000,000 |  |  | 5,000,000 |  |  | 5,000,000 |  |  | 2.3 | %
|  |  |  |  |  |  |  | 5,000,000 |  |  | 5,000,000 |  |  | 5,000,000 |  |  |
RateGain Technologies, Inc. |  | Hotel, Gaming & Leisure |  | Unsecured Debt(19)(23) |  | 7/31/2020 |  | 761,905 |  |  | 761,905 |  |  | 761,905 |  |  | 0.4 | %
|  |  |  | Unsecured Debt(19)(23) |  | 7/31/2021 |  | 761,905 |  |  | 761,905 |  |  | 761,905 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 1,523,810 |  |  | 1,523,810 |  |  | 1,523,810 |  |  |
Redwood Services Group, LLC(7) |  | Services: Business |  | Revolving Credit Facility (LIBOR + 6.00% Cash, 1.00% LIBOR Floor)(13)(16) |  | 6/6/2023 |  | 875,000 |  |  | 875,000 |  |  | 860,475 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 875,000 |  |  | 875,000 |  |  | 860,475 |  |  |
Sendero Drilling Company, LLC |  | Energy: Oil & Gas |  | Unsecured Debt (8.00% Cash) |  | 8/31/2021 |  | 850,000 |  |  | 850,000 |  |  | 850,000 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 850,000 |  |  | 850,000 |  |  | 850,000 |  |  |
Seotowncenter, Inc. |  | Services: Business |  | Equity - 3,434,169.6 Common Units |  |  |  | — |  |  | 566,475 |  |  | 1,236,301 |  |  | 0.6 | %
|  |  |  |  |  |  |  | — |  |  | 566,475 |  |  | 1,236,301 |  |  |
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)(23) |  | 9/1/2022 |  | 4,820,605 |  |  | 4,820,605 |  |  | 4,775,291 |  |  | 2.2 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.25% Cash, 1.00% LIBOR Floor)(13)(23) |  | 9/1/2022 |  | 1,871,234 |  |  | 1,871,234 |  |  | 1,853,644 |  |  | 0.9 | %
|  |  |  | Equity - 94,393.87 Common Units in CI (Summit) Investment Holdings LLC(23) |  |  |  | — |  |  | 985,673 |  |  | 849,545 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 6,691,839 |  |  | 7,677,512 |  |  | 7,478,480 |  |  |
Ship Supply Acquisition Corporation |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 8.00% Cash, 1.00% LIBOR Floor)(9)(13)(23) |  | 7/31/2020 |  | 7,433,740 |  |  | 7,239,798 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 7,433,740 |  |  | 7,239,798 |  |  | — |  |  |
SMART Financial Operations, LLC |  | Retail |  | Equity - 700,000 Class A Preferred Units |  |  |  | — |  |  | 700,000 |  |  | 532,000 |  |  | 0.2 | %
|  |  |  |  |  |  |  | — |  |  | 700,000 |  |  | 532,000 |  |  |
Stancor, Inc. |  | Services: Business |  | Equity - 263,814.43 Class A Units |  |  |  | — |  |  | 263,815 |  |  | 274,367 |  |  | 0.1 | %
|  |  |  |  |  |  |  | — |  |  | 263,815 |  |  | 274,367 |  |  |
Starfish Holdco, LLC |  | High Tech Industries |  | Senior Secured Second Lien Term Loan (LIBOR + 9.00% Cash, 1.00% LIBOR Floor)(12)(22) |  | 8/18/2025 |  | 2,000,000 |  |  | 1,975,691 |  |  | 1,977,000 |  |  | 0.9 | %
|  |  |  |  |  |  |  | 2,000,000 |  |  | 1,975,691 |  |  | 1,977,000 |  |  |

F-14

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
Velocity Pooling Vehicle, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 11.00% PIK, 1.00% LIBOR Floor)(13) |  | 4/28/2023 |  | 894,050 |  |  | 832,281 |  |  | 789,715 |  |  | 0.4 | %
|  |  |  | Equity - 5,441 Class A Units |  |  |  | — |  |  | 302,464 |  |  | 20,893 |  |  | 0.0 | %
|  |  |  | Warrants - 0.65% of Outstanding Equity |  | 3/30/2028 |  | — |  |  | 361,667 |  |  | 24,983 |  |  | 0.0 | %
|  |  |  |  |  |  |  | 894,050 |  |  | 1,496,412 |  |  | 835,591 |  |  |
Walker Edison Furniture Company LLC |  | Consumer goods: Durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.50% Cash, 1.00% LIBOR Floor)(13)(23) |  | 9/26/2024 |  | 3,611,900 |  |  | 3,611,900 |  |  | 3,611,900 |  |  | 1.7 | %
|  |  |  | Equity - 1,500 Common Units |  |  |  | — |  |  | 1,500,000 |  |  | 2,557,657 |  |  | 1.2 | %
|  |  |  |  |  |  |  | 3,611,900 |  |  | 5,111,900 |  |  | 6,169,557 |  |  |
Watermill-QMC Midco, Inc. |  | Automotive |  | Equity - 1.3% Partnership Interest(8) |  |  |  | — |  |  | 518,283 |  |  | 88,989 |  |  | 0.0 | %
|  |  |  |  |  |  |  | — |  |  | 518,283 |  |  | 88,989 |  |  |
Subtotal Non-Controlled/Non-Affiliated Investments |  |  |  | $ | 180,226,518 |  |  | $ | 204,736,370 |  |  | $ | 189,905,466 |  |  |
Affiliated Investments: |  |  |  |  |  |  |  |  |  |  |  |
1888 Industrial Services, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan A (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13) |  | 9/30/2021 |  | $ | 9,304,145 |  |  | $ | 9,304,145 |  |  | $ | 9,304,145 |  |  | 4.3 | %
|  |  |  | Senior Secured First Lien Term Loan B (LIBOR + 8.00% PIK, 1.00% LIBOR Floor)(9)(13) |  | 9/30/2021 |  | 23,547,567 |  |  | 19,468,870 |  |  | 5,886,892 |  |  | 2.7 | %
|  |  |  | Senior Secured First Lien Term Loan C (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13) |  | 6/30/2021 |  | 1,170,014 |  |  | 1,170,014 |  |  | 1,170,014 |  |  | 0.5 | %
|  |  |  | Senior Secured First Lien Term Loan D (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13) |  | 9/18/2020 |  | 224,456 |  |  | 224,456 |  |  | 224,456 |  |  | 0.1 | %
|  |  |  | Revolving Credit Facility (LIBOR + 5.00% PIK, 1.00% LIBOR Floor)(13)(16) |  | 9/30/2021 |  | 4,387,025 |  |  | 4,387,025 |  |  | 4,387,025 |  |  | 2.0 | %
|  |  |  | Equity - 21,562.16 Class A Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 38,633,207 |  |  | 34,554,510 |  |  | 20,972,532 |  |  |
Access Media Holdings, LLC(7) |  | Media: Broadcasting & Subscription |  | Senior Secured First Lien Term Loan (10.00% PIK)(9) |  | 7/22/2020 |  | 10,036,355 |  |  | 8,446,385 |  |  | 2,509,089 |  |  | 1.2 | %
|  |  |  | Preferred Equity Series A |  |  |  | 1,600,000 |  |  | 1,600,000 |  |  | — |  |  | 0.0 | %
|  |  |  | Preferred Equity Series AA |  |  |  | 800,000 |  |  | 800,000 |  |  | — |  |  | 0.0 | %
|  |  |  | Preferred Equity Series AAA |  |  |  | 971,200 |  |  | 971,200 |  |  | (100,800) |  |  | 0.0 | %
|  |  |  | Equity - 16 Common Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 13,407,555 |  |  | 11,817,585 |  |  | 2,408,289 |  |  |
Caddo Investors Holdings 1 LLC(10) |  | Forest Products & Paper |  | Equity - 6.15% Membership Interest(21) |  |  |  | — |  |  | 2,526,373 |  |  | 2,830,051 |  |  | 1.3 | %
|  |  |  |  |  |  |  | — |  |  | 2,526,373 |  |  | 2,830,051 |  |  |
Dynamic Energy Services International LLC(7) |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan (LIBOR + 13.50% PIK)(9)(15) |  | 12/31/2021 |  | 11,124,375 |  |  | 7,824,974 |  |  | 1,264,841 |  |  | 0.6 | %
|  |  |  | Revolving Credit Facility (12.00% Cash) |  | 12/31/2019 |  | 545,103 |  |  | 545,103 |  |  | 545,103 |  |  | 0.2 | %
|  |  |  | Equity - 12,350,000 Class A Units |  |  |  | — |  |  | — |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 11,669,478 |  |  | 8,370,077 |  |  | 1,809,944 |  |  |
JFL-NGS Partners, LLC |  | Construction & Building |  | Preferred Equity - A-2 Preferred (3.00% PIK) |  |  |  | 20,150,684 |  |  | 20,150,684 |  |  | 20,150,684 |  |  | 9.3 | %
|  |  |  | Preferred Equity - A-1 Preferred (3.00% PIK) |  |  |  | 2,607,661 |  |  | 2,607,661 |  |  | 2,607,661 |  |  | 1.2 | %
|  |  |  | Equity - 57,300 Class B Units |  |  |  | — |  |  | 57,300 |  |  | 19,096,371 |  |  | 8.8 | %
|  |  |  |  |  |  |  | 22,758,345 |  |  | 22,815,645 |  |  | 41,854,716 |  |  |

F-15

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
JFL-WCS Partners, LLC |  | Environmental Industries |  | Preferred Equity - Class A Preferred (6.00% PIK) |  |  |  | 1,236,269 |  |  | 1,236,269 |  |  | 1,236,269 |  |  | 0.6 | %
|  |  |  | Equity - 129,588 Class B Units |  |  |  | — |  |  | 129,588 |  |  | 2,755,041 |  |  | 1.3 | %
|  |  |  |  |  |  |  | 1,236,269 |  |  | 1,365,857 |  |  | 3,991,310 |  |  |
Kemmerer Operations, LLC(7) |  | Metals & Mining |  | Senior Secured First Lien Term Loan (15.00% PIK) |  | 6/21/2023 |  | 1,766,511 |  |  | 1,766,511 |  |  | 1,766,511 |  |  | 0.8 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (15.00% PIK) |  | 6/21/2023 |  | 706,604 |  |  | 706,604 |  |  | 706,604 |  |  | 0.3 | %
|  |  |  | Equity - 6.7797 Common Units |  |  |  | — |  |  | 962,717 |  |  | 962,717 |  |  | 0.4 | %
|  |  |  |  |  |  |  | 2,473,115 |  |  | 3,435,832 |  |  | 3,435,832 |  |  |
Path Medical, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 9.50% PIK, 1.00% LIBOR Floor)(13) |  | 10/11/2021 |  | 9,534,512 |  |  | 9,294,959 |  |  | 8,845,167 |  |  | 4.1 | %
|  |  |  | Senior Secured First Lien Term Loan A (LIBOR + 9.50% PIK, 1.00% LIBOR Floor)(13) |  | 10/11/2021 |  | 3,284,977 |  |  | 3,284,977 |  |  | 3,047,473 |  |  | 1.4 | %
|  |  |  | Senior Secured First Lien Term Loan C (LIBOR + 10.00% Cash, 1.00% LIBOR Floor)(13) |  | 10/11/2021 |  | 344,463 |  |  | 344,463 |  |  | 344,291 |  |  | 0.2 | %
|  |  |  | Warrants - 7.68% of Outstanding Equity |  | 1/9/2027 |  | — |  |  | 499,751 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 13,163,952 |  |  | 13,424,150 |  |  | 12,236,931 |  |  |
US Multifamily, LLC(10) |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (10.00% Cash)(22) |  | 6/17/2021 |  | 6,670,000 |  |  | 6,670,000 |  |  | 6,670,000 |  |  | 3.1 | %
|  |  |  | Equity - 33,300 Preferred Units |  |  |  | — |  |  | 3,330,000 |  |  | 3,330,000 |  |  | 1.5 | %
|  |  |  |  |  |  |  | 6,670,000 |  |  | 10,000,000 |  |  | 10,000,000 |  |  |
Subtotal Affiliated Investments |  |  |  |  |  | $ | 110,011,921 |  |  | $ | 108,310,029 |  |  | $ | 99,539,605 |  |  |
Controlled Investments:(5) |  |  |  |  |  |  |  |  |  |  |  |
MCC Senior Loan Strategy JV I LLC(10) |  | Multisector Holdings |  | Equity - 87.5% ownership of MCC Senior Loan Strategy JV I LLC(21) |  |  |  | — |  |  | 78,575,000 |  |  | 69,948,970 |  |  | 32.3 | %
|  |  |  |  |  |  |  | — |  |  | 78,575,000 |  |  | 69,948,970 |  |  |
NVTN LLC |  | Hotel, Gaming & Leisure |  | Senior Secured First Lien Term Loan (LIBOR + 4.00% Cash, 1.00% LIBOR Floor)(12) |  | 11/9/2020 |  | 4,255,990 |  |  | 4,255,990 |  |  | 4,255,990 |  |  | 2.0 | %
|  |  |  | Senior Secured First Lien Term Loan B (LIBOR + 9.25% PIK, 1.00% LIBOR Floor)(9)(12) |  | 11/9/2020 |  | 13,436,693 |  |  | 12,305,096 |  |  | 7,152,352 |  |  | 3.3 | %
|  |  |  | Senior Secured First Lien Term Loan C (LIBOR + 12.00% PIK, 1.00% LIBOR Floor)(9)(12) |  | 11/9/2020 |  | 8,747,134 |  |  | 7,570,054 |  |  | — |  |  | 0.0 | %
|  |  |  | Equity - 787.4 Class A Units |  |  |  | — |  |  | 9,550,922 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 26,439,817 |  |  | 33,682,062 |  |  | 11,408,342 |  |  |
TPG Plastics LLC |  | Chemicals, Plastics & Rubber |  | Senior Secured Second Lien Term Loan (Prime + 10.00% Cash)(14) |  | 12/31/2019 |  | 352,984 |  |  | 352,984 |  |  | 352,984 |  |  | 0.2 | %
|  |  |  | Unsecured Debt (10.00% Cash)(20) |  |  |  | 278,810 |  |  | 278,810 |  |  | 278,810 |  |  | 0.1 | %
|  |  |  | Equity - 35 Class B Units |  |  |  | — |  |  | 3,317,149 |  |  | 1,644,751 |  |  | 0.8 | %
|  |  |  |  |  |  |  | 631,794 |  |  | 3,948,943 |  |  | 2,276,545 |  |  |
URT Acquisition Holdings Corporation |  | Services: Business |  | Senior Secured Second Lien Term Loan (LIBOR + 8.00% PIK, 2.00% LIBOR Floor)(13) |  | 5/2/2022 |  | 18,905,403 |  |  | 18,905,403 |  |  | 18,905,403 |  |  | 8.7 | %
|  |  |  | Preferred Equity (12.00% PIK)(9) |  |  |  | 6,552,890 |  |  | 6,552,890 |  |  | 4,914,667 |  |  | 2.3 | %
|  |  |  | Equity - 397,466 Common Units |  |  |  | — |  |  | 12,936,879 |  |  | — |  |  | 0.0 | %
|  |  |  |  |  |  |  | 25,458,293 |  |  | 38,395,172 |  |  | 23,820,070 |  |  |
Subtotal Control Investments |  |  |  |  |  | $ | 52,529,904 |  |  | $ | 154,601,177 |  |  | $ | 107,453,927 |  |  |

F-16

Company(1) |  | Industry |  | Type of Investment(6) |  | Maturity |  | Par Amount(2) |  | Cost(3) |  | Fair Value |  | % of Net Assets(4)
Total Investments, September 30, 2019 |  |  |  |  |  | $ | 342,768,343 |  |  | $ | 467,647,576 |  |  | $ | 396,898,998 |  |  | 183.4 | %

(1)All of our investments are domiciled in the United States. Certain investments also have international operations.
(2)Par amount includes accumulated payment-in-kind (“PIK”) interest, as applicable, and is net of repayments.
(3)Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for U.S. federal income tax purposes totaled $28,155,804, $96,121,868, and $67,966,064, respectively. The tax cost basis of investments is $464,855,062 as of September 30, 2019.
(4)Percentage is based on net assets of $216,432,530 as of September 30, 2019.
(5)Control Investments are defined by the Investment Company Act of 1940, as amended (the “1940 Act”), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(6)Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy (see Note 4).
(7)The investment has an unfunded commitment as of September 30, 2019 (see Note 8), and includes an analysis of the value of any unfunded commitments.
(8)Represents 1.3% partnership interest in Watermill-QMC Partners, LP and Watermill-EMI Partners, LP.
(9)The investment was on non-accrual status as of September 30, 2019.
(10)The investment is not a qualifying asset as defined under Section 55(a) of 1940 Act, in a whole, or in part. As of September 30, 2019, 24.3% of the Company's portfolio investments were non-qualifying assets.
(11)A portion of this investment was sold via a participation agreement. The amount stated is the portion retained by Medley Capital Corporation (see Note 3).
(12)The interest rate on these loans is subject to the greater of a London Interbank Offering Rate (“LIBOR”) floor, or 1 month LIBOR plus a base rate. The 1 month LIBOR as of September 30, 2019 was 2.04%.
(13)The interest rate on these loans is subject to the greater of a LIBOR floor, or 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2019 was 2.10%.
(14)These loans bear interest at an alternate base rate, or in the case of these particular investments the Prime Rate set by the Federal Reserve, plus a given spread. The Prime Rate in effect at September 30, 2019 was 5.00%.
(15)The interest rate on these loans is subject to 3 month LIBOR plus a base rate. The 3 month LIBOR as of September 30, 2019 was 2.10%.
(16)This investment earns 0.50% commitment fee on all unused commitment as of September 30, 2019, and is recorded as a component of interest income on the Consolidated Statements of Operations.
(17)This investment represents a Level 1 security in the ASC 820 table as of September 30, 2019 (see Note 4).
(18)This investment represents a Level 2 security in the ASC 820 table as of September 30, 2019 (see Note 4).
(19)Security is non-income producing.
(20)This investment is scheduled to repay a percentage of the outstanding principal on a quarterly basis. Upon TPG Plastics, LLC obtaining all environmental and product testing authorizations, licenses and permits from all applicable governmental authorities, the remaining outstanding principal is expected to be repaid in full.
(21)As a practical expedient, the Company uses net asset value (“NAV”) to determine the fair value of this investment.
(22)All or a portion of this investment is held in Medley SLF Funding I LLC (see Note 5).
(23)All or a portion of this investment is held in Medley Small Business Fund, LP (see Note 5).
See accompanying notes to consolidated financial statements.
F-17

MEDLEY CAPITAL CORPORATION
Notes to Consolidated Financial Statements
September 30, 2020
Note 1. Organization
Medley Capital Corporation (the “Company,” “we” and “us”) is a non-diversified closed end management investment company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We completed our initial public offering (“IPO”) and commenced operations on January 20, 2011. The Company has elected, and intends to qualify annually, to be treated, for U.S. federal income tax purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are externally managed and advised by MCC Advisors LLC (“MCC Advisors”), which is registered with the Securities and Exchange Commission (the “SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), pursuant to an investment management agreement. MCC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc. (NYSE: MDLY), a publicly traded asset management firm (“MDLY”), which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC. We use the term “Medley” to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated investment funds and their respective affiliates.
On March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund, LP (“Medley Small Business Fund”). In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC. See Note 5 for further information.
The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.
The Company’s investment objective is to generate current income and capital appreciation by lending to privately-held middle market companies, primarily through directly originated transactions, to help these companies fund acquisitions, growth or refinancing. The portfolio generally consists of senior secured first lien term loans and senior secured second lien term loans. Occasionally, we will receive warrants or other equity participation features which we believe will have the potential to increase the total investment returns.
Reverse Stock Split; Authorized Share Reduction
At the Company’s 2020 Annual Meeting of Stockholders held on June 30, 2020 (the “Annual Meeting”), stockholders approved a proposal to grant discretionary authority to the Company’s board of directors to amend the Company’s Certificate of Incorporation (the “Certificate of Incorporation”) to effect a reverse stock split of its common stock, of 1-20 (the “Reverse Stock Split”) and with the Reverse Stock Split to be effective at such time and date, if at all, as determined by the board of directors, but not later than 60 days after stockholder approval thereof and, if and when the reverse stock split is effected, reduce the number of authorized shares of common stock by the approved reverse stock split ratio (the “Authorized Share Reduction”).
Following the Annual Meeting, on July 7, 2020, the board of directors determined that it was in the best interests of the Company and its stockholders to implement the Reverse Stock Split and the Authorized Share Reduction. Accordingly, on July 13, 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split and the Authorized Share Reduction.
Pursuant to the Certificate of Amendment, effective as of 5:00 p.m., Eastern Time, on July 24, 2020 (the “Effective Time”), each twenty (20) shares of common stock issued and outstanding, immediately prior to the Effective Time, automatically and without any action on the part of the respective holders thereof, were combined and converted into one (1) share of common stock. In connection with the Reverse Stock Split, the Certificate of Amendment provided for a reduction in the number of authorized shares of common stock from 100,000,000 to 5,000,000 shares of common stock. No fractional shares were issued as a result of the Reverse Stock Split. Instead, any stockholder who would have been entitled to receive a fractional share as a result of the Reverse Stock Split received cash payments in lieu of such fractional shares (without interest and subject to backup withholding and applicable withholding taxes).
The common stock began trading on a split-adjusted basis on the NYSE at the market open on July 27, 2020. The trading symbol for the common stock remains “MCC.”
The Reverse Stock Split was intended to bring the Company into compliance with the $1.00 minimum average closing share price requirement (the “Minimum Share Price Requirement”) for continued listing on the NYSE. On August 3, 2020, the Company received written notice from the NYSE that the Company has regained compliance with the Minimum Share Price Requirement after the Company’s average closing price over the 30 consecutive trading day period ending on July 31, 2020 was above $1.00 per share as required under Section 802.01C of the NYSE Listed Company Manual.
Termination of Agreements and Plan of Mergers
On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra Income Corporation (“Sierra”), pursuant to which the Company would, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra, with Sierra as the surviving
F-18

company in the merger (the “MCC Merger”). In addition, on July 29, 2019, Sierra and MDLY entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, Sierra, and Sierra Management, Inc., a wholly owned subsidiary of Sierra (“Merger Sub”), pursuant to which MDLY would, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the merger (the “MDLY Merger”).
On May 1, 2020, the Company received a notice of termination from Sierra of the Amended MCC Merger Agreement. Under the Amended MCC Merger Agreement, either party could have, subject to certain conditions, terminated the Amended MCC Merger Agreement if the MCC Merger had not been consummated by March 31, 2020. Representatives of Sierra informed the Company that in determining to terminate the Amended MCC Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of the Company and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MCC Merger in a timely manner.
In addition, on May 1, 2020, MDLY received a notice of termination from Sierra of the Amended MDLY Merger Agreement. Under the Amended MDLY Merger Agreement, either party could have, subject to certain conditions, terminate the Amended MDLY Merger Agreement if the MDLY Merger had not been consummated by March 31, 2020. Representatives of Sierra informed MDLY that in determining to terminate the Amended MDLY Merger Agreement, Sierra considered a number of factors, including, among other factors, changes in the relative valuation of MDLY and Sierra, the changed circumstances and the unpredictable economic conditions resulting from the global health crisis caused by the coronavirus (COVID-19) pandemic, and the uncertainty regarding the parties’ ability to satisfy the conditions to closing the MDLY Merger in a timely manner.
Note 2. Significant Accounting Policies
Basis of Presentation
The Company follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 (“ASC 946”). The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of the Company and its wholly owned subsidiaries Medley Small Business Fund and Medley SLF Funding I LLC (“Medley SLF”), and its wholly owned Taxable Subsidiaries. All references made to the “Company,” “we,” and “us” herein include Medley Capital Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Article 10 of Regulation S-X of the Securities Act of 1933. All intercompany balances and transactions have been eliminated.
Cash, Restricted Cash and Cash Equivalents
The Company considers cash equivalents to be highly liquid investments with original maturities of three months or less. Cash and cash equivalents include deposits in a money market account. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits. As of September 30, 2020, we had $56.5 million in cash and cash equivalents. As of September 30, 2019, we had $68.2 million in cash and cash equivalents, and $16.0 million of restricted cash, which was restricted for the purposes of repaying principal and interest on our Series A Israeli Notes (the “Israeli Notes”).
Use of Estimates in the Preparation of Financial Statements
The preparation of 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.
Debt Issuance Costs
Debt issuance costs, incurred in connection with any credit facilities, unsecured notes and SBA-guaranteed debentures (the "SBA Debentures") (see Note 5) are deferred and amortized over the life of the respective credit facility or instrument.
Indemnification
In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no material claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.
Revenue Recognition
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Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. Dividend income, which represents dividends from equity investments and distributions from Taxable Subsidiaries, is recorded on the ex-dividend date and when the distribution is received, respectively.
The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on the accrual basis to the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the years ended September 30, 2020, 2019 and 2018, the Company earned approximately $3.8 million, $7.2 million, and $10.8 million in PIK interest, respectively.
Origination/closing, amendment and transaction break-up fees associated with investments in portfolio companies are recognized as income when we become entitled to such fees. Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon repayment of debt. Administrative agent fees received by the Company are capitalized as deferred revenue and recorded as fee income when the services are rendered. For the years ended September 30, 2020, 2019 and 2018, fee income was approximately $0.7 million, $2.3 million and $4.5 million, respectively (see Note 9).
Investment transactions are accounted for on a trade date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. During the years ended September 30, 2020, 2019 and 2018, $0.9 million, $47.8 million and $73.0 million, respectively, of the Company's realized losses were related to certain non-cash restructuring transactions, which are recorded on the Consolidated Statements of Operations as a component of net realized gain/(loss) from investments. The Company reports changes in fair value of investments as a component of the net unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations.
Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management’s designation of non-accrual status. Interest receivable is analyzed regularly and may be reserved against when deemed not collectible. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although we may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. At September 30, 2020, certain investments in eight portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $21.7 million, or 8.8% of the fair value of our portfolio. At September 30, 2019, certain investments in seven portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $22.3 million, or 5.6% of the fair value of our portfolio. At September 30, 2018, certain investments in nine portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $48.1 million, or 7.3% of the fair value of our portfolio.
Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, we would be deemed to “control” a portfolio company if we owned more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. We refer to such investments in portfolio companies that we “control” as “Control Investments.” Under the 1940 Act, we would be deemed to be an “Affiliated Person” of a portfolio company if we own between 5% and 25% of the portfolio company’s outstanding voting securities or we are under common control with such portfolio company. We refer to such investments in Affiliated Persons as “Affiliated Investments.”
Valuation of Investments
The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotations, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.
Investments in investment funds are valued at fair value. Fair values are generally determined utilizing the NAV supplied by, or on behalf of, management of each investment fund, which is net of management and incentive fees or allocations charged by the investment fund and is in accordance with the “practical expedient”, as defined by FASB Accounting Standards Update (“ASU”) 2009-12, Investments in Certain Entities that Calculate Net Asset Value per Share. NAVs received by, or on behalf of, management of each investment fund are based on the fair value of the investment funds’ underlying investments in accordance with policies established by management of each investment fund, as described in each of
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their financial statements and offering memorandum. If the Company is in the process of the sale of an investment fund, fair value will be determined by actual or estimated sale proceeds.
The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:
•The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business.
•The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.
The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. The Company uses a market yield analysis under the Income Approach or an enterprise model of valuation under the Market Approach, or a combination thereof. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis, which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.
The methodologies and information that the Company utilizes when applying the Market Approach for performing investments include, among other things:
•valuations of comparable public companies (“Guideline Comparable Approach”);
•recent sales of private and public comparable companies (“Guideline Comparable Approach”);
•recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-Length Transaction”);
•external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”);
•subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and
•estimating the value to potential buyers.
The methodologies and information that the Company utilizes when applying the Income Approach for performing investments include:
•discounting the forecasted cash flows of the portfolio company or securities (Discounted Cash Flow (“DCF”) Approach); and
•Black-Scholes model or simulation models or a combination thereof (Income Approach - Option Model) with respect to the valuation of warrants.
For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model (Market Approach - Expected Recovery Analysis or Estimated Liquidation Proceeds).
We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:
•our quarterly valuation process begins with each portfolio investment being internally valued by the valuation professionals;
•preliminary valuation conclusions are then documented and discussed with senior management; and
•an independent valuation firm engaged by our board of directors reviews approximately one third of these preliminary valuations each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by independent valuation firms at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.
In addition, all of our investments are subject to the following valuation process:
•the audit committee of our board of directors reviews the preliminary valuations of the valuation professionals, senior management and independent valuation firms; and
•our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of MCC Advisors, the respective independent valuation firms and the audit committee.
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Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. In addition, changes in the market environment (including the impact of COVID-19 on the financial market), portfolio company performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned.
Fair Value of Financial Instruments
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of our long-term obligations are discussed in Note 5.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, "Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting." The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also with certain lenders. Many of these agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The standard is effective as of March 12, 2020 through December 31, 2022 and the Company plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The Company does not believe that it will have a material impact on its consolidated financial statements and disclosures.
In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The Final Rules adopt a new definition of “significant subsidiary” applicable only to investment companies that (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary” in Rule 1-02(w) of Regulation S-X. The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. The Company has evaluated the impact of the Final Rule and has determined its impact not to be material, and as such, has adopted it for the quarter ended June 30, 2020.
Federal Income Taxes
The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under Subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
The Company is subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. There is no provision for federal excise tax for the calendar year ended 2019 accrued at September 30, 2020. For the calendar year ended December 31, 2018, there was no excise tax expense as the Company distributed at least 98% of its ordinary income and 98.2% of its capital gains. For the calendar year ended December 31, 2017, the Company did not distribute at least 98% of its ordinary income and 98.2% of its capital gains. Accordingly, with respect to the calendar year ended December 31, 2017 an excise tax expense of $0.2 was recorded in the fiscal year ended September 30, 2018.
The Company’s Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of September 30, 2020 and 2019, the Company did not record a deferred tax liability on the Consolidated Statements of Assets and Liabilities. The change in provision for deferred taxes is included as a component of net realized and unrealized gain/(loss) on investments in the Consolidated Statements of Operations. For the years ended September 30, 2020 and 2019, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments. For the year ended September 30, 2018, the change in provision for deferred taxes on the unrealized depreciation on investments was $0.5.
As of September 30, 2020 and 2019, the Company has a net deferred tax asset of $22.8 million and $20.9 million, respectively, consisting primarily of net operating losses offset by net unrealized gains on the investments held within its Taxable Subsidiaries. As of September 30, 2020 and 2019, the Company booked a valuation allowance of $22.8 million and $20.9 million, respectively, against its net deferred tax asset.
ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount, the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash,
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such as 1) PIK interest income and 2) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
Permanent differences between ICTI and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. During the years ended September 30, 2020, 2019 and 2018, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to the different tax treatment of net operating losses as follows:

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Capital in excess of par value | $ | (1,202,850) |  |  | $ | (16,882,923) |  |  | $ | (157,925) |
Accumulated undistributed net investment income/(loss) | 1,202,850 |  |  | 23,174,206 |  |  | 280,924 |
Accumulated net realized gain/(loss) from investments | — |  |  | (6,291,283) |  |  | (122,999) |

For income tax purposes, distributions paid to stockholders are reported as ordinary income, return of capital, long term capital gains or a combination thereof. The tax character of distributions paid for the years ended September 30, 2020, 2019 and 2018 were as follows:

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Ordinary income | $ | — |  |  | $ | — |  |  | $ | 22,025,185 |
Distributions of long-term capital gains | — |  |  | — |  |  | — |
Return of capital | — |  |  | 8,171,130 |  |  | 6,301,403 |
Distributions on a tax basis | $ | — |  |  | $ | 8,171,130 |  |  | $ | 28,326,588 |

For federal income tax purposes, the cost of investments owned at September 30, 2020, 2019 and 2018 were approximately $327.9 million, $464.9 million, and $757.9 million, respectively.
At September 30, 2020, 2019 and 2018, the components of distributable earnings/(accumulated deficits) on a tax basis detailed below differ from the amounts reflected in the Company’s Consolidated Statements of Assets and Liabilities by temporary and other book/tax differences, primarily relating to the tax treatment of certain fee income and organizational expenses, as follows:

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Undistributed ordinary income | $ | — |  |  | $ | — |  |  | $ | — |
Accumulated capital and other losses(1) | (440,538,935) |  |  | (389,066,323) |  |  | (268,569,450) |
Other temporary differences | (106,066) |  |  | (122,274) |  |  | (6,429,766) |
Unrealized appreciation/(depreciation) | (81,119,823) |  |  | (67,966,064) |  |  | (102,463,301) |
Components of distributable earnings/(accumulated deficits) at year end | $ | (521,764,824) |  |  | $ | (457,154,661) |  |  | $ | (377,462,517) |

(1)Under the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of September 30, 2020, the Company a had long-term capital loss carryforward available to offset future realized capital gains of $440,538,935.
The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no material uncertain income tax positions at September 30, 2020. Although we file federal and state tax returns, our major tax jurisdiction is federal. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service.
Retroactive Adjustments for Reverse Stock Split and the Authorized Share Reduction
The per share amount of the common stock and the authorized shares of common stock in the audited financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split effected on July 24, 2020. See Note 1 for more information regarding the Reverse Stock Split and the Authorized Share Reduction.
Segments
The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment
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segment. All applicable segment disclosures are included in or can be derived from the Company’s financial statements. See Note 3 for further information.
Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk
MCC Advisors has broad discretion in making investments for the Company. Investments will generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuate.
The value of the Company’s investments in loans may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as our borrowers, and those for which market yields are observable increase materially. MCC Advisors may attempt to minimize this risk by maintaining low loan-to-liquidation values with each loan and the collateral underlying the loan.
The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.
Note 3. Investments
The composition of our investments as of September 30, 2020 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

| Amortized Cost |  | Percentage |  | Fair Value |  | Percentage
Senior Secured First Lien Term Loans | $ | 178,843 |  |  | 54.5 | % |  | $ | 106,463 |  |  | 43.2 | %
Senior Secured Second Lien Term Loans | 15,476 |  |  | 4.7 |  |  | 13,927 |  |  | 5.6 |
Unsecured Debt | 4,601 |  |  | 1.4 |  |  | 2,669 |  |  | 1.1 |
MCC Senior Loan Strategy JV I LLC | 79,888 |  |  | 24.4 |  |  | 41,019 |  |  | 16.6 |
Equity/Warrants | 49,327 |  |  | 15.0 |  |  | 82,666 |  |  | 33.5 |
Total | $ | 328,135 |  |  | 100.0 | % |  | $ | 246,744 |  |  | 100.0 | %

The composition of our investments as of September 30, 2019 as a percentage of our total portfolio, at amortized cost and fair value were as follows (dollars in thousands):

| Amortized Cost |  | Percentage |  | Fair Value |  | Percentage
Senior Secured First Lien Term Loans | $ | 243,342 |  |  | 52.0 | % |  | $ | 192,770 |  |  | 48.6 | %
Senior Secured Second Lien Term Loans | 39,089 |  |  | 8.4 |  |  | 36,508 |  |  | 9.2 |
Unsecured Debt | 2,653 |  |  | 0.6 |  |  | 2,653 |  |  | 0.7 |
MCC Senior Loan Strategy JV I LLC | 78,575 |  |  | 16.8 |  |  | 69,949 |  |  | 17.6 |
Equity/Warrants | 103,989 |  |  | 22.2 |  |  | 95,009 |  |  | 23.9 |
Total | $ | 467,648 |  |  | 100.0 | % |  | $ | 396,889 |  |  | 100.0 | %

In connection with certain of the Company’s investments, the Company receives warrants that are obtained for the objective of increasing the total investment returns and are not held for hedging purposes. At September 30, 2020 and 2019, the total fair value of warrants was $15,354 and $24,983, respectively, and were included in investments at fair value on the Consolidated Statements of Assets and Liabilities. During the year ended September 30, 2020, the Company had no warrant activity. During the year ended September 30, 2019, the Company exercised its warrant positions in one portfolio company in exchange for common stock in Avantor, Inc., forfeited its warrant positions in another portfolio company, and acquired additional warrants in one existing portfolio company.
Total unrealized depreciation related to warrants for the years ended September 30, 2020, 2019, and 2018 was $9,628, $0.5 million, and $1.3 million, respectively, and was recorded on the Consolidated Statements of Operations as net unrealized appreciation/(depreciation) on investments. The warrants are received in connection with individual investments and are not subject to master netting arrangements.
The following table shows the portfolio composition by industry grouping at fair value at September 30, 2020 (dollars in thousands):
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| Fair Value |  | Percentage
Construction & Building | $ | 51,964 |  |  | 21.1 | %
Multisector Holdings | 41,019 |  |  | 16.6 |
High Tech Industries | 26,165 |  |  | 10.6 |
Healthcare & Pharmaceuticals | 23,481 |  |  | 9.5 |
Services: Business | 21,841 |  |  | 8.9 |
Hotel, Gaming & Leisure | 12,337 |  |  | 5.0 |
Wholesale | 12,278 |  |  | 5.0 |
Containers, Packaging & Glass | 11,987 |  |  | 4.8 |
Consumer goods: Durable | 9,520 |  |  | 3.8 |
Banking, Finance, Insurance & Real Estate | 6,557 |  |  | 2.7 |
Consumer goods: Non-durable | 6,164 |  |  | 2.5 |
Environmental Industries | 5,846 |  |  | 2.4 |
Energy: Oil & Gas | 5,626 |  |  | 2.3 |
Metals & Mining | 3,530 |  |  | 1.4 |
Forest Products & Paper | 2,991 |  |  | 1.2 |
Aerospace & Defense | 2,942 |  |  | 1.2 |
Media: Broadcasting & Subscription | 1,110 |  |  | 0.5 |
Automotive | 1,043 |  |  | 0.4 |
Retail | 343 |  |  | 0.1 |
Total | $ | 246,744 |  |  | 100.0 | %

The following table shows the portfolio composition by industry grouping at fair value at September 30, 2019 (dollars in thousands):

| Fair Value |  | Percentage
Multisector Holdings | $ | 69,949 |  |  | 17.6 | %
Construction & Building | 59,608 |  |  | 15.0 |
Services: Business | 49,512 |  |  | 12.5 |
High Tech Industries | 38,254 |  |  | 9.6 |
Healthcare & Pharmaceuticals | 25,698 |  |  | 6.5 |
Energy: Oil & Gas | 23,632 |  |  | 6.0 |
Hotel, Gaming & Leisure | 21,127 |  |  | 5.3 |
Wholesale | 13,850 |  |  | 3.5 |
Services: Consumer | 13,278 |  |  | 3.3 |
Containers, Packaging & Glass | 12,637 |  |  | 3.2 |
Capital Equipment | 10,680 |  |  | 2.7 |
Automotive | 10,375 |  |  | 2.6 |
Banking, Finance, Insurance & Real Estate | 10,000 |  |  | 2.5 |
Aerospace & Defense | 8,604 |  |  | 2.2 |
Consumer goods: Non-durable | 6,326 |  |  | 1.6 |
Consumer goods: Durable | 6,170 |  |  | 1.6 |
Environmental Industries | 3,991 |  |  | 1.0 |
Metals & Mining | 3,436 |  |  | 0.9 |
Forest Products & Paper | 2,830 |  |  | 0.7 |
Media: Broadcasting & Subscription | 2,408 |  |  | 0.6 |
Chemicals, Plastics & Rubber | 2,277 |  |  | 0.6 |
Media: Advertising, Printing & Publishing | 1,715 |  |  | 0.4 |
Retail | 532 |  |  | 0.1 |
Total | $ | 396,889 |  |  | 100.0 | %

The Company invests in portfolio companies principally located in North America. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.
The following table shows the portfolio composition by geographic location at fair value at September 30, 2020 (dollars in thousands):
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| Fair Value |  | Percentage
Northeast | $ | 98,555 |  |  | 39.9 | %
West | 55,400 |  |  | 22.5 |
Southeast | 42,321 |  |  | 17.1 |
Midwest | 27,574 |  |  | 11.2 |
Mid-Atlantic | 13,334 |  |  | 5.4 |
Southwest | 9,560 |  |  | 3.9 |
Total | $ | 246,744 |  |  | 100.0 | %

The following table shows the portfolio composition by geographic location at fair value at September 30, 2019 (dollars in thousands):

| Fair Value |  | Percentage
Northeast | $ | 143,795 |  |  | 36.2 | %
West | 88,412 |  |  | 22.3 |
Midwest | 76,001 |  |  | 19.2 |
Southeast | 48,089 |  |  | 12.1 |
Southwest | 24,658 |  |  | 6.2 |
Mid-Atlantic | 15,934 |  |  | 4.0 |
Total | $ | 396,889 |  |  | 100.0 | %

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Transactions With Affiliated/Controlled Companies
The Company had investments in portfolio companies designated as Affiliated Investments and Controlled Investments under the 1940 Act. Transactions with Affiliated Investments and Controlled Investments during the years ended September 30, 2020 and 2019 were as follows:

Name of Investment(3) |  | Type of Investment |  | Fair Value at September 30, 2019 |  | Purchases/(Sales) of or Advances/(Distributions) |  | Transfers In/(Out) of Affiliates |  | Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value at September 30, 2020 |  | Income Earned
Affiliated Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1888 Industrial Services, LLC |  | Senior Secured First Lien Term Loan A |  | $ | 9,304,145 |  |  | $ | 168,923 |  |  | $ | — |  |  | $ | (9,473,068) |  |  | $ | — |  |  | $ | — |  |  | $ | 167,086 |
|  | Senior Secured First Lien Term Loan B |  | 5,886,892 |  |  | — |  |  | — |  |  | (5,886,892) |  |  | — |  |  | — |  |  | — |
|  | Senior Secured First Lien Term Loan C |  | 1,170,014 |  |  | 21,242 |  |  | — |  |  | (24,493) |  |  | — |  |  | 1,166,763 |  |  | 21,012 |
|  | Senior Secured First Lien Term Loan D |  | 224,456 |  |  | (224,456) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15,103 |
|  | Senior Secured First Lien Term Loan E |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 53,342 |
|  | Revolving Credit Facility |  | 4,387,025 |  |  | (832,956) |  |  | — |  |  | — |  |  | — |  |  | 3,554,069 |  |  | 246,271 |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Access Media Holdings, LLC |  | Senior Secured First Lien Term Loan |  | 2,509,089 |  |  | — |  |  | — |  |  | (1,398,526) |  |  | — |  |  | 1,110,563 |  |  | — |
|  | Preferred Equity Series A |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | Preferred Equity Series AA |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | Preferred Equity Series AAA |  | (100,800) |  |  | — |  |  | — |  |  | 100,800 |  |  | — |  |  | — |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Black Angus Steakhouses, LLC |  | Senior Secured First Lien Delayed Draw Term Loan |  | — |  |  | — |  |  | 758,929 |  |  | — |  |  | — |  |  | 758,929 |  |  | 11,148 |
|  | Senior Secured First Lien Term Loan |  | — |  |  | — |  |  | 5,863,872 |  |  | (816,315) |  |  | — |  |  | 5,047,557 |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Caddo Investors Holdings 1 LLC |  | Equity |  | 2,830,051 |  |  | 2,452 |  |  | — |  |  | 158,273 |  |  | — |  |  | 2,990,776 |  |  | — |
Dynamic Energy Services International LLC |  | Senior Secured First Lien Term Loan |  | 1,264,841 |  |  | — |  |  | — |  |  | (359,725) |  |  | — |  |  | 905,116 |  |  | — |
|  | Revolving Credit Facility |  | 545,103 |  |  | (545,103) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,692 |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
JFL-NGS Partners, LLC |  | Preferred Equity A-2 |  | 20,150,684 |  |  | (18,355,650) |  |  | — |  |  | — |  |  | — |  |  | 1,795,034 |  |  | 352,315 |
|  | Preferred Equity A-1 |  | 2,607,661 |  |  | (2,375,369) |  |  | — |  |  | — |  |  | — |  |  | 232,292 |  |  | 45,592 |
|  | Equity |  | 19,096,371 |  |  | — |  |  | — |  |  | 19,683,696 |  |  | — |  |  | 38,780,067 |  |  | — |
JFL-WCS Partners, LLC |  | Preferred Equity Class A |  | 1,236,269 |  |  | 74,380 |  |  | — |  |  | — |  |  | — |  |  | 1,310,649 |  |  | 77,412 |
|  | Equity |  | 2,755,041 |  |  | — |  |  | — |  |  | 1,780,539 |  |  | — |  |  | 4,535,580 |  |  | — |
Kemmerer Operations, LLC |  | Senior Secured First Lien Term Loan |  | 1,766,511 |  |  | 285,194 |  |  | — |  |  | — |  |  | — |  |  | 2,051,705 |  |  | 285,313 |
|  | Senior Secured First Lien Delayed Draw Term Loan |  | 706,604 |  |  | (190,905) |  |  | — |  |  | — |  |  | — |  |  | 515,699 |  |  | 80,201 |
|  | Equity |  | 962,717 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 962,717 |  |  | — |

F-27

Name of Investment(3) |  | Type of Investment |  | Fair Value at September 30, 2019 |  | Purchases/(Sales) of or Advances/(Distributions) |  | Transfers In/(Out) of Affiliates |  | Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value at September 30, 2020 |  | Income Earned
Path Medical, LLC |  | Senior Secured First Lien Term Loan |  | 8,845,167 |  |  | (8,639,959) |  |  | — |  |  | 449,792 |  |  | (655,000) |  |  | — |  |  | 1,203,692 |
|  | Senior Secured First Lien Term Loan A |  | 3,047,473 |  |  | (3,010,987) |  |  | — |  |  | 237,504 |  |  | (273,990) |  |  | — |  |  | 380,499 |
|  | Senior Secured First Lien Term Loan C |  | 344,291 |  |  | (344,463) |  |  | — |  |  | 172 |  |  | — |  |  | — |  |  | 17,776 |
|  | Senior Secured First Lien Term Loan A |  | — |  |  | 5,905,080 |  |  | — |  |  | — |  |  | — |  |  | 5,905,080 |  |  | 51,670 |
|  | Senior Secured First Lien Term Loan B |  | — |  |  | 6,599,918 |  |  | — |  |  | 194,596 |  |  | — |  |  | 6,794,514 |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
US Multifamily, LLC |  | Senior Secured First Lien Term Loan |  | 6,670,000 |  |  | (1,546,087) |  |  | — |  |  | — |  |  | — |  |  | 5,123,913 |  |  | 592,727 |
|  | Equity |  | 3,330,000 |  |  | — |  |  | — |  |  | (1,998,000) |  |  | — |  |  | 1,332,000 |  |  | — |
Total Affiliated Investments |  | $ | 99,539,605 |  |  | $ | (23,008,746) |  |  | $ | 6,622,801 |  |  | $ | 2,648,353 |  |  | $ | (928,990) |  |  | $ | 84,873,023 |  |  | $ | 3,607,851 |
Controlled Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
MCC Senior Loan Strategy JV I LLC(1)(2) |  | Equity |  | 69,948,970 |  |  | 1,312,500 |  |  | — |  |  | (30,242,970) |  |  | — |  |  | 41,018,500 |  |  | 6,256,250 |
NVTN LLC |  | Senior Secured First Lien Term Loan |  | 4,255,990 |  |  | 2,309,885 |  |  | — |  |  | (2,035,797) |  |  | — |  |  | 4,530,078 |  |  | 62,840 |
|  | Super Priority Senior Secured First Lien Term Loan |  | — |  |  | 1,995,374 |  |  | — |  |  | 4,626 |  |  | — |  |  | 2,000,000 |  |  | 1,983 |
|  | Senior Secured First Lien Term Loan B |  | 7,152,352 |  |  | — |  |  | — |  |  | (7,152,352) |  |  | — |  |  | — |  |  | — |
|  | Senior Secured First Lien Term Loan C |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
TPG Plastics LLC |  | Senior Secured Second Lien Term Loan |  | 352,984 |  |  | (352,984) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 12,806 |
|  | Unsecured Debt |  | 278,810 |  |  | (278,810) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,876 |
|  | Unsecured Debt |  | 1,644,751 |  |  | (1,630,312) |  |  | — |  |  | 1,672,398 |  |  | (1,686,837) |  |  | — |  |  | — |
URT Acquisition Holdings Corporation |  | Senior Secured Second Lien Term Loan |  | 18,905,403 |  |  | 1,594,416 |  |  | — |  |  | — |  |  | (20,499,819) |  |  | — |  |  | 500,767 |
|  | Preferred Equity |  | 4,914,667 |  |  | (2,533,622) |  |  | — |  |  | 1,638,223 |  |  | (4,019,268) |  |  | — |  |  | — |
|  | Equity |  | — |  |  | (66,378) |  |  | — |  |  | 12,936,879 |  |  | (12,870,501) |  |  | — |  |  | — |
Total Controlled Investments |  | $ | 107,453,927 |  |  | $ | 2,350,069 |  |  | $ | — |  |  | $ | (23,178,993) |  |  | $ | (39,076,425) |  |  | $ | 47,548,578 |  |  | $ | 6,841,522 |

Name of Investment(3) |  | Type of Investment |  | Fair Value at September 30, 2018 |  | Purchases/(Sales) of or Advances/(Distributions) |  | Transfers In/(Out) of Affiliates |  | Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value at September 30, 2019 |  | Income Earned
Affiliated Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1888 Industrial Services, LLC |  | Senior Secured First Lien Term Loan A |  | $ | 8,984,232 |  |  | $ | 319,913 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 9,304,145 |  |  | $ | 688,498 |
|  | Senior Secured First Lien Term Loan B |  | 19,725,217 |  |  | 142,757 |  |  | — |  |  | (13,981,082) |  |  | — |  |  | 5,886,892 |  |  | 752,483 |

F-28

Name of Investment(3) |  | Type of Investment |  | Fair Value at September 30, 2018 |  | Purchases/(Sales) of or Advances/(Distributions) |  | Transfers In/(Out) of Affiliates |  | Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value at September 30, 2019 |  | Income Earned
|  | Senior Secured First Lien Term Loan C |  | — |  |  | 1,170,014 |  |  | — |  |  | — |  |  | — |  |  | 1,170,014 |  |  | 22,203 |
|  | Senior Secured First Lien Term Loan D |  | — |  |  | 224,456 |  |  | — |  |  | — |  |  | — |  |  | 224,456 |  |  | 546 |
|  | Revolving Credit Facility |  | 3,593,693 |  |  | 793,332 |  |  | — |  |  | — |  |  | — |  |  | 4,387,025 |  |  | 247,920 |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Access Media Holdings, LLC |  | Senior Secured First Lien Term Loan |  | 5,876,279 |  |  | — |  |  | — |  |  | (3,367,190) |  |  | — |  |  | 2,509,089 |  |  | (25,391) |
|  | Preferred Equity Series A |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | Preferred Equity Series AA |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
|  | Preferred Equity Series AAA |  | (172,800) |  |  | 72,000 |  |  | — |  |  | — |  |  | — |  |  | (100,800) |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Brantley Transportation LLC |  | Senior Secured First Lien Term Loan |  | 2,882,800 |  |  | (1,329,030) |  |  | — |  |  | 6,117,200 |  |  | (7,670,970) |  |  | — |  |  | — |
|  | Senior Secured First Lien Delayed Draw Term Loan |  | 503,105 |  |  | (503,105) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 35,561 |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Caddo Investors Holdings 1 LLC |  | Equity |  | 2,500,000 |  |  | 26,373 |  |  | — |  |  | 303,678 |  |  | — |  |  | 2,830,051 |  |  | (61,927) |
Dynamic Energy Services International LLC |  | Senior Secured First Lien Term Loan |  | — |  |  | — |  |  | 7,824,975 |  |  | (6,560,134) |  |  | — |  |  | 1,264,841 |  |  | (393,474) |
|  | Revolving Credit Facility |  | — |  |  | (776,898) |  |  | 1,322,001 |  |  | — |  |  | — |  |  | 545,103 |  |  | 65,754 |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
JFL-NGS Partners, LLC |  | Preferred Equity A-2 |  | 31,468,755 |  |  | (11,318,071) |  |  | — |  |  | — |  |  | — |  |  | 20,150,684 |  |  | 924,898 |
|  | Preferred Equity A-1 |  | 4,072,311 |  |  | (1,464,650) |  |  | — |  |  | — |  |  | — |  |  | 2,607,661 |  |  | 119,689 |
|  | Equity |  | 9,825,804 |  |  | — |  |  | — |  |  | 9,270,567 |  |  | — |  |  | 19,096,371 |  |  | — |
JFL-WCS Partners, LLC |  | Preferred Equity Class A |  | 1,166,292 |  |  | 69,977 |  |  | — |  |  | — |  |  | — |  |  | 1,236,269 |  |  | 72,830 |
|  | Equity |  | 215,116 |  |  | — |  |  | — |  |  | 2,539,925 |  |  | — |  |  | 2,755,041 |  |  | — |
Kemmerer Operations, LLC |  | Senior Secured First Lien Term Loan |  | — |  |  | 1,766,511 |  |  | — |  |  | — |  |  | — |  |  | 1,766,511 |  |  | 72,332 |
|  | Senior Secured First Lien Delayed Draw Term Loan |  | — |  |  | 706,604 |  |  | — |  |  | — |  |  | — |  |  | 706,604 |  |  | 28,932 |
|  | Equity |  | — |  |  | 962,717 |  |  | — |  |  | — |  |  | — |  |  | 962,717 |  |  | — |
Path Medical, LLC |  | Senior Secured First Lien Term Loan |  | — |  |  | 1,473,135 |  |  | 7,821,824 |  |  | (449,792) |  |  | — |  |  | 8,845,167 |  |  | 1,148,712 |
|  | Senior Secured First Lien Term Loan A |  | — |  |  | 476,477 |  |  | 2,808,500 |  |  | (237,504) |  |  | — |  |  | 3,047,473 |  |  | 364,754 |
|  | Senior Secured First Lien Term Loan C |  | — |  |  | 344,463 |  |  | — |  |  | (172) |  |  | — |  |  | 344,291 |  |  | 70,514 |
|  | Equity |  | — |  |  | — |  |  | 499,751 |  |  | (499,751) |  |  | — |  |  | — |  |  | — |
US Multifamily, LLC |  | Senior Secured First Lien Term Loan |  | 6,670,000 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,670,000 |  |  | 667,000 |
|  | Equity |  | 3,330,000 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,330,000 |  |  | — |
Total Affiliated Investments |  | $ | 100,640,804 |  |  | $ | (6,843,025) |  |  | $ | 20,277,051 |  |  | $ | (6,864,255) |  |  | $ | (7,670,970) |  |  | $ | 99,539,605 |  |  | $ | 4,801,834 |
Controlled Investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

F-29

Name of Investment(3) |  | Type of Investment |  | Fair Value at September 30, 2018 |  | Purchases/(Sales) of or Advances/(Distributions) |  | Transfers In/(Out) of Affiliates |  | Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value at September 30, 2019 |  | Income Earned
Capstone Nutrition |  | Senior Secured First Lien Term Loan |  | $ | 12,657,663 |  |  | $ | (1,884,717) |  |  | $ | — |  |  | $ | 8,188,908 |  |  | $ | (18,961,854) |  |  | $ | — |  |  | $ | (34,719) |
|  | Senior Secured First Lien Delayed Draw Term Loan |  | 5,692,096 |  |  | (847,549) |  |  | — |  |  | 3,994,770 |  |  | (8,839,317) |  |  | — |  |  | — |
|  | Senior Secured First Lien Incremental Delayed Draw Term Loan |  | 2,242,721 |  |  | (2,242,721) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 488,373 |
|  | Equity - Class B and C Units |  | — |  |  | — |  |  | — |  |  | 12 |  |  | (12) |  |  | — |  |  | — |
|  | Equity - Common Units |  | — |  |  | — |  |  | — |  |  | 400,003 |  |  | (400,003) |  |  | — |  |  | — |
MCC Senior Loan Strategy JV I LLC(1)(2) |  | Equity |  | 78,370,891 |  |  | — |  |  | — |  |  | (8,421,921) |  |  | — |  |  | 69,948,970 |  |  | 8,050,000 |
NVTN LLC |  | Senior Secured First Lien Term Loan |  | 4,005,990 |  |  | 250,000 |  |  | — |  |  | — |  |  | — |  |  | 4,255,990 |  |  | 270,259 |
|  | Senior Secured First Lien Term Loan B |  | 11,837,367 |  |  | 467,729 |  |  | — |  |  | (5,152,744) |  |  | — |  |  | 7,152,352 |  |  | 352,280 |
|  | Senior Secured First Lien Term Loan C |  | 7,479,397 |  |  | 90,657 |  |  | — |  |  | (7,570,054) |  |  | — |  |  | — |  |  | — |
|  | Equity |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
OmniVere, LLC |  | Senior Secured First Lien Term Loan |  | — |  |  | — |  |  | — |  |  | 22,880,599 |  |  | (22,880,599) |  |  | — |  |  | (2,822) |
|  | Senior Secured First Lien Term Loan |  | 1,374,048 |  |  | 661,225 |  |  | — |  |  | 2,963,001 |  |  | (4,998,274) |  |  | — |  |  | — |
|  | Unsecured Debt |  | — |  |  | — |  |  | — |  |  | 22,727,575 |  |  | (22,727,575) |  |  | — |  |  | (2,205) |
|  | Equity |  | — |  |  | — |  |  | — |  |  | 872,698 |  |  | (872,698) |  |  | — |  |  | — |
TPG Plastics LLC |  | Senior Secured Second Lien Term Loan |  | 401,346 |  |  | (48,362) |  |  | — |  |  | — |  |  | — |  |  | 352,984 |  |  | 38,253 |
|  | Unsecured Debt |  | 360,000 |  |  | (21,780) |  |  | — |  |  | — |  |  | (59,410) |  |  | 278,810 |  |  | 27,281 |
|  | Unsecured Debt |  | 646,996 |  |  | (646,996) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,163 |
|  | Equity |  | 2,670,154 |  |  | 646,996 |  |  | — |  |  | (1,672,399) |  |  | — |  |  | 1,644,751 |  |  | — |
URT Acquisition Holdings Corporation |  | Senior Secured Second Lien Term Loan |  | 15,112,754 |  |  | 3,792,649 |  |  | — |  |  | — |  |  | — |  |  | 18,905,403 |  |  | 1,824,940 |
|  | Preferred Equity |  | 5,850,795 |  |  | 702,095 |  |  | — |  |  | (1,638,223) |  |  | — |  |  | 4,914,667 |  |  | 175,043 |
|  | Equity |  | 12,937,518 |  |  | — |  |  | — |  |  | (12,937,518) |  |  | — |  |  | — |  |  | — |
Total Controlled Investments |  | $ | 161,639,736 |  |  | $ | 919,226 |  |  | $ | — |  |  | $ | 24,634,707 |  |  | $ | (79,739,742) |  |  | $ | 107,453,927 |  |  | $ | 11,188,846 |

F-30

(1)The Company and Great American Life Insurance Company (“GALIC”) are the members of MCC Senior Loan Strategy JV I LLC (“MCC JV”), a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members of MCC JV make capital contributions as investments by MCC JV are completed, and all portfolio and other material decisions regarding MCC JV must be submitted to MCC JV’s board of managers, which is comprised of an equal number of members appointed by each of the Company and GALIC. Approval of MCC JV’s board of managers requires the unanimous approval of a quorum of the board of managers, with a quorum consisting of equal representation of members appointed by each of the Company and GALIC. Because management of MCC JV is shared equally between the Company and GALIC, the Company does not have operational control over the MCC JV for purposes of the 1940 Act or otherwise.
(2)Amount of income earned represents distributions from MCC JV to the Company and is a component of dividend income, net of provisional taxes in the Consolidated Statements of Operations.
(3)The par amount and additional detail are shown in the consolidated schedule of investments.
Purchases/(sales) of or advances to/(distributions) from Affiliated Investments and Controlled Investments represent the proceeds from sales and settlements of investments, purchases, originations and participations, investment increases due to PIK interest as well as net amortization of premium/(discount) on investments and are included in the purchases and sales presented on the Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018. Transfers in/(out) of Affiliated Investments and Controlled Investments represent the fair value for the month an investment became or was removed as an Affiliated Investment or a Controlled Investment. Income received from Affiliated Investments and Controlled Investments is included in total investment income on the Consolidated Statements of Operations for the years ended September 30, 2020, 2019 and 2018.
Loan Participation Sales
The Company may sell portions of its investments via participation agreements to a managed account, managed by an affiliate and non-affiliate of the Company. At September 30, 2020, there were two participation agreements outstanding with an aggregate fair value of $6.8 million. At September 30, 2019, there were two participation agreements outstanding with an aggregate fair value of $6.5 million. The transfer of the participated portion of the investments met the criteria set forth in ASC 860, Transfers and Servicing for treatment as a sale. In each case, the Company’s loan participation agreements satisfy the following conditions:
•transferred investments have been isolated from the Company, and put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership,
•each participant has the right to pledge or exchange the transferred investments it received, and no condition both constrains the participant from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the Company; and
•the Company, its consolidated affiliates or its agents do not maintain effective control over the transferred investments through either: (i) an agreement that entitles and/or obligates the Company to repurchase or redeem the assets before maturity, or (ii) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.
Such investments where the Company has retained proportionate interests are included in the consolidated schedule of investments. All of these investments are classified within Level 3 of the fair value hierarchy, as defined in Note 4.
During the years ended September 30, 2020, 2019 and 2018, the Company collected interest and principal payments on behalf of the participant in aggregate amounts of $2.7 million, $3.7 million and $21.8 million, respectively. Under the terms of the participation agreements, the Company will collect and remit periodic payments to the participant equal to the participant's proportionate share of any principal and interest payments received by the Company from the underlying investee companies.
MCC Senior Loan Strategy JV I LLC
On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage MCC JV. All portfolio and other material decisions regarding MCC JV must be submitted to MCC JV’s board of managers, which is comprised of four members, two of whom are selected by the Company and the other two of whom are selected by GALIC. The Company has concluded that it does not operationally control MCC JV. As the Company does not operationally control MCC JV, it does not consolidate the operations of MCC JV within the consolidated financial statements.
Subsequent to the year ended September 30, 2020, the Company, MCC JV, GALIC, and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement pursuant to which a private fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in the MCC JV. In connection therewith, MCC JV repaid in full all outstanding borrowings under, and terminated, the JV Facility (defined below). See “Note 15” for more information. Because of the aforementioned transaction, the Company determined the value of MCC JV using the proceeds from the sale. Historically, as a practical expedient, the Company had used NAV to determine the value of its investment in MCC JV; therefore, this investment had been presented as a reconciling item within the fair value hierarchy (see Note 4). Investments held by MCC JV are measured at fair value using the same valuation methodologies as described in Note 2.
As of September 30, 2020, MCC JV had total capital commitments of $100.0 million, with the Company providing $87.5 million and GALIC providing $12.5 million. Approximately $89.8 million was funded as of September 30, 2020 relating to these commitments, of which $78.6 million
F-31

was from the Company. As of September 30, 2020, MCC JV’s board of managers had approved advances of capital of up to $0.3 million of the remaining capital commitments, of which $0.2 million is from the Company.
On August 4, 2015, MCC JV entered into a senior secured revolving credit facility (the “JV Facility”) led by Credit Suisse, AG (“CS”) with commitments of $100 million subject to leverage and borrowing base restrictions. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch (“DB”), and increased the total loan commitments to $200 million. The JV Facility bears interest at a rate of LIBOR (with no minimum + 2.50% per annum. On March 29, 2019, the JV Facility reinvestment period was extended to June 28, 2019 from March 30, 2019. On June 28, 2019, the JV Facility reinvestment period was extended to October 28, 2019. The stated maturity date was not impacted by the JV Facility reinvestment period extension and remained March 30, 2022. As of September 30, 2020 and 2019, there was approximately $111.3 million and $179.3 million outstanding under the JV Facility, respectively.
On March 31, 2020, the JV Facility ended its reinvestment period and entered its amortization period, during which time the interest rate was increased to LIBOR (with a 0.00% floor) + 3.00% per annum.
On April 20, 2020, the JV Facility was amended to (i) during each 12-month period during the amortization period, permit the sale of investments below a price of 97% as long as the sale is approved by DB and the balance of all such investments sold is not greater than 30% of the adjusted balance of all loans as of the first date of each 12-month period and (ii) establish a target effective advance rate at various measurement dates during the amortization period. All principal collections will be swept to amortize the amount outstanding under the JV Facility and interest collections will be swept, as applicable, in order to meet the target effective advance rate for the applicable period.
At September 30, 2020 and 2019, MCC JV had total investments at fair value of $163.1 million and $249.3 million, respectively. As of September 30, 2020 and 2019, MCC JV’s portfolio was comprised of senior secured first lien term loans to 45 and 61 borrowers, respectively. As of September 30, 2020 and 2019, certain investments in one portfolio company held by MCC JV were on non-accrual status.
Below is a summary of MCC JV’s portfolio, excluding equity investments, followed by a listing of the individual investments in MCC JV’s portfolio as of September 30, 2020 and 2019:

| September 30, 2020 |  | September 30, 2019
Senior secured loans(1) | $ | 182,514,110 |  |  | $ | 261,170,437 |
Weighted average current interest rate on senior secured loans(2) | 6.02 | % |  | 7.17 | %
Number of borrowers in MCC JV | 45 |  |  | 61 |
Largest loan to a single borrower(1) | $ | 10,653,501 |  |  | $ | 10,884,644 |
Total of five largest loans to borrowers(1) | $ | 39,191,213 |  |  | $ | 43,626,877 |

(1)At par value.
(2)Computed as the (a) annual stated interest rate on accruing senior secured loans, divided by (b) total senior secured loans at par.
MCC JV Loan Portfolio as of September 30, 2020

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
4Over International, LLC |  | Media: Advertising, Printing & Publishing |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 6/7/2022 |  | $ | 10,653,501 |  |  | $ | 10,653,501 |  |  | $ | 9,995,115 |  |  | 16.8 | %
|  |  |  |  |  |  |  | 10,653,501 |  |  | 10,653,501 |  |  | 9,995,115 |  |  |
Cardenas Markets LLC |  | Retail |  | Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1) |  | 11/29/2023 |  | 5,293,750 |  |  | 5,269,829 |  |  | 5,287,398 |  |  | 8.9 | %
|  |  |  |  |  |  |  | 5,293,750 |  |  | 5,269,829 |  |  | 5,287,398 |  |  |
CHA Consulting, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 4/10/2025 |  | 1,340,389 |  |  | 1,336,046 |  |  | 1,274,308 |  |  | 2.1 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 4/10/2025 |  | 592,500 |  |  | 592,500 |  |  | 563,290 |  |  | 0.9 | %
|  |  |  |  |  |  |  | 1,932,889 |  |  | 1,928,546 |  |  | 1,837,598 |  |  |
Covenant Surgical Partners, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%)(1) |  | 7/1/2026 |  | 4,950,187 |  |  | 4,909,373 |  |  | 4,435,496 |  |  | 7.4 | %
|  |  |  |  |  |  |  | 4,950,187 |  |  | 4,909,373 |  |  | 4,435,496 |  |  |
CT Technologies Intermediate Holdings, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 12/1/2021 |  | 5,086,116 |  |  | 5,005,862 |  |  | 4,875,042 |  |  | 8.2 | %

F-32

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
|  |  |  |  |  |  |  | 5,086,116 |  |  | 5,005,862 |  |  | 4,875,042 |  |  |
Envision Healthcare Corporation |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) |  | 10/10/2025 |  | 1,940,438 |  |  | 1,888,530 |  |  | 1,397,503 |  |  | 2.3 | %
|  |  |  |  |  |  |  | 1,940,438 |  |  | 1,888,530 |  |  | 1,397,503 |  |  |
GC EOS Buyer, Inc. |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/1/2025 |  | 1,420,440 |  |  | 1,404,814 |  |  | 1,304,532 |  |  | 2.2 | %
|  |  |  |  |  |  |  | 1,420,440 |  |  | 1,404,814 |  |  | 1,304,532 |  |  |
GK Holdings, Inc. |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 1/20/2021 |  | 2,877,863 |  |  | 2,876,803 |  |  | 2,142,856 |  |  | 3.6 | %
|  |  |  |  |  |  |  | 2,877,863 |  |  | 2,876,803 |  |  | 2,142,856 |  |  |
Glass Mountain Pipeline Holdings, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 12/23/2024 |  | 4,850,625 |  |  | 4,839,587 |  |  | 2,601,390 |  |  | 4.4 | %
|  |  |  |  |  |  |  | 4,850,625 |  |  | 4,839,587 |  |  | 2,601,390 |  |  |
Golden West Packaging Group LLC |  | Forest Products & Paper |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 6/20/2023 |  | 4,069,771 |  |  | 4,069,771 |  |  | 3,968,027 |  |  | 6.7 | %
|  |  |  |  |  |  |  | 4,069,771 |  |  | 4,069,771 |  |  | 3,968,027 |  |  |
High Ridge Brands Co. |  | Consumer Goods: Non-Durable |  | Senior Secured First Lien Term Loan (LIBOR + 7.00%, 1.00% LIBOR Floor)(1)(4) |  | 6/30/2022 |  | 1,732,439 |  |  | 1,724,570 |  |  | 593,187 |  |  | 1.0 | %
|  |  |  |  |  |  |  | 1,732,439 |  |  | 1,724,570 |  |  | 593,187 |  |  |
Highline Aftermarket Acquisitions, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 3.50%, 1.00% LIBOR Floor)(1) |  | 4/26/2025 |  | 4,025,000 |  |  | 4,016,286 |  |  | 3,597,545 |  |  | 6.0 | %
|  |  |  |  |  |  |  | 4,025,000 |  |  | 4,016,286 |  |  | 3,597,545 |  |  |
Infogroup, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 4/3/2023 |  | 4,825,000 |  |  | 4,804,770 |  |  | 4,224,770 |  |  | 7.1 | %
|  |  |  |  |  |  |  | 4,825,000 |  |  | 4,804,770 |  |  | 4,224,770 |  |  |
Intermediate LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 7/1/2026 |  | 2,722,500 |  |  | 2,708,089 |  |  | 2,513,684 |  |  | 4.2 | %
|  |  |  |  |  |  |  | 2,722,500 |  |  | 2,708,089 |  |  | 2,513,684 |  |  |
Isagenix International, LLC |  | Wholesale |  | Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1) |  | 6/16/2025 |  | 2,626,629 |  |  | 2,616,715 |  |  | 1,337,742 |  |  | 2.2 | %
|  |  |  |  |  |  |  | 2,626,629 |  |  | 2,616,715 |  |  | 1,337,742 |  |  |
IXS Holdings, Inc. |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 3/5/2027 |  | 994,874 |  |  | 985,714 |  |  | 981,543 |  |  | 1.6 | %
|  |  |  |  |  |  |  | 994,874 |  |  | 985,714 |  |  | 981,543 |  |  |
Keystone Acquisition Corp. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 5/1/2024 |  | 6,099,815 |  |  | 6,040,757 |  |  | 5,505,083 |  |  | 9.2 | %
|  |  |  |  |  |  |  | 6,099,815 |  |  | 6,040,757 |  |  | 5,505,083 |  |  |
KNB Holdings Corporation |  | Consumer Goods: Durable |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 4/26/2024 |  | 4,743,170 |  |  | 4,694,643 |  |  | 1,992,131 |  |  | 3.3 | %
|  |  |  |  |  |  |  | 4,743,170 |  |  | 4,694,643 |  |  | 1,992,131 |  |  |
Liason Acquisition, LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 12/20/2026 |  | 3,466,288 |  |  | 3,458,579 |  |  | 3,372,351 |  |  | 5.7 | %

F-33

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
|  |  |  |  |  |  |  | 3,466,288 |  |  | 3,458,579 |  |  | 3,372,351 |  |  |
LifeMiles Ltd. |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 8/18/2022 |  | 4,229,263 |  |  | 4,220,573 |  |  | 3,880,349 |  |  | 6.5 | %
|  |  |  |  |  |  |  | 4,229,263 |  |  | 4,220,573 |  |  | 3,880,349 |  |  |
Manna Pro Products, LLC |  | Consumer Goods: Non-Durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 12/8/2023 |  | 2,998,542 |  |  | 2,998,542 |  |  | 2,875,002 |  |  | 4.8 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 12/8/2023 |  | 608,958 |  |  | 608,958 |  |  | 583,869 |  |  | 1.0 | %
|  |  |  |  |  |  |  | 3,607,500 |  |  | 3,607,500 |  |  | 3,458,871 |  |  |
Mileage Plus Holdings, LLC |  | Transportation: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 6/21/2027 |  | 4,401,819 |  |  | 4,407,746 |  |  | 4,475,769 |  |  | 7.5 | %
|  |  |  |  |  |  |  | 4,401,819 |  |  | 4,407,746 |  |  | 4,475,769 |  |  |
NGS US Finco, LLC |  | Capital Equipment |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 10/1/2025 |  | 2,943,223 |  |  | 2,932,700 |  |  | 2,755,445 |  |  | 4.6 | %
|  |  |  |  |  |  |  | 2,943,223 |  |  | 2,932,700 |  |  | 2,755,445 |  |  |
Northern Star Industries, Inc. |  | Capital Equipment |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 3/28/2025 |  | 4,143,750 |  |  | 4,130,394 |  |  | 3,630,754 |  |  | 6.1 | %
|  |  |  |  |  |  |  | 4,143,750 |  |  | 4,130,394 |  |  | 3,630,754 |  |  |
Offen, Inc. |  | Transportation: Cargo |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%)(1) |  | 6/22/2026 |  | 3,626,659 |  |  | 3,596,886 |  |  | 3,494,880 |  |  | 5.9 | %
|  |  |  |  |  |  |  | 3,626,659 |  |  | 3,596,886 |  |  | 3,494,880 |  |  |
Patriot Rail Company LLC |  | Transportation: Cargo |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 10/19/2026 |  | 1,741,250 |  |  | 1,711,104 |  |  | 1,730,454 |  |  | 2.9 | %
|  |  |  |  |  |  |  | 1,741,250 |  |  | 1,711,104 |  |  | 1,730,454 |  |  |
PetroChoice Holdings, Inc. |  | Chemicals, Plastics and Rubber |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 8/19/2022 |  | 6,279,803 |  |  | 6,270,073 |  |  | 5,418,842 |  |  | 9.1 | %
|  |  |  |  |  |  |  | 6,279,803 |  |  | 6,270,073 |  |  | 5,418,842 |  |  |
Port Townsend Holdings Company, Inc. |  | Forest Products & Paper |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 4/3/2024 |  | 2,945,600 |  |  | 2,928,240 |  |  | 2,632,777 |  |  | 4.4 | %
|  |  |  |  |  |  |  | 2,945,600 |  |  | 2,928,240 |  |  | 2,632,777 |  |  |
PT Network, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor, 2% PIK)(1)(5) |  | 11/30/2023 |  | 4,955,627 |  |  | 4,638,237 |  |  | 4,460,064 |  |  | 7.5 | %
|  |  |  | Class C Common Stock |  |  |  | 1 |  |  | — |  |  | — |  |  |
|  |  |  |  |  |  |  | 4,955,628 |  |  | 4,638,237 |  |  | 4,460,064 |  |  |

F-34

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
PVHC Holding Corp |  | Containers, Packaging and Glass |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 8/5/2024 |  | 1,952,427 |  |  | 1,946,107 |  |  | 1,850,511 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 1,952,427 |  |  | 1,946,107 |  |  | 1,850,511 |  |  |
Quartz Holding Company |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 4/2/2026 |  | 3,936,357 |  |  | 3,924,382 |  |  | 3,847,789 |  |  | 6.5 | %
|  |  |  |  |  |  |  | 3,936,357 |  |  | 3,924,382 |  |  | 3,847,789 |  |  |
RB Media, Inc. |  | Media: Diversified & Production |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/29/2025 |  | 5,651,270 |  |  | 5,620,482 |  |  | 5,605,495 |  |  | 9.4 | %
|  |  |  |  |  |  |  | 5,651,270 |  |  | 5,620,482 |  |  | 5,605,495 |  |  |
Salient CRGT Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 2/28/2022 |  | 2,533,036 |  |  | 2,518,601 |  |  | 2,343,058 |  |  | 3.9 | %
|  |  |  |  |  |  |  | 2,533,036 |  |  | 2,518,601 |  |  | 2,343,058 |  |  |
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) |  | 9/1/2022 |  | 4,776,954 |  |  | 4,739,017 |  |  | 4,733,961 |  |  | 7.9 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) |  | 9/1/2022 |  | 1,852,521 |  |  | 1,852,521 |  |  | 1,835,849 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 6,629,475 |  |  | 6,591,538 |  |  | 6,569,810 |  |  |
Shift4 Payments, LLC |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 11/29/2024 |  | 7,304,819 |  |  | 7,283,042 |  |  | 7,255,877 |  |  | 12.2 | %
|  |  |  |  |  |  |  | 7,304,819 |  |  | 7,283,042 |  |  | 7,255,877 |  |  |
Simplified Logistics, LLC |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 2/27/2022 |  | 3,447,500 |  |  | 3,447,500 |  |  | 3,358,899 |  |  | 5.6 | %
|  |  |  |  |  |  |  | 3,447,500 |  |  | 3,447,500 |  |  | 3,358,899 |  |  |
Syniverse Holdings, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 3/9/2023 |  | 2,905,253 |  |  | 2,891,007 |  |  | 2,229,200 |  |  | 3.7 | %
|  |  |  |  |  |  |  | 2,905,253 |  |  | 2,891,007 |  |  | 2,229,200 |  |  |
The Octave Music Group, Inc. |  | Media: Diversified & Production |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 5/29/2025 |  | 5,896,552 |  |  | 5,844,063 |  |  | 5,071,034 |  |  | 8.5 | %
|  |  |  |  |  |  |  | 5,896,552 |  |  | 5,844,063 |  |  | 5,071,034 |  |  |
ThoughtWorks, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) |  | 10/11/2024 |  | 2,627,704 |  |  | 2,620,849 |  |  | 2,585,136 |  |  | 4.3 | %
|  |  |  |  |  |  |  | 2,627,704 |  |  | 2,620,849 |  |  | 2,585,136 |  |  |
Vero Parent, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/16/2024 |  | 3,875,924 |  |  | 3,856,982 |  |  | 3,813,522 |  |  | 6.4 | %
|  |  |  |  |  |  |  | 3,875,924 |  |  | 3,856,982 |  |  | 3,813,522 |  |  |
Wawona Delaware Holdings, LLC |  | Beverage & Food |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 9/11/2026 |  | 945,350 |  |  | 937,295 |  |  | 912,358 |  |  | 1.5 | %
|  |  |  |  |  |  |  | 945,350 |  |  | 937,295 |  |  | 912,358 |  |  |
Wheels Up Partners LLC |  | Aerospace & Defense |  | Senior Secured First Lien Term Loan (LIBOR + 8.55%, 1.00% LIBOR Floor)(1) |  | 10/15/2021 |  | 1,509,917 |  |  | 1,497,761 |  |  | 1,509,917 |  |  | 2.5 | %

F-35

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
|  |  |  |  |  |  |  | 1,509,917 |  |  | 1,497,761 |  |  | 1,509,917 |  |  |
Wok Holdings Inc. |  | Retail |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 3/1/2026 |  | 6,550,249 |  |  | 6,505,809 |  |  | 4,864,216 |  |  | 8.2 | %
|  |  |  |  |  |  |  | 6,550,249 |  |  | 6,505,809 |  |  | 4,864,216 |  |  |
Wrench Group LLC |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 4/30/2026 |  | 2,942,820 |  |  | 2,920,082 |  |  | 2,834,231 |  |  | 4.8 | %
|  |  |  |  |  |  |  | 2,942,820 |  |  | 2,920,082 |  |  | 2,834,231 |  |  |
Xebec Global Holdings, LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 2/12/2024 |  | 8,053,168 |  |  | 8,053,168 |  |  | 8,053,168 |  |  | 13.5 | %
|  |  |  |  |  |  |  | 8,053,168 |  |  | 8,053,168 |  |  | 8,053,168 |  |  |
Z Medica, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 9/29/2022 |  | 2,566,500 |  |  | 2,566,500 |  |  | 2,528,002 |  |  | 4.3 | %
|  |  |  |  |  |  |  | 2,566,500 |  |  | 2,566,500 |  |  | 2,528,002 |  |  |
Total Investments, September 30, 2020 |  |  |  |  |  | $ | 182,514,111 |  |  | $ | 181,365,360 |  |  | $ | 163,133,421 |  |  | 273.5 | %

(1)Represents the annual current interest rate as of September 30, 2020. All interest rates are payable in cash, unless otherwise noted.
(2)Represents the fair value in accordance with ASC 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.
(3)Percentage is based on MCC JV's net assets of $59,617,800 as of September 30, 2020.
(4)This investment was on non-accrual status as of September 30, 2020.
(5)Par amount includes accumulated PIK interest and is net of repayments.
MCC JV Loan Portfolio as of September 30, 2019

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
4Over International, LLC |  | Media: Advertising, Printing & Publishing |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 6/7/2022 |  | $ | 10,884,644 |  |  | $ | 10,884,644 |  |  | $ | 10,635,385 |  |  | 13.3 | %
|  |  |  |  |  |  |  | 10,884,644 |  |  | 10,884,644 |  |  | 10,635,385 |  |  |
Acrisure, LLC |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 11/22/2023 |  | 724,217 |  |  | 722,980 |  |  | 720,162 |  |  | 0.9 | %
|  |  |  |  |  |  |  | 724,217 |  |  | 722,980 |  |  | 720,162 |  |  |
AL Midcoast Holdings, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 8/1/2025 |  | 4,330,542 |  |  | 4,297,473 |  |  | 4,246,963 |  |  | 5.3 | %
|  |  |  |  |  |  |  | 4,330,542 |  |  | 4,297,473 |  |  | 4,246,963 |  |  |
Brightspring Health Services |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%)(1) |  | 3/5/2026 |  | 3,990,000 |  |  | 3,941,288 |  |  | 3,990,000 |  |  | 5.0 | %
|  |  |  |  |  |  |  | 3,990,000 |  |  | 3,941,288 |  |  | 3,990,000 |  |  |
Callaway Golf Company |  | Consumer Goods: Durable |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 1/4/2026 |  | 2,774,187 |  |  | 2,724,326 |  |  | 2,801,929 |  |  | 3.5 | %
|  |  |  |  |  |  |  | 2,774,187 |  |  | 2,724,326 |  |  | 2,801,929 |  |  |
Cardenas Markets LLC |  | Retail |  | Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1) |  | 11/29/2023 |  | 5,348,750 |  |  | 5,316,921 |  |  | 5,172,776 |  |  | 6.5 | %
|  |  |  |  |  |  |  | 5,348,750 |  |  | 5,316,921 |  |  | 5,172,776 |  |  |

F-36

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
CHA Consulting, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 4/10/2025 |  | 1,354,100 |  |  | 1,348,742 |  |  | 1,324,581 |  |  | 1.7 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 4/10/2025 |  | 598,500 |  |  | 598,500 |  |  | 584,908 |  |  | 0.7 | %
|  |  |  |  |  |  |  | 1,952,600 |  |  | 1,947,242 |  |  | 1,909,489 |  |  |
Covenant Surgical Partners, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%)(1) |  | 7/1/2026 |  | 5,000,000 |  |  | 4,951,590 |  |  | 4,940,000 |  |  | 6.2 | %
|  |  |  |  |  |  |  | 5,000,000 |  |  | 4,951,590 |  |  | 4,940,000 |  |  |
CT Technologies Intermediate Holdings, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 12/1/2021 |  | 4,131,900 |  |  | 4,067,981 |  |  | 3,770,359 |  |  | 4.7 | %
|  |  |  |  |  |  |  | 4,131,900 |  |  | 4,067,981 |  |  | 3,770,359 |  |  |
Envision Healthcare Corporation |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) |  | 10/10/2025 |  | 1,960,188 |  |  | 1,897,299 |  |  | 1,594,220 |  |  | 2.0 | %
|  |  |  |  |  |  |  | 1,960,188 |  |  | 1,897,299 |  |  | 1,594,220 |  |  |
GC EOS Buyer, Inc. |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/1/2025 |  | 3,445,086 |  |  | 3,399,335 |  |  | 3,400,989 |  |  | 4.3 | %
|  |  |  |  |  |  |  | 3,445,086 |  |  | 3,399,335 |  |  | 3,400,989 |  |  |
GK Holdings, Inc. |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 1/20/2021 |  | 2,908,397 |  |  | 2,903,827 |  |  | 2,641,697 |  |  | 3.3 | %
|  |  |  |  |  |  |  | 2,908,397 |  |  | 2,903,827 |  |  | 2,641,697 |  |  |
Glass Mountain Pipeline Holdings, LLC |  | Energy: Oil & Gas |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 12/23/2024 |  | 4,900,375 |  |  | 4,886,582 |  |  | 4,618,604 |  |  | 5.8 | %
|  |  |  |  |  |  |  | 4,900,375 |  |  | 4,886,582 |  |  | 4,618,604 |  |  |
Golden West Packaging Group LLC |  | Forest Products & Paper |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 6/20/2023 |  | 4,188,348 |  |  | 4,188,348 |  |  | 4,163,637 |  |  | 5.2 | %
|  |  |  |  |  |  |  | 4,188,348 |  |  | 4,188,348 |  |  | 4,163,637 |  |  |
High Ridge Brands Co. |  | Consumer Goods: Non-Durable |  | Senior Secured First Lien Term Loan (LIBOR + 7.00%, 1.00% LIBOR Floor)(1)(4) |  | 6/30/2022 |  | 1,818,750 |  |  | 1,805,750 |  |  | 1,421,353 |  |  | 1.8 | %
|  |  |  |  |  |  |  | 1,818,750 |  |  | 1,805,750 |  |  | 1,421,353 |  |  |
Highline Aftermarket Acquisitions, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 3.50%, 1.00% LIBOR Floor)(1) |  | 4/26/2025 |  | 4,066,176 |  |  | 4,055,443 |  |  | 3,601,412 |  |  | 4.5 | %
|  |  |  |  |  |  |  | 4,066,176 |  |  | 4,055,443 |  |  | 3,601,412 |  |  |
The Imagine Group, LLC |  | Media: Advertising, Printing & Publishing |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 6/21/2022 |  | 7,800,000 |  |  | 7,757,145 |  |  | 5,187,780 |  |  | 6.5 | %
|  |  |  |  |  |  |  | 7,800,000 |  |  | 7,757,145 |  |  | 5,187,780 |  |  |
Infogroup, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 4/3/2023 |  | 4,875,000 |  |  | 4,846,330 |  |  | 4,748,738 |  |  | 5.9 | %
|  |  |  |  |  |  |  | 4,875,000 |  |  | 4,846,330 |  |  | 4,748,738 |  |  |
Intermedia Holdings, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 7/21/2025 |  | 2,977,500 |  |  | 2,952,588 |  |  | 2,973,034 |  |  | 3.7 | %
|  |  |  |  |  |  |  | 2,977,500 |  |  | 2,952,588 |  |  | 2,973,034 |  |  |

F-37

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
Intermediate LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 7/1/2026 |  | 2,750,000 |  |  | 2,732,906 |  |  | 2,732,400 |  |  | 3.4 | %
|  |  |  |  |  |  |  | 2,750,000 |  |  | 2,732,906 |  |  | 2,732,400 |  |  |
Isagenix International, LLC |  | Wholesale |  | Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1) |  | 6/16/2025 |  | 2,788,268 |  |  | 2,775,502 |  |  | 2,115,738 |  |  | 2.6 | %
|  |  |  |  |  |  |  | 2,788,268 |  |  | 2,775,502 |  |  | 2,115,738 |  |  |
Jackson Hewitt Tax Service Inc. |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%)(1) |  | 5/31/2023 |  | 5,850,000 |  |  | 5,850,000 |  |  | 5,811,390 |  |  | 7.3 | %
|  |  |  |  |  |  |  | 5,850,000 |  |  | 5,850,000 |  |  | 5,811,390 |  |  |
Jordan Health Products I, Inc. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 5/15/2025 |  | 5,181,776 |  |  | 5,118,971 |  |  | 4,378,601 |  |  | 5.5 | %
|  |  |  |  |  |  |  | 5,181,776 |  |  | 5,118,971 |  |  | 4,378,601 |  |  |
Keystone Acquisition Corp. |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 5/1/2024 |  | 6,162,699 |  |  | 6,086,349 |  |  | 5,972,888 |  |  | 7.5 | %
|  |  |  |  |  |  |  | 6,162,699 |  |  | 6,086,349 |  |  | 5,972,888 |  |  |
KNB Holdings Corporation |  | Consumer Goods: Durable |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 4/26/2024 |  | 4,871,364 |  |  | 4,807,569 |  |  | 3,975,033 |  |  | 5.0 | %
|  |  |  |  |  |  |  | 4,871,364 |  |  | 4,807,569 |  |  | 3,975,033 |  |  |
LifeMiles Ltd. |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 8/18/2022 |  | 4,836,393 |  |  | 4,821,161 |  |  | 4,759,978 |  |  | 6.0 | %
|  |  |  |  |  |  |  | 4,836,393 |  |  | 4,821,161 |  |  | 4,759,978 |  |  |
Manna Pro Products, LLC |  | Consumer Goods: Non-Durable |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 12/8/2023 |  | 3,029,375 |  |  | 3,029,375 |  |  | 2,880,027 |  |  | 3.6 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 12/8/2023 |  | 615,125 |  |  | 615,125 |  |  | 584,799 |  |  | 0.7 | %
|  |  |  |  |  |  |  | 3,644,500 |  |  | 3,644,500 |  |  | 3,464,826 |  |  |
New Media Holdings II LLC |  | Media: Advertising, Printing & Publishing |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) |  | 7/14/2022 |  | 2,446,853 |  |  | 2,443,556 |  |  | 2,442,205 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 2,446,853 |  |  | 2,443,556 |  |  | 2,442,205 |  |  |
NGS US Finco, LLC |  | Capital Equipment |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 10/1/2025 |  | 2,977,500 |  |  | 2,964,722 |  |  | 2,903,360 |  |  | 3.6 | %
|  |  |  |  |  |  |  | 2,977,500 |  |  | 2,964,722 |  |  | 2,903,360 |  |  |
Northern Star Industries, Inc. |  | Capital Equipment |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 3/28/2025 |  | 4,186,250 |  |  | 4,169,745 |  |  | 3,984,054 |  |  | 5.0 | %
|  |  |  |  |  |  |  | 4,186,250 |  |  | 4,169,745 |  |  | 3,984,054 |  |  |
Nuvei Technologies Corp. |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 9/29/2025 |  | 3,543,616 |  |  | 3,512,593 |  |  | 3,477,350 |  |  | 4.3 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 9/29/2025 |  | 519,107 |  |  | 519,107 |  |  | 509,399 |  |  | 0.6 | %
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 9/29/2025 |  | 716,005 |  |  | 716,005 |  |  | 702,616 |  |  | 0.9 | %
|  |  |  |  |  |  |  | 4,778,728 |  |  | 4,747,705 |  |  | 4,689,365 |  |  |
Offen, Inc. |  | Transportation: Cargo |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%)(1) |  | 6/22/2026 |  | 3,663,385 |  |  | 3,628,046 |  |  | 3,613,477 |  |  | 4.5 | %

F-38

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
|  |  |  |  |  |  |  | 3,663,385 |  |  | 3,628,046 |  |  | 3,613,477 |  |  |
Peraton Corp. |  | Aerospace and Defense |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 4/29/2024 |  | 3,406,439 |  |  | 3,395,256 |  |  | 3,384,979 |  |  | 4.2 | %
|  |  |  |  |  |  |  | 3,406,439 |  |  | 3,395,256 |  |  | 3,384,979 |  |  |
PetroChoice Holdings, Inc. |  | Chemicals, Plastics and Rubber |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 8/19/2022 |  | 6,345,900 |  |  | 6,333,392 |  |  | 6,092,064 |  |  | 7.6 | %
|  |  |  |  |  |  |  | 6,345,900 |  |  | 6,333,392 |  |  | 6,092,064 |  |  |
Port Townsend Holdings Company, Inc. |  | Forest Products & Paper |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 4/3/2024 |  | 3,041,842 |  |  | 3,018,790 |  |  | 2,992,564 |  |  | 3.7 | %
|  |  |  |  |  |  |  | 3,041,842 |  |  | 3,018,790 |  |  | 2,992,564 |  |  |
PT Network, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor, 2% PIK)(1)(5) |  | 11/30/2023 |  | 4,880,028 |  |  | 4,562,638 |  |  | 4,562,338 |  |  | 5.7 | %
|  |  |  | Class C Common Stock |  |  |  | 1 |  |  | — |  |  | — |  |  |
|  |  |  |  |  |  |  | 4,880,029 |  |  | 4,562,638 |  |  | 4,562,338 |  |  |
PVHC Holding Corp |  | Containers, Packaging and Glass |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 8/5/2024 |  | 1,972,350 |  |  | 1,964,300 |  |  | 1,912,137 |  |  | 2.4 | %
|  |  |  |  |  |  |  | 1,972,350 |  |  | 1,964,300 |  |  | 1,912,137 |  |  |
Quantum Spatial, Inc. |  | Aerospace & Defense |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 9/5/2024 |  | 5,000,000 |  |  | 5,000,000 |  |  | 5,000,000 |  |  | 6.3 | %
|  |  |  |  |  |  |  | 5,000,000 |  |  | 5,000,000 |  |  | 5,000,000 |  |  |
Quartz Holding Company |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 4/2/2026 |  | 6,982,500 |  |  | 6,957,391 |  |  | 6,885,443 |  |  | 8.6 | %
|  |  |  |  |  |  |  | 6,982,500 |  |  | 6,957,391 |  |  | 6,885,443 |  |  |
RB Media, Inc. |  | Media: Diversified & Production |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/29/2025 |  | 3,960,000 |  |  | 3,926,377 |  |  | 3,960,000 |  |  | 5.0 | %
|  |  |  |  |  |  |  | 3,960,000 |  |  | 3,926,377 |  |  | 3,960,000 |  |  |
Rough Country, LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) |  | 5/25/2023 |  | 4,080,727 |  |  | 4,063,983 |  |  | 4,014,619 |  |  | 5.0 | %
|  |  |  |  |  |  |  | 4,080,727 |  |  | 4,063,983 |  |  | 4,014,619 |  |  |
Safe Fleet Holdings LLC |  | Automotive |  | Senior Secured First Lien Term Loan (LIBOR + 3.00%, 1.00% LIBOR Floor)(1) |  | 2/3/2025 |  | 3,422,875 |  |  | 3,417,582 |  |  | 3,297,255 |  |  | 4.1 | %
|  |  |  | Senior Secured First Lien Delayed Draw Term Loan (LIBOR + 3.75%, 1.00% LIBOR Floor)(1) |  | 2/3/2025 |  | 1,335,880 |  |  | 1,288,373 |  |  | 1,288,055 |  |  | 1.6 | %
|  |  |  |  |  |  |  | 4,758,755 |  |  | 4,705,955 |  |  | 4,585,310 |  |  |
Salient CRGT Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 6.00%, 1.00% LIBOR Floor)(1) |  | 2/28/2022 |  | 2,645,536 |  |  | 2,619,767 |  |  | 2,503,471 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 2,645,536 |  |  | 2,619,767 |  |  | 2,503,471 |  |  |
SCS Holdings I Inc. |  | Wholesale |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 7/1/2026 |  | 2,244,375 |  |  | 2,238,962 |  |  | 2,249,986 |  |  | 2.8 | %
|  |  |  |  |  |  |  | 2,244,375 |  |  | 2,238,962 |  |  | 2,249,986 |  |  |
SFP Holding, Inc. |  | Construction & Building |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) |  | 9/1/2022 |  | 4,820,605 |  |  | 4,762,317 |  |  | 4,775,291 |  |  | 6.0 | %

F-39

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
|  |  |  | Senior Secured First Lien Term Loan (LIBOR + 6.25%, 1.00% LIBOR Floor)(1) |  | 9/1/2022 |  | 1,871,234 |  |  | 1,871,234 |  |  | 1,853,644 |  |  | 2.3 | %
|  |  |  |  |  |  |  | 6,691,839 |  |  | 6,633,551 |  |  | 6,628,935 |  |  |
Shift4 Payments, LLC |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 11/29/2024 |  | 9,825,000 |  |  | 9,788,662 |  |  | 9,825,000 |  |  | 12.3 | %
|  |  |  |  |  |  |  | 9,825,000 |  |  | 9,788,662 |  |  | 9,825,000 |  |  |
Sierra Enterprises, LLC |  | Beverage & Food |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 11/11/2024 |  | 3,918,993 |  |  | 3,909,644 |  |  | 3,821,018 |  |  | 4.8 | %
|  |  |  |  |  |  |  | 3,918,993 |  |  | 3,909,644 |  |  | 3,821,018 |  |  |
Simplified Logistics, LLC |  | Services: Business |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 2/27/2022 |  | 3,482,500 |  |  | 3,482,500 |  |  | 3,482,500 |  |  | 4.4 | %
|  |  |  |  |  |  |  | 3,482,500 |  |  | 3,482,500 |  |  | 3,482,500 |  |  |
SMB Shipping Logistics, LLC |  | Transportation: Cargo |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 2/5/2024 |  | 2,465,807 |  |  | 2,446,381 |  |  | 2,453,478 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 2,465,807 |  |  | 2,446,381 |  |  | 2,453,478 |  |  |
Syniverse Holdings, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.00%, 1.00% LIBOR Floor)(1) |  | 3/9/2023 |  | 3,935,050 |  |  | 3,907,819 |  |  | 3,695,799 |  |  | 4.6 | %
|  |  |  |  |  |  |  | 3,935,050 |  |  | 3,907,819 |  |  | 3,695,799 |  |  |
The Octave Music Group, Inc. |  | Media: Diversified & Production |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 5/28/2021 |  | 4,348,644 |  |  | 4,348,644 |  |  | 4,325,596 |  |  | 5.4 | %
|  |  |  |  |  |  |  | 4,348,644 |  |  | 4,348,644 |  |  | 4,325,596 |  |  |
ThoughtWorks, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.00%, 1.00% LIBOR Floor)(1) |  | 10/11/2024 |  | 6,674,943 |  |  | 6,659,353 |  |  | 6,674,943 |  |  | 8.3 | %
|  |  |  |  |  |  |  | 6,674,943 |  |  | 6,659,353 |  |  | 6,674,943 |  |  |
Tortoise Borrower LLC |  | Banking, Finance, Insurance & Real Estate |  | Senior Secured First Lien Term Loan (LIBOR + 3.50%, 1.00% LIBOR Floor)(1) |  | 1/31/2025 |  | 2,437,875 |  |  | 2,428,557 |  |  | 2,392,287 |  |  | 3.0 | %
|  |  |  |  |  |  |  | 2,437,875 |  |  | 2,428,557 |  |  | 2,392,287 |  |  |

F-40

Company |  | Industry |  | Type of Investment |  | Maturity |  | Par Amount |  | Cost |  | Fair Value(2) |  | % of Net Assets(3)
United Road Services, Inc. |  | Transportation: Cargo |  | Senior Secured First Lien Term Loan (LIBOR + 5.75%, 1.00% LIBOR Floor)(1) |  | 9/2/2024 |  | 3,759,999 |  |  | 3,746,467 |  |  | 3,699,087 |  |  | 4.6 | %
|  |  |  |  |  |  |  | 3,759,999 |  |  | 3,746,467 |  |  | 3,699,087 |  |  |
Vero Parent, Inc. |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 4.50%, 1.00% LIBOR Floor)(1) |  | 8/16/2024 |  | 3,915,475 |  |  | 3,891,393 |  |  | 3,886,109 |  |  | 4.9 | %
|  |  |  |  |  |  |  | 3,915,475 |  |  | 3,891,393 |  |  | 3,886,109 |  |  |
Wawona Delaware Holdings, LLC |  | Beverage & Food |  | Senior Secured First Lien Term Loan (LIBOR + 4.75%, 1.00% LIBOR Floor)(1) |  | 9/11/2026 |  | 4,975,000 |  |  | 4,925,465 |  |  | 4,925,250 |  |  | 6.2 | %
|  |  |  |  |  |  |  | 4,975,000 |  |  | 4,925,465 |  |  | 4,925,250 |  |  |
Wheels Up Partners LLC |  | Aerospace & Defense |  | Senior Secured First Lien Term Loan (LIBOR + 8.55%, 1.00% LIBOR Floor)(1) |  | 10/15/2021 |  | 3,633,328 |  |  | 3,575,903 |  |  | 3,569,381 |  |  | 4.5 | %
|  |  |  |  |  |  |  | 3,633,328 |  |  | 3,575,903 |  |  | 3,569,381 |  |  |
Wok Holdings Inc. |  | Retail |  | Senior Secured First Lien Term Loan (LIBOR + 6.50%, 1.00% LIBOR Floor)(1) |  | 3/1/2026 |  | 6,616,750 |  |  | 6,563,551 |  |  | 5,599,756 |  |  | 7.0 | %
|  |  |  |  |  |  |  | 6,616,750 |  |  | 6,563,551 |  |  | 5,599,756 |  |  |
Wrench Group LLC |  | Services: Consumer |  | Senior Secured First Lien Term Loan (LIBOR + 4.25%, 1.00% LIBOR Floor)(1) |  | 4/30/2026 |  | 2,225,672 |  |  | 2,208,221 |  |  | 2,225,672 |  |  | 2.8 | %
|  |  |  |  |  |  |  | 2,225,672 |  |  | 2,208,221 |  |  | 2,225,672 |  |  |
Xebec Global Holdings, LLC |  | High Tech Industries |  | Senior Secured First Lien Term Loan (LIBOR + 5.25%, 1.00% LIBOR Floor)(1) |  | 2/12/2024 |  | 8,134,734 |  |  | 8,134,734 |  |  | 8,114,397 |  |  | 10.1 | %
|  |  |  |  |  |  |  | 8,134,734 |  |  | 8,134,734 |  |  | 8,114,397 |  |  |
Z Medica, LLC |  | Healthcare & Pharmaceuticals |  | Senior Secured First Lien Term Loan (LIBOR + 5.50%, 1.00% LIBOR Floor)(1) |  | 9/29/2022 |  | 2,596,000 |  |  | 2,596,000 |  |  | 2,498,910 |  |  | 3.1 | %
|  |  |  |  |  |  |  | 2,596,000 |  |  | 2,596,000 |  |  | 2,498,910 |  |  |
Total Investments, September 30, 2019 |  |  |  |  |  | $ | 261,170,438 |  |  | $ | 259,371,480 |  |  | $ | 249,342,871 |  |  | 311.9 | %

(1)Represents the annual current interest rate as of September 30, 2019. All interest rates are payable in cash, unless otherwise noted.
(2)Represents the fair value in accordance with ASC 820 as reported by MCC JV. The determination of such fair value is not included in the Company’s board of directors’ valuation process described elsewhere herein.
(3)Percentage is based on MCC JV's net assets of $79,941,680 as of September 30, 2019.
(4)This investment was on non-accrual status as of September 30, 2019.
(5)Par amount includes accumulated PIK interest and is net of repayments.
F-41

Below is certain summarized financial Information for MCC JV as of September 30, 2020 and 2019, and for the years ended September 30, 2020, 2019 and 2018:

| September 30, 2020 |  | September 30, 2019
Selected Consolidated Statement of Assets and Liabilities Information: |  |  |
Investments in loans at fair value (amortized cost of $181,365,360 and $259,371,480, respectively) | $ | 163,133,421 |  |  | $ | 249,342,871 |
Cash | 6,055,178 |  |  | 8,007,466 |
Other assets | 1,148,102 |  |  | 1,466,352 |
Total assets | $ | 170,336,701 |  |  | $ | 258,816,689 |
Line of credit (net of debt issuance costs of $1,574,115 and $1,552,067, respectively) | $ | 109,745,367 |  |  | $ | 177,694,223 |
Other liabilities | 424,095 |  |  | 472,737 |
Interest payable | 549,439 |  |  | 708,049 |
Total liabilities | 110,718,901 |  |  | 178,875,009 |
Members' capital | 59,617,800 |  |  | 79,941,680 |
Total liabilities and members' capital | $ | 170,336,701 |  |  | $ | 258,816,689 |

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Selected Consolidated Statement of Operations Information: |  |  |  |  |
Total revenues | $ | 15,727,674 |  |  | $ | 20,351,843 |  |  | $ | 17,017,831 |
Total expenses | (9,346,799) |  |  | (10,962,484) |  |  | (9,054,415) |
Net unrealized appreciation/(depreciation) | (8,203,330) |  |  | (9,055,476) |  |  | (1,358,880) |
Net realized gain/(loss) | (12,851,425) |  |  | (772,239) |  |  | 1,048,233 |
Net income/(loss) | $ | (14,673,880) |  |  | $ | (438,356) |  |  | $ | 7,652,769 |

Note 4. Fair Value Measurements
The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.
•Level 2 - Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.
•Level 3 - Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.
In addition to using the above inputs in investment valuations, the Company continues to employ the valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value. During the year ended September 30 2020, one of our investments transferred into Level 3.
The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2020 (dollars in thousands):
F-42

| Level 1 |  | Level 2 |  | Level 3 |  | Total
Senior Secured First Lien Term Loans | $ | — |  |  | $ | — |  |  | $ | 106,463 |  |  | $ | 106,463 |
Senior Secured Second Lien Term Loans | — |  |  | — |  |  | 13,927 |  |  | 13,927 |
Unsecured Debt | — |  |  | — |  |  | 2,669 |  |  | 2,669 |
MCC Senior Loan Strategy JV I LLC(1) | — |  |  | — |  |  | 41,019 |  |  | 41,019 |
Equity/Warrants | 12,278 |  |  | — |  |  | 67,397 |  |  | 79,675 |
Total | $ | 12,278 |  |  | $ | — |  |  | $ | 231,475 |  |  | $ | 243,753 |
Investments measured at net asset value(2) |  |  |  |  |  |  | 2,991 |
Total Investments, at fair value |  |  |  |  |  |  | $ | 246,744 |

The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2019 (dollars in thousands):

| Level 1 |  | Level 2 |  | Level 3 |  | Total
Senior Secured First Lien Term Loans | $ | — |  |  | $ | — |  |  | $ | 192,770 |  |  | $ | 192,770 |
Senior Secured Second Lien Term Loans | — |  |  | — |  |  | 36,508 |  |  | 36,508 |
Unsecured Debt | — |  |  | — |  |  | 2,653 |  |  | 2,653 |
Equity/Warrants | 13,850 |  |  | — |  |  | 78,329 |  |  | 92,179 |
Total | $ | 13,850 |  |  | $ | — |  |  | $ | 310,260 |  |  | $ | 324,110 |
Investments measured at net asset value(2) |  |  |  |  |  |  | 72,779 |
Total Investments, at fair value |  |  |  |  |  |  | $ | 396,889 |

(1)MCC Senior Loan Strategy JV I LLC was sold on October 8, 2020 and as such fair value was measured as a Level 3 investment as of September 30, 2020. Previously fair value had been measured using NAV.
(2)Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, 2020 (dollars in thousands):

| Senior Secured First Lien Term Loans |  | Senior Secured Second Lien Term Loans |  | Unsecured Debt |  | MCC Senior Loan Strategy JV I LLC |  | Equities/Warrants |  | Total
Balance as of September 30, 2019 | $ | 192,770 |  |  | $ | 36,508 |  |  | $ | 2,653 |  |  | $ | — |  |  | $ | 78,329 |  |  | $ | 310,260 |
Purchases and other adjustments to cost | 1,820 |  |  | 655 |  |  | 168 |  |  | — |  |  | 1,259 |  |  | 3,902 |
Originations | 28,085 |  |  | 945 |  |  | 2,500 |  |  | — |  |  | 182 |  |  | 31,712 |
Sales | (186) |  |  | (1,237) |  |  | — |  |  | — |  |  | (5,714) |  |  | (7,137) |
Settlements | (86,048) |  |  | (613) |  |  | (721) |  |  | — |  |  | (24,881) |  |  | (112,263) |
Net realized gains/(losses) from investments | (929) |  |  | (23,362) |  |  | — |  |  | — |  |  | (18,577) |  |  | (42,868) |
Net transfers in and/or out of Level 3 | — |  |  | — |  |  | — |  |  | 41,019 |  |  | — |  |  | 41,019 |
Net unrealized gains/(losses) | (29,049) |  |  | 1,031 |  |  | (1,931) |  |  | — |  |  | 36,799 |  |  | 6,850 |
Balance as of September 30, 2020 | $ | 106,463 |  |  | $ | 13,927 |  |  | $ | 2,669 |  |  | $ | 41,019 |  |  | $ | 67,397 |  |  | $ | 231,475 |

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the year ended September 30, 2019 (dollars in thousands):

| Senior Secured First Lien Term Loans |  | Senior Secured Second Lien Term Loans |  | Senior Secured First Lien Notes |  | Unsecured Debt |  | Equities/Warrants |  | Total
Balance as of September 30, 2018 | $ | 395,015 |  |  | $ | 48,890 |  |  | $ | 19,268 |  |  | $ | 3,381 |  |  | $ | 107,955 |  |  | $ | 574,509 |
Purchases and other adjustments to cost | 7,116 |  |  | 1,801 |  |  | — |  |  | (647) |  |  | (9,783) |  |  | (1,513) |
Originations | 58,386 |  |  | 2,000 |  |  | — |  |  | — |  |  | 387 |  |  | 60,773 |
Sales | (144,081) |  |  | (11,828) |  |  | — |  |  | — |  |  | — |  |  | (155,909) |
Settlements | (56,346) |  |  | (2,161) |  |  | (20,000) |  |  | (22) |  |  | (25,501) |  |  | (104,030) |
Net realized gains/(losses) from investments | (97,534) |  |  | 114 |  |  | — |  |  | (22,787) |  |  | 7,333 |  |  | (112,874) |
Net transfers in and/or out of Level 3 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net unrealized gains/(losses) | 30,214 |  |  | (2,308) |  |  | 732 |  |  | 22,728 |  |  | (2,062) |  |  | 49,304 |
Balance as of September 30, 2019 | $ | 192,770 |  |  | $ | 36,508 |  |  | $ | — |  |  | $ | 2,653 |  |  | $ | 78,329 |  |  | $ | 310,260 |

F-43

Net change in unrealized loss included in earnings related to investments still held as of September 30, 2020 and 2019 was approximately $42.6 million and $43.4 million, respectively.
Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK.
Sales represent net proceeds received from investments sold.
Settlements represent principal paydowns received.
A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the year ended September 30, 2020 MCC JV transferred into the Level 3 category as the investment was sold subsequently to September 30, 2020 (see Note 3). In previous periods, as a practical expedient the Company had used the net asset value of MCC JV to determine the fair value of the investment. During the year ended September 30, 2019, none of our investments transferred in or out of Level 3.
The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2020 (dollars in thousands):

| Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
Senior Secured First Lien Term Loans | $ | 50,135 |  |  | Income Approach (DCF) |  | Market yield |  | 7.52% - 15.27% (10.34%)
Senior Secured First Lien Term Loans | 55,856 |  |  | Market Approach (Guideline Comparable)//Income Approach (DCF)/ Enterprise Value Analysis |  | Revenue Multiple(1) EBITDA Multiple(1) Capitalization Rate Discount Rate Expected Proceeds |  | 0.25x - 0.50x (0.49x) 2.50x - 8.50x (5.73x) 5.50x - 5.50x (5.50x) 17.90% - 17.90% (17.90%) $8.25 - $52.00 ($45.65)
Senior Secured First Lien Term Loans | 472 |  |  | Recent Arms-Length Transaction |  | Recent Arms Length Transaction |  | N/A
Senior Secured Second Lien Term Loan | 9,978 |  |  | Income Approach (DCF) |  | Market yield |  | 12.01% - 14.82% (14.01%)
Senior Secured Second Lien Term Loans | 3,949 |  |  | Market Approach (Guideline Comparable)/Income Approach (DCF) |  | EBITDA Multiple(1) Discount Rate |  | 8.00x - 8.00x (8.00x) 21.00% - 21.00% (21.00%)
Unsecured Debt | — |  |  | Market Approach (Guideline Comparable) |  | EBITDA Multiple(1) |  | 2.50x - 4.50x (3.50x)
Unsecured Debt | 2,669 |  |  | Recent Arms-Length Transaction |  | Recent Arms Length Transaction |  | N/A
MCC Senior Loan Strategy JV I LLC | 41,019 |  |  | Recent Arms-Length Transaction |  | Recent Arms Length Transaction |  | N/A
Equity | 63,468 |  |  | Market Approach (Guideline Comparable)/Income Approach/Enterprise Value Analysis |  | Revenue Multiple(1) EBITDA Multiple(1) Capitalization Rate Discount Rate Expected Proceeds |  | 0.50x - 0.88x (0.69x) 2.50x - 9.50x (8.25x) 5.50% - 5.50% (5.50%) 14.50% - 14.50% (14.50%) $8.25 - $52.00 ($38.00)
Equity | 3,929 |  |  | Income Approach (DCF) |  | Market Yield |  | 15.40% - 15.40% (15.40%)
Total | $ | 231,475 |  |  |  |  |  |  |

The following table has been modified to conform to the current year presentation, and presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2019 (dollars in thousands):
F-44

| Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range (Weighted Average)
Senior Secured First Lien Term Loans | $ | 141,337 |  |  | Income Approach (DCF) |  | Market yield |  | 6.38% - 16.98% (10.49%)
Senior Secured First Lien Term Loans | 43,960 |  |  | Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)/ Enterprise Value Analysis |  | Revenue Multiple(1) EBITDA Multiple(1) Discount rate Expected Proceeds |  | 0.25x - 0.25x (0.25x) 3.50x - 6.00x (4.95x) 9.00% - 18.70% (16.53%) $9.0M - $16.2M ($9.0M)
Senior Secured First Lien Term Loans | 7,473 |  |  | Recent Arms-Length Transaction |  | Recent Arms Length Transaction |  | N/A
Senior Secured Second Lien Term Loan | 17,250 |  |  | Income Approach (DCF) |  | Market yield |  | 9.78% - 29.76% (14.66%)
Senior Secured Second Lien Term Loans | 19,258 |  |  | Market Approach (Guideline Comparable)/Income Approach (DCF) |  | EBITDA Multiple(1) Discount Rate |  | 4.50x - 6.00x (5.97x) 16.40% - 16.40% (16.40%)
Unsecured Debt | 850 |  |  | Income Approach (DCF) |  | Market yield |  | 7.43%
Unsecured Debt | 1,803 |  |  | Market Approach (Guideline Comparable) |  | EBITDA Multiple(1) |  | 4.00x - 7.00x (6.54x)
Equity | 75,983 |  |  | Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/Income Approach (DCF)/Enterprise Value Analysis |  | Revenue Multiple(1) EBITDA Multiple(1) Discount rate Expected Proceeds |  | 0.88x - 0.88x (0.69x) 3.50x - 9.50x (8.72x) 9.00% - 22.50% (14.68%) $16.2M - $47.5M ($53.1M)
Equity | 2,346 |  |  | Recent Arms-Length Transaction |  | Recent Arms Length Transaction |  | N/A
Total | $ | 310,260 |  |  |  |  |  |  |

(1)Represents inputs used when the Company has determined that market participants would use such multiples when measuring the fair value of these investments.
The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Increases in market yields would result in lower fair value measurements.
The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of revenue or EBITDA for the latest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases in EBITDA multiples in isolation would result in higher fair value measurement.
In September 2017, the Company entered into an agreement with Global Accessories Group, LLC (“Global Accessories”), in which the Company exchanged its full position in Lydell Jewelry Design Studio, LLC for a 3.8% membership interest in Global Accessories, which is included in the Consolidated Schedule of Investments. As part of the agreement, the Company is entitled to contingent consideration in the form of cash payments (“Earnout”), as well as up to an additional 5% membership interest (“AMI”), provided Global Accessories achieves certain financial benchmarks through calendar year ended 2022. The Earnout and AMI were initially recorded an aggregate fair value of $2.4 million on the transaction date using the Income Approach and were included on the Consolidated Statements of Assets and Liabilities in other assets. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value will be recognized in earnings. As of September 30, 2020, the Company deemed the contingent consideration to be not collectible, and, as such, placed a full reserve against its fair value. As of September 30, 2019, the fair value of the contingent consideration was $1.8 million.
Note 5. Borrowings
As a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.
However, in March 2018, the Small Business Credit Availability Act modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements under the 1940 Act are met. Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so. If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the 1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become effective after the one-year anniversary of such approval. In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.
As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage is below 200%, the minimum asset coverage requirement under the 1940 Act. As a result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
F-45

The Company’s outstanding debt excluding debt issuance costs as of September 30, 2020 and 2019 was as follows (dollars in thousands):

| September 30, 2020 |  | September 30, 2019
| Aggregate Principal Amount Available |  | Principal Amount Outstanding |  | Carrying Value |  | Fair Value |  | Aggregate Principal Amount Available |  | Principal Amount Outstanding |  | Carrying(1) Value |  | Fair Value
2021 Notes | $ | 74,013 |  |  | $ | 74,013 |  |  | $ | 73,803 |  |  | $ | 73,095 |  |  | $ | 74,013 |  |  | $ | 74,013 |  |  | $ | 73,172 |  |  | $ | 72,473 |
2023 Notes | 77,847 |  |  | 77,847 |  |  | 77,158 |  |  | 72,460 |  |  | 77,847 |  |  | 77,847 |  |  | 76,881 |  |  | 74,453 |
Israeli Notes | — |  |  | — |  |  | — |  |  | — |  |  | 105,137 |  |  | 105,137 |  |  | 101,679 |  |  | 104,604 |
Total | $ | 151,860 |  |  | $ | 151,860 |  |  | $ | 150,961 |  |  | $ | 145,555 |  |  | $ | 256,997 |  |  | $ | 256,997 |  |  | $ | 251,732 |  |  | $ | 251,530 |

(1) Modified to conform to the current year presentation.
Credit Facilities
Term Loan Facility
The Company had a Senior Secured Term Loan Credit Agreement, as amended (the ‘‘Term Loan Facility’’), that was scheduled to mature on July 28, 2020.
On September 1, 2017, the Company reduced the Term Loan Facility commitment to $102.0 million from $174.0 million. The reduction was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.6 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On January 31, 2018, the Company voluntarily prepaid the remaining $102.0 million outstanding on the Term Loan Facility in accordance with its terms. The payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Revolving Credit Facility
The Company had a Senior Secured Revolving Credit Agreement, as amended (the ‘‘Revolving Credit Facility’’ and collectively with the Term Loan Facility, the ‘‘Facilities’’), with ING Capital LLC, as Administrative Agent, in order to borrow funds to make additional investments.
The pricing on the Revolving Credit Facility was LIBOR (with no minimum) plus 2.75% and had a revolving period that was to end July 28, 2019, followed by a one year amortization period and a final maturity on July 28, 2020.
On February 14, 2017, the Company elected to reduce the total commitment of the Revolving Credit Facility to $200.0 million from $343.5 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $1.3 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.
On February 12, 2018, the Company elected to reduce the total commitment of the Revolving Credit Facility to $150.0 million from $200.0 million. The reduction was accounted for as a debt modification to a line-of credit or revolving-debt arrangement in accordance with ASC 470-50, Modifications and Extinguishments, which attributed to an acceleration of debt issuance costs in the amount of $0.4 million and recorded on the Consolidated Statements of Operations as a component of interest and financing expenses.
On September 28, 2018, the Company voluntarily satisfied and terminated the commitments under the Revolving Credit Facility in accordance with its terms. The termination was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $1.0 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
The following table shows the components of interest expense, commitment fees related to the Facilities, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Facilities for the years ended September 30, 2020, 2019 and 2018 (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Revolving Facility interest | $ | — |  |  | $ | — |  |  | $ | 729 |
Revolving Facility commitment fee | — |  |  | — |  |  | 1,521 |
Term Facility interest | — |  |  | — |  |  | 1,505 |
Amortization of debt issuance costs | — |  |  | — |  |  | 1,087 |
Agency and other fees | — |  |  | — |  |  | 138 |
Total | $ | — |  |  | $ | — |  |  | $ | 4,980 |
Weighted average stated interest rate | — | % |  | — | % |  | 4.4 | %
Weighted average outstanding balance | $ | — |  |  | $ | — |  |  | $ | 50,900 |

Unsecured Notes
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2021 Notes
On December 17, 2015, the Company issued $70.8 million in aggregate principal amount of 6.50% unsecured notes that mature on January 30, 2021 (the “2021 Notes”). On January 14, 2016, the Company closed an additional $3.25 million in aggregate principal amount of the 2021 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. The 2021 Notes became redeemable in whole or in part at any time or from time to time at the Company’s option on or after January 30, 2019. The 2021 Notes bore interest at a rate of 6.50% per year, payable quarterly on January 30, April 30, July 30 and October 30 of each year, beginning January 30, 2016. The 2021 Notes were listed on the NYSE and traded thereon under the trading symbol “MCX”.
Subsequent to fiscal year ended September 30, 2020, the Company redeemed the issued and outstanding 2021 Notes. See “Note 15” for more information.
2023 Notes
On March 18, 2013, the Company issued $60.0 million in aggregate principal amount of 6.125% unsecured notes that mature on March 30, 2023 (the “2023 Notes,” and together with the 2021 Notes, the "U.S. Notes”). On March 26, 2013, the Company closed an additional $3.5 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the underwriters’ option to purchase additional notes. As of March 30, 2016, the 2023 Notes may be redeemed in whole or in part at any time or from time to time at the Company's option. The 2023 Notes bear interest at a rate of 6.125% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, beginning June 30, 2013. The 2023 Notes are listed on the NYSE and trade thereon under the trading symbol “MCV”.
On December 12, 2016, the Company entered into an “At-The-Market” (“ATM”) debt distribution agreement with FBR Capital Markets & Co., through which the Company could offer for sale, from time to time, up to $40.0 million in aggregate principal amount of the 2023 Notes. The Company sold 1,573,872 of the 2023 Notes at an average price of $25.03 per note, and raised $38.6 million in net proceeds, through the ATM debt distribution agreement.
On March 10, 2018, the Company redeemed $13.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.3 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On December 31, 2018, the Company redeemed $12.0 million in aggregate principal amount of the 2023 Notes. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
Secured Notes
Israeli Notes
Effective as of April 14, 2020, the Company had repaid all of its outstanding Israeli Notes. Below is a description of the terms of the Israeli Notes, including covenants related thereto, that the Company was subject to during the years ended September 30, 2020 and 2019 prior to the full repayment of the Israeli Notes.
On January 26, 2018, the Company priced a debt offering in Israel of $121.3 million of Israeli Notes. The Israeli Notes were listed on the Tel Aviv Stock Exchange (the "TASE") and denominated in New Israeli Shekels, but linked to the US Dollar at a fixed exchange rate which mitigates any currency exposure to the Company. The Israeli Notes were not registered under the Securities Act of 1933, and could not be offered or sold in the United States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. In connection with this offering, we were dually listed our common stock on the TASE.
On August 12, 2019, the Company and its wholly owned subsidiaries, Medley Small Business Fund, LP (formerly known as Medley SBIC, LP) and Medley SLF, on the one hand, and the Trustee, on the other hand, entered into an amendment to the deed of trust (the “Deed”) governing the Israeli Notes (the “Amendment” together with the Deed, the “Deed of Trust”). The Amendment amended the Deed by, among other things: (a) modifying Section 2.2 of the Deed to provide for full repayment of the Israeli Notes in eight (8) equal installments, each comprising twelve and one-half percent (12.5%) of the principal amount of the Israeli Notes, beginning on August 12, 2019 (the “Effective Date”) and ending on January 31, 2021, rather than four (4) equal annual installments, each comprising twenty five percent (25%) of the principal amount of the Israeli Notes, that were payable on February 27 of each of the years 2021-2024 (inclusive); (b) changing the interest payment dates for the Israeli Notes from semi-annual to quarterly except for the initial interest payment, which was paid on the Effective Date, and the final interest payment, which will be paid on January 31, 2021; (c) decreasing the annual interest rate on the Israeli Notes by 0.25% per annum on the Effective Date and further decreasing the annual interest rate on the Israeli Notes by 0.50% per annum if the mergers of the Company, Sierra, and MDLY (the “Mergers”) close, which further decrease will be effective upon the closing of the Mergers; (d) decreasing the minimum Total Net Asset covenant in Section 6.1.1 of the Deed from $275 million to $215 million; (e) modifying the acceleration event in Section 10.1.25 of the Deed to provide that it will occur if the credit rating on the Israeli Notes drops below (i) il/B of Maalot before November 30, 2019, (ii) il/BB- of Maalot during the period between December 1, 2019 and April 1, 2020, and (iii) il/BBB- of Maalot on or after April 1, 2020; (f) waiving the make-whole and market value payment requirements of Section 9.1.7 of the Deed for all early redemption payments on the Israeli Notes within eighteen (18) months following the Effective Date; (g) requiring each of Medley Small Business Fund and Medley SLF to guarantee all of the Company’s obligations under the Deed (including the Amendment) and the Israeli Notes and to grant security interests on all of their assets (the “Collateral”) to secure such guaranties and providing for the termination of the Medley SLF guaranty and release of the security interests in Medley SLF’s assets upon the closing of the Mergers, subject to certain limitations; (h) that the Company use principal collections from the Collateral to make early redemption payments on the Israeli Notes, which payments will be applied in inverse order of the maturity of the required principal installment payments on the Israeli Notes; (i) providing for a waiver by the Trustee and the holders of the Israeli
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Notes of any right to accelerate the full balance of the amount due to the holders of the Israeli Notes based on any claims, allegations, actions, and/or rights that were raised, and/or resulting or deriving from certain claims or allegations as set forth in Section 19.1 of the Amendment; (j) providing for a waiver by the Trustee and the holders of the Israeli Notes of certain claims, demands, rights, and/or actions against and/or relating to the Company, its subsidiaries and/or affiliates and their respective employees (including their respective directors, officers, members of the Company’s board of directors, employees, stockholders, stakeholders and advisors); and (k) adding other definitions, representations and covenants to the Deed and making related conforming changes to the Deed. Pursuant to the Amendment, no prepayment penalties were due or payable in connection with the payment of principal made by the Company on the Effective Date.
The Deed (including the Amendment) includes certain customary covenants, including minimum net assets of $215 million and a maximum debt to total assets ratio of 70%. The date for determining compliance with these financial covenants is the date that the Company publishes its financial statements (i.e., in a quarterly report on Form 10-Q or an annual report on Form 10-K) with the SEC. If the Company did not satisfy these financial covenants for two consecutive quarters, it would be an event of default under the Deed. If this event of default would have occurred, the Company had the right to request the trustee for the Israeli Notes (the “Trustee”) to appoint an emergency committee of the three largest noteholders for the purpose of obtaining a one-quarter extension of time to satisfy the financial covenants. If the Company did not make this request and the breach occurred, or if the emergency committee did not grant the extension, then the Trustee would be required to convene a meeting of the noteholders as described below.
In addition to not complying with the financial covenants as described above, the events of default include: (i) a change of control of the Company (defined in the Deed as MCC Advisors’ ceasing to provide investment management or advisory services to the Company); (ii) the Company not publishing a tender offer for the purchase of all of the Israeli Notes within 45 days; (iii) the Company not paying any amount due and payable to the holders of the Israeli Notes within seven business days after the payment due date; (iv) certain insolvency and receivership events with respect to the Company or with respect to all or substantially all of its assets, and (v) the Israeli Notes being delisted from the TASE or the TASE’s suspension of trading of the Israeli Notes for more than 60 days.
If an event of default occurs under the Deed, there is no automatic acceleration or mandatory redemption of the Israeli Notes. Rather, the Trustee is required to convene a meeting of the noteholders for a vote on whether to accelerate the Israeli Notes. Noteholders holding at least 50% of the principal amount of the Israeli Notes must be present at the meeting for a quorum to exist, and if a quorum exists, then the vote of a majority of the noteholders present at the meeting controls.
The foregoing description of the terms of Israeli Notes, the Deed, and the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of each of the Deed and the Amendment incorporated by reference as an exhibit to this annual report on Form 10-K.
On June 5, 2018, the Company announced that on June 1, 2018, its board of directors authorized the Company to repurchase and retire up to $20 million of the Company’s outstanding Israeli Notes on the TASE. Execution of the repurchase plan was subject to an open trading window for the Company and continued liquidity at that time and was expected to continue until the full authorized amount was purchased or market conditions changed. The repurchase of the Israeli Notes was not expected to result in any material tax consequences to the Company or its note holders.
During the quarter ended December 31, 2018, the Company exchanged $1.0 million United States Dollars to New Israeli Shekels at a rate of 3.73 USD/NIS in order to repurchase the Israeli Notes on the TASE. As the Israeli Notes were trading below par at the time of the repurchase and the USD/NIS (foreign currency) spot rate was higher than the fixed exchange rate agreed upon in the deed of trust, the Company was able to repurchase and retire 3,812,000 units, which resulted in $1,119,201 aggregate principal amount of the Israeli Notes being retired. The redemption was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized gain of $0.1 million and was recorded on the Consolidated Statements of Operations as a gain on extinguishment of debt.
On December 31, 2019, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by Medley SLF and Medley Small Business Fund to pre-pay an additional $19.1 million of the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a net loss on extinguishment of debt.
On March 31, 2020, in addition to the scheduled 12.5% quarterly amortization payment, the Company used proceeds from its principal repayments in assets held by Medley SLF and Medley Small Business Fund to pre-pay an additional $19.8 million of the Israeli Notes. The pre-payment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.9 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
On April 14, 2020, the Company repaid the remaining $21.1 million of Israeli Notes outstanding, and as such is no longer subject to any covenants relating thereto. The Israeli Notes were redeemed at 100% of their principal amount, plus the accrued interest thereon, through April 14, 2020.
On September 13, 2020, in connection with to the redemption of the Israeli Notes, the Company delisted its common stock from the TASE.
The fair values of our debt obligations are determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Notes, which are publicly traded, is based upon closing market quotes as of the measurement date. As of September 30, 2020 and 2019, the Notes would be deemed to be Level 1 in the fair value hierarchy, as defined in Note 4.
In accordance with ASU 2015-03, the debt issuance costs related to the Notes are reported on the Consolidated Statements of Assets and Liabilities as a direct deduction from the face amount of the Notes. As of September 30, 2020 and 2019, debt issuance costs related to the Notes were as follows (dollars in thousands):
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| September 30, 2020 |  | September 30, 2019
| 2021 Notes |  | 2023 Notes |  | Israeli Notes |  | Total |  | 2021 Notes |  | 2023 Notes |  | Israeli Notes |  | Total
Total Debt Issuance Costs | $ | 3,226 |  |  | $ | 3,102 |  |  | $ | — |  |  | $ | 6,328 |  |  | $ | 3,226 |  |  | $ | 3,102 |  |  | $ | 6,287 |  |  | $ | 12,615 |
Amortized Debt Issuance Costs | 3,016 |  |  | 2,406 |  |  | — |  |  | 5,422 |  |  | 2,385 |  |  | 2,127 |  |  | 2,829 |  |  | 7,341 |
Unamortized Debt Issuance Costs | $ | 210 |  |  | $ | 696 |  |  | $ | — |  |  | $ | 906 |  |  | $ | 841 |  |  | $ | 975 |  |  | $ | 3,458 |  |  | $ | 5,274 |

For the years ended September 30, 2020, 2019 and 2018, the components of interest expense, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the Notes were as follows (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
2021 Notes interest | 4,811 |  |  | 4,811 |  |  | 4,811 |
2023 Notes interest | 4,768 |  |  | 4,954 |  |  | 5,857 |
2023 Notes premium | (3) |  |  | (3) |  |  | (3) |
Israeli Notes interest | 2,486 |  |  | 6,817 |  |  | 4,366 |
Amortization of debt issuance costs | 2,873 |  |  | 2,735 |  |  | 1,936 |
Total | $ | 14,935 |  |  | $ | 19,314 |  |  | $ | 16,967 |
Weighted average stated interest rate | 6.4 | % |  | 6.1 | % |  | 6.0 | %
Weighted average outstanding balance | $ | 189,039 |  |  | $ | 273,211 |  |  | $ | 251,924 |

SBA Debentures
On March 26, 2013, SBIC LP received a SBIC license from the SBA. The SBIC license allowed SBIC LP to obtain leverage by issuing SBA Debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA Debentures were non-recourse, interest only debentures with interest payable semi-annually and had a ten year maturity. The principal amount of SBA Debentures were not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA Debentures were fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, had a superior claim to the SBIC LP’s assets over our stockholders in the event we liquidated the SBIC LP or the SBA exercised its remedies under the SBA Debentures issued by the SBIC LP upon an event of default.
On September 1, 2018, the Company repaid $15.0 million in aggregate principal amount of the SBA Debentures. The repayment was accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a realized loss of $0.2 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
SBIC LP received a letter from the SBA (the “SBA Letter”), dated March 14, 2019, informing SBIC LP of certain alleged regulatory issues constituting a default under the terms of the SBIC LP’s outstanding SBA Debentures. The SBA Letter stated that SBIC LP had until March 29, 2019, fifteen (15) days from the date of the SBA Letter, to provide the SBA with certain additional information regarding the alleged regulatory issues, unless extended by the SBA. SBIC LP’s management submitted an orderly wind-down plan to the SBA to prepay the remaining $135.0 million of outstanding SBA Debentures using available cash at SBIC LP as well as the sale of assets to third parties or affiliates of SBIC LP. On March 28, 2019, SBIC LP agreed and made a repayment of $50.0 million of outstanding SBA Debentures by April 3, 2019 using available cash at SBIC LP and the cure period was extended to April 19, 2019. On April 18, 2019, SBIC LP agreed and made a repayment of $20.0 million of outstanding SBA Debentures on April 23, 2019 and an additional $30.0 million of outstanding SBA Debentures on April 30, 2019 using proceeds from the sale of certain assets and the cure period was extended to May 10, 2019. On May 10, 2019, SBIC LP made the final repayment of the remaining $35.0 million of outstanding SBA Debentures using proceeds from the sale of certain assets. In connection therewith, effective July 1, 2019, SBIC LP surrendered its SBIC license and operates as Medley Small Business Fund.
The $135.0 million in aggregate repayments made in connection with the orderly wind-down plan was accounted for as debt extinguishments in accordance with ASC 470-50, Modifications and Extinguishments, which resulted in a cumulative realized loss of $1.8 million and was recorded on the Consolidated Statements of Operations as a loss on extinguishment of debt.
As of September 30, 2020 and 2019, Medley Small Business Fund did not have any SBA Debentures outstanding.
For the years ended September 30, 2020, 2019 and 2018, the components of interest, amortized debt issuance costs, weighted average stated interest rate and weighted average outstanding debt balance for the SBA Debentures were as follows (dollars in thousands):
F-49

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
SBA Debentures interest | $ | — |  |  | $ | 4,445 |  |  | $ | 5,408 |
Amortization of debt issuance costs | — |  |  | 290 |  |  | 563 |
Total | $ | — |  |  | $ | 4,735 |  |  | $ | 5,971 |
Weighted average stated interest rate | — | % |  | 5.9 | % |  | 3.6 | %
Weighted average outstanding balance | $ | — |  |  | $ | 74,781 |  |  | $ | 148,767 |

Note 6. Agreements
Investment Management Agreement
We entered into an investment management agreement with MCC Advisors (the “Investment Management Agreement”). Mr. Brook Taube, our Chairman and Chief Executive Officer, is a managing partner and senior portfolio manager of MCC Advisors, and Mr. Seth Taube, one of our directors, is a managing partner of MCC Advisors.
Under the terms of the Investment Management Agreement, MCC Advisors:
•determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
•identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and
•executes, closes, monitors and administers the investments we make, including the exercise of any voting or consent rights.
MCC Advisors’ services under the Investment Management Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.
Pursuant to the Investment Management Agreement, we pay MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive fee.
On December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the Investment Management Agreement. Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion. In addition, MCC Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle. Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward. Under no circumstances will the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management agreement.
The following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”). The terms of the Fee Waiver Agreement are effective as of January 1, 2016, and are a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management services it provides under the Investment Management Agreement. The Fee Waiver Agreement does not change the second component of the incentive fee, which is the incentive fee on capital gains.
On January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later of April 1, 2020 or so long as the Amended MCC Merger Agreement was in effect, but no longer than a year; provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company. In that regard, on May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra. Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March 31, 2020. As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020, without further action by the board of directors. On May 21, 2020, the board of directors, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the quarter ended June 30, 2020. On June 15, 2020, the board of directors, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the quarter ended September 30, 2020. On September 29, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the end of the quarter ending December 31, 2020. See "Note 15" for more information.
Base Management Fee
For providing investment advisory and management services to us, MCC Advisors receives a base management fee. The base management fee is calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets, and is payable quarterly in arrears. The base management fee will be calculated based on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and will be appropriately pro-rated for any partial quarter. On May 4, 2018, MCC Advisors voluntarily elected to waive $380,000 of the base management fee payable for the quarter ended March 31, 2018, which is shown on the Consolidated Statements of Operations.
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Incentive Fee
The incentive fee has two components, as follows:
Incentive Fee Based on Income
The first component of the incentive fee is payable quarterly in arrears and is based on our pre-incentive fee net investment income earned during the calendar quarter for which the incentive fee is being calculated. MCC Advisors is entitled to receive the incentive fee on net investment income from us if our Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.5%. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.
Beginning with the calendar quarter that commenced on January 1, 2016, the incentive fee on net investment income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to our aggregate net investment income, as adjusted as described below, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2016). We refer to such period as the “Trailing Twelve Quarters.”
The hurdle amount for the incentive fee on net investment income is determined on a quarterly basis, and is equal to 1.5% multiplied by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter. The incentive fee for any partial period will be appropriately pro-rated. Any incentive fee on net investment income will be paid to MCC Advisors on a quarterly basis, and will be based on the amount by which (A) aggregate net investment income (“Ordinary Income”) in respect of the relevant Trailing Twelve Quarters exceeds (B) the hurdle amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” For the avoidance of doubt, Ordinary Income is net of all fees and expenses, including the reduced base management fee but excluding any incentive fee on Pre-Incentive Fee net investment income or on the Company’s capital gains.
Determination of Quarterly Incentive Fee Based on Income
The incentive fee on net investment income for each quarter is determined as follows:
•No incentive fee on net investment income is payable to MCC Advisors for any calendar quarter for which there is no Excess Income Amount;
•100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined as the sum of 1.8182% multiplied by the Company’s net assets at the beginning of each applicable calendar quarter, as adjusted as noted above, comprising the relevant Trailing Twelve Quarters is included in the calculation of the incentive fee on net investment income; and
•17.5% of the Ordinary Income that exceeds the Catch-up Amount is included in the calculation of the incentive fee on net investment income.
The amount of the incentive fee on net investment income that will be paid to MCC Advisors for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but not in excess of the Incentive Fee Cap (as described below).
The incentive fee on net investment income that is paid to MCC Advisors for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a) 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters minus (b) the aggregate incentive fees on net investment income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters.
“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as described below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee on net investment income to MCC Advisors for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee on net investment income that is payable to MCC Advisors for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an incentive fee on net investment income to MCC Advisors, calculated as described above, for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, and dilution to the Company’s net assets due to capital raising or capital actions, in such period and (ii) aggregate capital gains, whether realized or unrealized and accretion to the Company’s net assets due to capital raising or capital action, in such period.
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Dilution to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock, as the amount by which the net asset value per share was adjusted over the transaction price per share, multiplied by the number of shares issued. Accretion to the Company’s net assets due to capital raising is calculated, in the case of issuances of common stock (including issuances pursuant to our dividend reinvestment plan), as the excess of the transaction price per share over the amount by which the net asset value per share was adjusted, multiplied by the number of shares issued. Accretion to the Company’s net assets due to other capital action is calculated, in the case of repurchases by the Company of its own common stock, as the excess of the amount by which the net asset value per share was adjusted over the transaction price per share multiplied by the number of shares repurchased by the Company.
Incentive Fee Based on Capital Gains
The second component of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement as of the termination date) and equals 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment adviser.
Under GAAP, the Company calculates the second component of the incentive fee as if the Company had realized all assets at their fair values as of the reporting date. Accordingly, when applicable, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. As the provisional capital gains incentive fee is subject to the performance of investments until there is a realization event, the amount of the provisional capital gains incentive fee accrued at a reporting date may vary from the capital gains incentive that is ultimately realized and the differences could be material.
Base Management Fee - Prior to Fee Waiver Agreement
Prior to January 1, 2016, the base management fee was calculated at an annual rate of 1.75% of our gross assets (which is defined as all the assets of the Company, including those acquired using borrowings for investment purposes), and was payable quarterly in arrears. The base management fee was based on the average value of our gross assets at the end of the two most recently completed calendar quarters.
Incentive Fee - Prior to Fee Waiver Agreement
Prior to January 1, 2016, the incentive fee based on net investment income was calculated as 20.0% of the amount, if any, by which our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets calculated as of the end of the calendar quarter immediately preceding the calendar quarter for which the incentive fee is being calculated, exceeds a 2.0% (which is 8.0% annualized) hurdle rate but also includes a “catch-up” provision. Under this provision, in any calendar quarter, our investment adviser receives no incentive fee until our net investment income equals the hurdle rate of 2.0%, but then receives, as a “catch-up”, 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.5%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if the hurdle rate did not apply. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter including the base management fee, expenses payable under the administration agreement, and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash.
For the avoidance of doubt, the purpose of the new incentive fee calculation under the Fee Waiver Agreement is to permanently reduce aggregate fees payable to MCC Advisors by the Company, effective as of January 1, 2016. In order to ensure that the Company will pay MCC Advisors lesser aggregate fees on a cumulative basis, as calculated beginning January 1, 2016, we will, at the end of each quarter, also calculate the base management fee and incentive fee on net investment income owed by the Company to MCC Advisors based on the formula in place prior to January 1, 2016. If, at any time beginning January 1, 2016, the aggregate fees on a cumulative basis, as calculated based on the formula in place after January 1, 2016, would be greater than the aggregate fees on a cumulative basis, as calculated based on the formula in place prior to January 1, 2016, MCC Advisors shall only be entitled to the lesser of those two amounts.
For the years ended September 30, 2020, 2019 and 2018, the Company incurred base management fees to MCC Advisors of $6.4 million, $11.2 million, and $14.7 million, respectively.
For the years ended September 30, 2020 and 2019 the Company did not waive any management fees under the Fee Waiver Agreement. For the year ended September 30, 2018, base management fees, net of the voluntary $0.4 million waiver, was $14.3 million.
The incentive fees shown in the Consolidated Statements of Operations are calculated using the fee structure set forth in the Investment Management Agreement, and then adjusted to reflect the terms of the Fee Waiver Agreement. Pursuant to the Investment Management Agreement, pre-incentive fee net investment income is compared to a hurdle rate of 2.0% of the net asset value at the beginning of the period and is calculated as follows:
1)No incentive fee is recorded during the quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate;
2)100% of pre-incentive fee net investment income that exceeds the hurdle rate but is less than 2.5% in the quarter; and
3)20.0% of the amount of pre-incentive fee net investment income, if any, that exceeds 2.5% of the hurdle rate.
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For purposes of implementing the fee waiver under the Fee Waiver Agreement, we calculate the incentive fee based upon the formula that exists under the Investment Management Agreement, and then apply the terms of waiver set forth in the Fee Waiver Agreement, if applicable.
For the years ended September 30, 2020, 2019 and 2018, the Company did not incur any incentive fees on net investment income because pre-incentive fee net investment income did not exceed the hurdle amount under the formula set forth in the Investment Management Agreement.
As of September 30, 2020 and 2019, $1.4 million and $2.2 million, respectively, were included in “management and incentive fees payable” in the accompanying Consolidated Statements of Assets and Liabilities.
Administration Agreement
On January 19, 2011, the Company entered into an administration agreement with MCC Advisors. Pursuant to the administration agreement, MCC Advisors furnishes us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company. We reimburse MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. From time to time, our administrator may pay amounts owed by us to third-party service providers and we will subsequently reimburse our administrator for such amounts paid on our behalf. For the years ended September 30, 2020, 2019 and 2018, we incurred $2.2 million, $3.3 million, and $3.6 million in administrator expenses, respectively.
As of September 30, 2020 and 2019, $0.2 million and $0.9 million, respectively, were included in “administrator expenses payable” in the accompanying Consolidated Statements of Assets and Liabilities.
Expense Support Agreement
On June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses and other expenses approved by the Special Committee (as defined in Note 10)) at $667,000 per month (the “Cap”). Under the Expense Support Agreement, the Cap became effective on June 1, 2020 and expires on September 30, 2020. On September 29, 2020, the board of directors, including all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.
For the year ended September 30, 2020, the total management fee and the other operating expenses subject to the Cap (as described above) were $3.1 million, which resulted in $0.7 million of expense support due from MCC Advisors. The $0.7 million of expense support due has been netted against Administrator expenses payable in the accompanying Consolidated Statements of Assets and Liabilities. See "Note 15" for more information.
Note 7. Related Party Transactions
Due to Affiliate
Due to affiliate consists of certain general and administrative expenses paid by an affiliate on behalf of the Company.
Other Related Party Transactions
Opportunities for co-investments may arise when MCC Advisors or an affiliated investment adviser becomes aware of investment opportunities that may be appropriate for the Company, other clients, or affiliated funds. On November 25, 2013, the Company obtained an exemptive order from the SEC that permits us to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is Medley, LLC or an investment adviser controlled by Medley, LLC in a manner consistent with our investment objective, strategies and restrictions, as well as regulatory requirements and other pertinent factors (the “Prior Exemptive Order”). On March 29, 2017, the Company, MCC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the “Exemptive Order”) that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) of the 1940 Act and Rule 17d-1 thereunder. On October 4, 2017, the Company, MCC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “Current Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly or majority owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. Co-investment under the Current Exemptive Order is subject to certain conditions therein, including the condition that, in the case of each co-investment transaction, the board of directors determines that it would be in the Company’s best interest to participate in the transaction. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them.
Note 8. Commitments
Guarantees
The Company has a guarantee to issue up to $5.7 million in standby letters of credit through a financial intermediary on behalf of a certain portfolio company. Under this arrangement, if the standby letters of credit were to be issued, the Company would be required to make payments to third parties if the portfolio company was to default on its related payment obligations. The guarantee will renew annually until cancellation. As of September 30, 2020 and 2019, the Company had not issued any standby letters of credit under the commitment on behalf of the portfolio company.
Insurance Reimbursements Related to Professional Fees
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During the year ended September 30, 2020, the Company has received insurance proceeds under its insurance policy relating to the legal expenses associated with the dismissed stockholder class action, captioned as FrontFour Capital Group LLC, et al. v Brook Taube et al. During the year ended September 30, 2020, the Company received $6.1 million of insurance proceeds. The reimbursement has been recorded as an offset or reduction in professional fees and expenses on the Consolidated Statements of Operations.
Unfunded commitments
As of September 30, 2020 and 2019, we had commitments under loan and financing agreements to fund up to $3.9 million to five portfolio companies and $8.9 million to seven portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and the determination of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of September 30, 2020 and 2019 is shown in the table below (dollars in thousands):

| September 30, 2020 |  | September 30, 2019
1888 Industrial Services, LLC - Revolver | $ | 1,078 |  |  | $ | — |
Kemmerer Operations, LLC - Delayed Draw Term Loan | 908 |  |  | 908 |
NVTN LLC - DDTL | 220 |  |  | — |
NVTN LLC - Super Priority DDTL | 500 |  |  | — |
Redwood Services Group, LLC - Revolver | 1,050 |  |  | 875 |
DataOnline Corp. - Revolver | 179 |  |  | 1,890 |
Access Media Holdings, LLC - Series AAA Preferred Equity | — |  |  | 101 |
Dynamic Energy Services International LLC - Revolver | — |  |  | 3,255 |
Alpine SG, LLC - Revolver | — |  |  | 1,000 |
Black Angus Steakhouses, LLC - Delayed Draw Term Loan | — |  |  | 893 |
Total | $ | 3,935 |  |  | $ | 8,922 |

Note 9. Fee Income
Fee income consists of origination/closing fee, amendment fee, prepayment penalty, administrative agent fee, and other miscellaneous fees which are non-recurring in nature as well as administrative agent fees, which are recurring in nature. The following tables summarize the Company’s fee income for the years ended September 30, 2020, 2019 and 2018 (dollars in thousands):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Prepayment fee | $ | 139 |  |  | $ | 1,281 |  |  | $ | 220 |
Origination fee | 101 |  |  | 345 |  |  | 2,780 |
Administrative agent fee | 192 |  |  | 316 |  |  | 610 |
Amendment fee | 171 |  |  | 306 |  |  | 579 |
Other fees | 90 |  |  | 56 |  |  | 285 |
Fee income | $ | 693 |  |  | $ | 2,304 |  |  | $ | 4,474 |

Note 10. Directors Fees
The Company's independent directors each receive an annual fee of $90,000. They also receive $3,000, plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting, and $2,500, plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee meeting. The chair of the Audit Committee receives an annual fee of $25,000 and the chair of the Nominating and Corporate Governance Committee and the Compensation Committee receives an annual fee of $10,000 for their additional services in these capacities. In addition, other members of the Audit Committee receive an annual fee of $12,500, and other members of the Nominating and Corporate Governance Committee and the Compensation Committee receive an annual fee of $6,000.
On January 26, 2018, the board of directors established the special committee of the Board, comprised solely of directors who are not “interested persons” of the Company as such term is defined in Section 2(a)(19) of the 1940 Act (the “Special Committee”), for the purpose of assessing the merits of various proposed strategic transactions. As compensation for serving on the Special Committee, each independent director received a one-time retainer of $25,000 plus reimbursement of out-of-pocket expenses, consistent with the Company’s policies for reimbursement of members of the board of directors. In addition, the chairman of the Special Committee receives a monthly fee of $15,000 and other members receive a monthly fee of $10,000.
Pursuant to the Settlement Term Sheet, on April 15, 2019, the board of directors appointed David A. Lorber and Lowell W. Robinson to the Board to fill the vacancies on the Board created by the resignations of Mark Lerdal and John E. Mack, respectively. In addition, the board of directors added: (i) Messrs. Lorber and Robinson to the Special Committee, with Mr. Lorber serving as Chair of the Special Committee; (ii) Mr. Lorber to the Nominating and Corporate Governance Committee and the Compensation Committee; and Mr. Robinson to the Audit Committee. In addition to the compensation
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described above, each of Mr. Lorber and Mr. Robinson received the one-time retainer of $25,000 plus reimbursement of out-of-pocket expenses, consistent with the Company's policies for reimbursement of members of the board of directors.
On August 19, 2020, Jeffrey Tonkel notified the Board that he was resigning voluntarily from the Board, effective August 19, 2020. On August 19, 2020, the Board appointed Howard Amster to the Board to fill the vacancy created by the resignation of Mr. Tonkel, effective August 19, 2020. In addition to the compensation described above, Mr. Amster received the one-time retainer of $25,000 plus reimbursement of out-of-pocket expenses, consistent with the Company's policies for reimbursement of independent members of the board of directors.
No compensation is paid to directors who are ‘‘interested persons’’ of the Company (as such term is defined in the 1940 Act). For the years ended September 30, 2020, 2019 and 2018, we accrued $1.5 million, $1.3 million, and $1.3 million for independent directors’ fees expense, respectively.
Note 11. Earnings Per Share
In accordance with the provisions of ASC Topic 260 - Earnings per Share, basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. The Company does not have any potentially dilutive common shares as of September 30, 2020.
The following information sets forth the computation of the weighted average basic and diluted net increase/(decrease) in net assets per share from operations for the September 30, 2020, 2019 and 2018 (dollars in thousands, except share and per share amounts):

| For the years ended September 30
| 2020 |  | 2019 |  | 2018
Basic and diluted: |  |  |  |  |
Net increase/(decrease) in net assets from operations | $ | (65,813) |  |  | $ | (96,575) |  |  | $ | (110,924) |
Weighted average common shares outstanding | 2,723,709 |  |  | 2,723,709 |  |  | 2,723,709 |
Earnings per common share-basic and diluted | $ | (24.16) |  |  | $ | (35.46) |  |  | $ | (40.73) |

Note 12. Financial Highlights
The following is a schedule of financial highlights for the years ended September 30, 2020, 2019, 2018, 2017 and 2016:

| For the years ended September 30
| 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
Per share data(1)(15): |  |  |  |  |  |  |  |  |
Net asset value per share at beginning of year | $ | 79.46 |  |  | $ | 117.92 |  |  | $ | 169.04 |  |  | $ | 189.78 |  |  | $ | 220.08 |
Net investment income/(loss)(2) | (1.00) |  |  | (7.66) |  |  | 4.55 |  |  | 13.35 |  |  | 19.35 |
Net realized gains/(losses) on investments | (18.35) |  |  | (41.18) |  |  | (32.76) |  |  | (26.83) |  |  | (14.22) |
Net unrealized appreciation/(depreciation) on investments | (3.90) |  |  | 14.13 |  |  | (11.82) |  |  | 7.95 |  |  | (15.26) |
Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments | — |  |  | — |  |  | 0.17 |  |  | 0.40 |  |  | 0.03 |
Loss on extinguishment of debt | (0.91) |  |  | (0.75) |  |  | (0.87) |  |  | (0.40) |  |  | — |
Net increase/(decrease) in net assets | (24.16) |  |  | (35.46) |  |  | (40.73) |  |  | (5.53) |  |  | (10.10) |
Distributions from net investment income | — |  |  | (3.00) |  |  | (10.40) |  |  | (15.20) |  |  | (22.40) |
Repurchase of common stock under stock repurchase program | — |  |  | — |  |  | — |  |  | — |  |  | 2.20 |
Other(5) | — |  |  | — |  |  | 0.01 |  |  | (0.01) |  |  | — |
Net asset value per share at end of year | $ | 55.30 |  |  | $ | 79.46 |  |  | $ | 117.92 |  |  | $ | 169.04 |  |  | $ | 189.78 |
Net assets at end of year | $ | 150,619,517 |  |  | $ | 216,432,530 |  |  | $ | 321,178,727 |  |  | $ | 460,429,317 |  |  | $ | 516,919,142 |
Shares outstanding at end of year | 2,723,709 |  |  | 2,723,709 |  |  | 2,723,709 |  |  | 2,723,709 |  |  | 2,723,709 |
Per share market value at end of year | $ | 17.83 |  |  | $ | 51.80 |  |  | $ | 76.40 |  |  | $ | 119.40 |  |  | $ | 152.60 |
Total return based on market value(3) | (65.58) | % |  | (29.91) | % |  | (27.82) | % |  | (12.73) | % |  | 19.37 | %
Total return based on net asset value(4) | (30.41) | % |  | (29.47) | % |  | (21.29) | % |  | (0.68) | % |  | 0.42 | %
Portfolio turnover rate | 5.66 | % |  | 11.93 | % |  | 26.46 | % |  | 26.01 | % |  | 8.86 | %

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The following is a schedule of ratios and supplemental data for the years ended September 30, 2020, 2019, 2018, 2017, and 2016:

| For the years ended September 30
| 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
Ratios: |  |  |  |  |  |  |  |  |
Ratio of net investment/(loss) income to average net assets after waivers(6) | (1.64) | % |  | (7.96) | % |  | 3.37 | % |  | 7.50 | % |  | 9.97 | %
Ratio of total expenses to average net assets after waivers(6) | 14.64 | % |  | 25.62 | % |  | 14.77 | % |  | 12.35 | % |  | 12.49 | %
Ratio of incentive fees to average net assets after waivers(6) | — | % |  | — | % |  | — | % |  | 0.18 | % |  | 1.49 | %
Supplemental Data: |  |  |  |  |  |  |  |  |
Ratio of net operating expenses and credit facility related expenses to average net assets(6)(13) | 15.07 | % |  | 25.62 | % |  | 14.77 | % |  | 12.17 | % |  | 11.00 | %
Percentage of non-recurring fee income(7) | 2.33 | % |  | 4.29 | % |  | 5.78 | % |  | 6.23 | % |  | 5.61 | %
Average debt outstanding(8) | $ | 189,038,998 |  |  | $ | 347,991,878 |  |  | $ | 451,590,779 |  |  | $ | 514,726,703 |  |  | $ | 553,012,824 |
Average debt outstanding per common share | $ | 69.40 |  |  | $ | 127.76 |  |  | $ | 165.80 |  |  | $ | 188.98 |  |  | $ | 203.04 |
Asset coverage ratio per unit(9) | 1,992 |  |  | 1,842 |  |  | 2,126 |  |  | 2,327 |  |  | 2,414 |
Total Debt Outstanding(14): |  |  |  |  |  |  |  |  |
Revolving Credit Facility | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 68,000,000 |  |  | $ | 14,000,000 |
Term Loan Facility | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 102,000,000 |  |  | $ | 174,000,000 |
2019 Notes | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 40,000,000 |
2021 Notes | $ | 74,012,825 |  |  | $ | 74,012,825 |  |  | $ | 74,012,825 |  |  | $ | 74,012,825 |  |  | $ | 74,012,825 |
2023 Notes | $ | 77,846,800 |  |  | $ | 77,846,800 |  |  | $ | 89,846,800 |  |  | $ | 102,846,800 |  |  | $ | 63,500,000 |
Israeli Notes(12) | $ | — |  |  | $ | 105,136,927 |  |  | $ | 121,275,690 |  |  | $ | — |  |  | $ | — |
SBA Debentures | $ | — |  |  | $ | — |  |  | $ | 135,000,000 |  |  | $ | 150,000,000 |  |  | $ | 150,000,000 |
Average market value per unit: |  |  |  |  |  |  |  |  |
Facilities(10) | N/A |  | N/A |  | N/A |  | N/A |  | N/A
SBA debentures(10) | N/A |  | N/A |  | N/A |  | N/A |  | N/A
2019 Notes(11) | N/A |  | N/A |  | N/A |  | $ | 25.39 |  |  | $ | 25.44 |
2021 Notes | $ | 23.61 |  |  | $ | 24.82 |  |  | $ | 25.48 |  |  | $ | 25.80 |  |  | $ | 25.48 |
2023 Notes(12) | $ | 21.68 |  |  | $ | 24.28 |  |  | $ | 25.02 |  |  | $ | 25.18 |  |  | $ | 25.19 |
Israeli Notes | N/A |  | $ | 254.43 |  |  | $ | 273.95 |  |  | N/A |  | N/A

(1)Table may not foot due to rounding.
(2)Net investment income/(loss) excluding management and incentive fee waivers based on total weighted average common stock outstanding equals $(3.35), $(7.66), $4.41, $13.32, and $18.03 per share for the years ended September 30, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)Total return is historical and assumes changes in share price, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(4)Total return is historical and assumes changes in NAV, reinvestments of all dividends and distributions at prices obtained under the Company’s dividend reinvestment plan, and no sales charge for the period.
(5)Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.
(6)For the year ended September 30, 2020, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is (5.94)%, 18.94%, 0.00%, and 18.94%, respectively. For the year ended September 30, 2019, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is (7.96)%, 25.62%, 0.00%, and 25.62%, respectively. For the year ended September 30, 2018, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 3.26%, 14.88%, 0.00%, and 14.88%, respectively. For the year ended September 30, 2017, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 7.48%, 12.37%, 0.18%, and 12.18%, respectively. For the year ended September 30, 2016, excluding management and incentive fee waivers, the ratio of net investment income/(loss), total expenses, incentive fees, and operating expenses and credit facility related expenses to average net assets is 9.29%, 13.17%, 2.14%, and 11.03%, respectively.
(7)Represents the impact of the non-recurring fees as a percentage of total investment income.
(8)Based on daily weighted average carrying value of debt outstanding during the period.
(9)Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness. As of September 30, 2020, the Company’s asset coverage was 199.2% after giving effect to leverage and therefore the Company’s asset coverage was below 200%, the minimum asset coverage requirement under the 1940 Act. As a
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result, the Company is prohibited from making distributions to stockholders, including the payment of any dividend, and may not employ further leverage until the Company’s asset coverage is at least 200% after giving effect to such leverage.
(10)The Facilities and SBA Debentures were not registered for public trading.
(11)During the year ended September 30, 2017, the 2019 Notes were redeemed in full and ceased trading on February 17, 2017. The average price for the year ended September 30, 2017 reflects the period from October 1, 2016 through February 17, 2017.
(12)During the year ended September 30, 2020, the Israeli Notes were redeemed in full and ceased trading on the TASE on April 14, 2020.
(13)Excludes incentive fees.
(14)Total amount of each class of senior securities outstanding at the end of the period excluding debt issuance costs.
(15)Per share data has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive basis, as described in Note 1.
Note 13. Dividends
Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by our board of directors.
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have its dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.
The Company did not make any distributions during the year ended September 30, 2020.
The following table summarizes the Company’s distributions during the year ended September 30, 2019:

Date Declared |  | Record Date |  | Payment Date |  | Amount Per Share(1)
During the year ended September 30, 2019 |  |  |  |  |  |
11/16/2018 |  | 12/5/2018 |  | 12/20/2018 |  | $ | 2.00 |
2/10/2019 |  | 2/22/2019 |  | 3/12/2019 |  | 1.00 |
|  |  |  |  |  | $ | 3.00 |

(1) Amount per share has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive bases, as described in Note 1.
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Note 14. Selected Quarterly Financial Data (Unaudited)
The following tables represent selected unaudited quarterly financial data for the Company during the years ended September 30, 2020, 2019, and 2018 (dollars in thousands, except per share amounts):

| September 30, 2020 |  | June 30, 2020 |  | March 31, 2020 |  | December 31, 2019
Consolidated Statement of Operations data: |  |  |  |  |  |  |
Total investment income | $ | 4,420 |  |  | $ | 4,309 |  |  | $ | 5,301 |  |  | $ | 7,491 |
Net investment income/(loss) | (858) |  |  | (719) |  |  | (4,216) |  |  | 3,073 |
Net realized and unrealized gain/(loss) | 2,082 |  |  | 8,984 |  |  | (73,663) |  |  | 1,986 |
Change in provision for deferred taxes on unrealized gain/(loss) on investments | 50 |  |  | 36 |  |  | (86) |  |  | — |
Loss on extinguishment of debt | — |  |  | (697) |  |  | (895) |  |  | (889) |
Net increase/(decrease) in net assets resulting from operations | 1,274 |  |  | 7,604 |  |  | (78,860) |  |  | 4,170 |
Earnings per share(1) | 0.47 |  |  | 2.79 |  |  | (28.95) |  |  | 1.53 |
Net asset value per common share at period end(1) | $ | 55.30 |  |  | $ | 54.83 |  |  | $ | 52.04 |  |  | $ | 80.99 |

| September 30, 2019 |  | June 30, 2019 |  | March 31, 2019 |  | December 31, 2018
Consolidated Statement of Operations data: |  |  |  |  |  |  |
Total investment income | $ | 8,116 |  |  | $ | 11,394 |  |  | $ | 12,587 |  |  | $ | 14,202 |
Net investment income/(loss) | (8,209) |  |  | (3,823) |  |  | (10,595) |  |  | 1,759 |
Net realized and unrealized gain/(loss) | (23,335) |  |  | (24,612) |  |  | (14,014) |  |  | (11,714) |
Change in provision for deferred taxes on unrealized gain/(loss) on investments | — |  |  | — |  |  | — |  |  | — |
Loss on extinguishment of debt | (104) |  |  | (1,806) |  |  | — |  |  | (123) |
Net increase/(decrease) in net assets resulting from operations | (31,648) |  |  | (30,241) |  |  | (24,609) |  |  | (10,078) |
Earnings per share(1) | (11.62) |  |  | (11.10) |  |  | (9.04) |  |  | (3.70) |
Net asset value per common share at period end(1) | $ | 79.40 |  |  | $ | 91.00 |  |  | $ | 102.20 |  |  | $ | 112.20 |

| September 30, 2018 |  | June 30, 2018 |  | March 31, 2018 |  | December 31, 2017
Consolidated Statement of Operations data: |  |  |  |  |  |  |
Total investment income | $ | 15,210 |  |  | $ | 13,945 |  |  | $ | 17,035 |  |  | $ | 20,631 |
Net investment income | 741 |  |  | 904 |  |  | 3,580 |  |  | 7,179 |
Net realized and unrealized gain/(loss) | (23,059) |  |  | (27,753) |  |  | (31,391) |  |  | (39,213) |
Change in provision for deferred taxes on unrealized gain/(loss) on investments | — |  |  | 194 |  |  | 190 |  |  | 90 |
Loss on extinguishment of debt | (1,218) |  |  | (11) |  |  | (1,158) |  |  | — |
Net increase/(decrease) in net assets resulting from operations | (23,536) |  |  | (26,666) |  |  | (28,779) |  |  | (31,944) |
Earnings per share(1) | (8.64) |  |  | (9.79) |  |  | (10.57) |  |  | (11.73) |
Net asset value per common share at period end(1) | $ | 118.00 |  |  | $ | 128.60 |  |  | $ | 140.40 |  |  | $ | 154.20 |

(1) Amount per share has been adjusted for the periods shown to reflect the one-for-twenty reverse stock split effected on July 24, 2020 on a retroactive bases, as described in Note 1.
Note 15. Subsequent Events
Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-K or would be required to be recognized in the Consolidated Financial Statements as of and for the year ended September 30, 2020, except as disclosed below.
Subsequent to year ended September 30, 2020, the global outbreak of the COVID-19 pandemic has adversely affected some of the Company’s investments and continues to have adverse consequences on the U.S. and global economies. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual portfolio companies, remains uncertain. At the time of this filing, there is no indication of a reportable subsequent event impacting the Company’s financial statements for the year ended September 30, 2020. The Company cannot predict the extent to which its financial condition and results of operations will be adversely affected at this time. The potential impact to our results will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.
On October 8, 2020, the Company, GALIC, MCC JV, and an affiliate of Golub Capital LLC (“Golub”) entered into a Membership Interest Purchase Agreement (the “Agreement”) pursuant to which a fund affiliated with and managed by Golub concurrently purchased all of the Company’s interest in MCC JV and all of GALIC’s interest in MCC JV for a pre-adjusted gross purchase price of $156.4 million and an adjusted gross purchase price (which constitutes the aggregate consideration for the membership interests) of $145.3 million (giving effect to adjustments primarily for principal and
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interest payments from portfolio companies of MCC JV from July 1, 2020 through October 7, 2020), resulting in net proceeds (before transaction expenses) of $41.0 million and $6.6 million for the Company and GALIC, respectively, on the terms and subject to the conditions set forth in the Agreement, including the representations, warranties, covenants and indemnities contained therein. The Company estimates that transaction expenses will be approximately $1.6 million resulting in net proceeds (including estimated transaction expenses) of $39.5 million. The Company is expected to record a realized loss for the quarter ending December 31, 2020 of approximately $40.3 million on its investment in MCC JV and a corresponding change in unrealized appreciation/depreciation of $38.9 million in order to reverse the previously recorded unrealized depreciation with respect to the investment. In connection with the closing of the transaction on October 8, 2020, MCC JV repaid in full all outstanding borrowings under, and terminated, the JV Facility.
On November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021. The new management structure will replace the current Investment Management Agreement and the Administration Agreement, each of which expire on December 31, 2020. In further connection with the adoption by the board of directors of an internalized management structure, the board of directors appointed David Lorber as interim Chief Executive Officer of the Company, effective January 1, 2021, and Ellida McMillan as Chief Financial Officer of the Company, effective January 1, 2021. David Lorber’s base annual salary will be $425,000, with a discretionary annual bonus of up to 100% of the base annual salary. Ellida McMillan’s base annual salary will be $300,000, with a discretionary annual bonus of up to $200,000.
Also, in connection with the adoption of an internalized management structure, the Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S. Bancorp Fund Services, LLC d/b/a U.S. Bank Global Fund Services. In addition, effective January 1, 2021, the name of the Company will be changed to PhenixFIN Corporation.
On November 20, 2020 (the “Redemption Date”), the Company redeemed $74,012,825 in aggregate principal amount of the issued and outstanding 2021 Notes. The 2021 Notes were redeemed at 100% of their principal amount ($25 per 2021 Note), plus accrued and unpaid interest thereon from October 31, 2020, through, but excluding, the Redemption Date. The redemption will be accounted for as a debt extinguishment in accordance with ASC 470-50, Modifications and Extinguishments.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures” is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
(b) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our management’s evaluation under the framework in Internal Control—Integrated Framework, management concluded that our internal controls over financial reporting were effective as of September 30, 2020.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(c) Changes in Internal Controls Over Financial Reporting
There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15 (f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
The Company's shares are currently listed on the NYSE. On December 7, 2020, the board of directors authorized the Company to submit an application to list its shares on the NASDAQ Global Market tier of the NASDAQ Stock Market, followed by an application to delist from the NYSE.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended September 30, 2020.
Item 11. Executive Compensation
The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended September 30, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended September 30, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended September 30, 2020.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended September 30, 2020.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report:
The following financial statements are set forth in Item 8:

|  | Page
Report of Independent Registered Public Accounting Firm |  | F-1
Consolidated Statements of Assets and Liabilities as of September 30, 20 20 and 201 9 |  | F-2
Consolidated Statements of Operations for the years ended September 30, 20 20, 201 9 and 201 8 |  | F-3
Consolidated Statements of Changes in Net Assets for the years ended September 30, 20 20, 201 9 and 201 8 |  | F-5
Consolidated Statements of Cash Flows for the years ended September 30, 20 20, 201 9 and 201 8 |  | F-6
Consolidated Schedules of Investments as of September 30, 20 20 and 201 9 |  | F-7
Notes to Consolidated Financial Statements |  | F-18

(b) Exhibits:

3.1 | Certificate of Incorporation (Incorporated by reference to Exhibit 99.A.3 to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
3.2 | Certificate of Amendment to the Certificate of Incorporation (Incorporated by reference to the Current Report on Form 8-K filed on July 13, 2020).
3.3 | Form of Bylaws (Incorporated by reference to Exhibit 99.B.3 to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
3.4 | Amendment to Bylaws (Incorporated by reference to the Current Report on Form 8-K filed February 7, 2019).
4.1 | Form of Stock Certificate (Incorporated by reference to Exhibit 99.D to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
4.2 | Indenture, dated February 7, 2012, between Medley Capital Corporation and U.S. Bank National Association, as Trustee (Incorporated by reference to Exhibit 99.D.2 to the Registrant’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-179237), filed on February 13, 2012).
4.3 | First Supplemental Indenture, dated March 21, 2012, between Medley Capital Corporation and U.S. Bank National Association, as Trustee (Incorporated by reference to Exhibit 99.D.4 to the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-179237), filed on March 21, 2012).
4.4 | Second Supplemental Indenture, dated March 18, 2013, between Medley Capital Corporation and U.S. Bank National Association, as Trustee (Incorporated by reference to Exhibit 99.D.4 to the Registrant’s Post-Effective Amendment No. 7 to the Registration Statement on Form N-2 (File No. 333-179237), filed on March 15, 2013).
4.5 | Third Supplemental Indenture, dated December 17, 2015, between Medley Capital Corporation and U.S. Bank National Association, as Trustee (Incorporated by reference to Exhibit 99.D.6 to the Registrant’s Post-Effective Amendment No. 11 to the Registration Statement on Form N-2 (File No. 333-187324), filed December 17, 2015).
4.6 | Description of Medley Capital Corporation’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934*
10.1 | Form of Amended and Restated Investment Management Agreement by and between Medley Capital Corporation and MCC Advisors LLC (Incorporated by reference to Exhibit 99.G to Registrant’s Post-Effective Amendment No. 3 to the Registration Statement on N-2 (File No. 333-187324), filed on December 10, 2013).
10.2 | Amendment No. 1 to Amended and Restated Investment Management Agreement, dated June 12, 2020, by and between Medley Capital Corporation and MCC Advisors LLC (Incorporated by reference to the Current Report on Form 8-K filed on June 15, 2020).
10.3 | Letter from MCC Advisors LLC re: Waiver of Base Management Fee and Incentive Fee on Net Investment Income, dated February 8, 2016 (Incorporated by reference to Exhibit 99.K.5 to Registrant’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-208746), filed on March 25, 2016).
10.4 | Expense Support Agreement, dated June 12, 2020, between Medley Capital Corporation, Medley LLC, and MCC Advisors LLC (Incorporated by reference to the Current Report on Form 8-K filed on June 15, 2020).
10.5 | Form of Custody Agreement (Incorporated by reference to Exhibit 99.J.1 to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
10.6 | Form of Administration Agreement (Incorporated by reference to Exhibit 99.K.2 to the Registrant’s Pre-effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-166491), filed on June 9, 2010).

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10.7 | Amendment No. 1 to Administration Agreement, dated June 12, 2020, by and between Medley Capital Corporation and MCC Advisors LLC (Incorporated by reference to the Current Report on Form 8-K filed on June 15, 2020).
10.8 | Form of Sub-Administration Agreement (Incorporated by reference to Exhibit 99.K.4 to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
10.9 | Trademark License Agreement (Incorporated by reference to Exhibit 99.K.3 to the Registrant’s Pre-effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-166491), filed on June 9, 2010).
10.10 | Form of Dividend Reinvestment Plan (Incorporated by reference to Exhibit 99.E to the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-166491), filed on November 23, 2010).
10.11 | Limited Liability Company Operating Agreement of MCC Senior Loan Strategy JV I LLC, a Delaware Limited Liability Company, dated as of March 27, 2015 (Incorporated by reference to the Current Report on Form 8-K filed on March 30, 2015).
10.12 | Settlement Term Sheet, dated April 15, 2019 (Incorporated by reference to the Current Report on Form 8-K, filed on April 17, 2019).
10.13 | Stipulation of Settlement, dated July 29, 2019, by and among Medley Capital Corporation, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, Medley Management Inc., MCC Advisors LLC, Medley LLC and Medley Group LLC, on the one hand, and FrontFour Capital Group LLC and FrontFour Master Fund, Ltd., on behalf of themselves and a class of similarly situated stockholders of Medley Capital Corporation, on the other hand, in connection with the action styled In re Medley Capital Corporation Stockholder Litigation, Cons. C.A. No. 2019-0100-KSJM (Incorporated by reference to the Current Report on Form 8-K, filed on August 2, 2019).
10.14 | Governance Agreement, dated July 29, 2019, by and among, Medley Capital Corporation, on the one hand, and FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, on the other hand (Incorporated by reference to the Current Report on Form 8-K, filed on August 2, 2019).
10.15 | Standstill Agreement, dated as of August 19, 2020, by and between the Medley Capital Corporation and Howard Amster and the other persons and entities identified therein (Incorporated by reference the Current Report on Form 8-K filed on August 21, 2020).
10.16 | Fund Accounting Servicing Agreement, dated November 19, 2020, by and between Medley Capital Corporation and U.S. Bancorp Fund Services, LLC*
10.17 | Administration Servicing Agreement, dated November 19, 2020, by and between Medley Capital Corporation and U.S. Bancorp Fund Services, LLC*
14.1 | Code of Business Conduct and Ethics of the Registrant (Incorporated by reference to Exhibit 14.1 to the Registrant’s 10-Q for the period ended June 30, 2011, filed on August 4, 2011).
14.2 | Code of Business Ethics of MCC Advisors (Incorporated by reference to Exhibit 99.R.2 to the Registrant’s Pre-effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-166491), filed on June 9, 2010).
21.1 | List of Subsidiaries*
24.0 | Power of attorney (included on the signature page hereto).
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.*
* | Filed herewith.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: December 11, 2020 | Medley Capital Corporation
| By | /s/ Brook Taube
|  | Brook Taube
|  | Chief Executive Officer
|  | (Principal Executive Officer)
| By | /s/ Richard T. Allorto, Jr.
|  | Richard T. Allorto, Jr.
|  | Chief Financial Officer
|  | (Principal Accounting and Financial Officer)

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the following capacities on December 11, 2020.

/s/ Brook Taube |  | Chief Executive Officer and Chairman of the
Brook Taube |  | Board of Directors (Principal Executive Officer)
/s/ Richard T. Allorto, Jr. |  | Chief Financial Officer
Richard T. Allorto, Jr. |  | (Principal Financial and Accounting Officer)
/s/ Seth Taube |  | Director
Seth Taube |  |
/s/ Arthur S. Ainsberg |  | Director
Arthur S. Ainsberg |  |
/s/ Karin Hirtler-Garvey |  | Director
Karin Hirtler-Garvey |  |
/s/ David Lorber |  | Director
David Lorber |  |
/s/ Lowell Robinson |  | Director
Lowell Robinson |  |
/s/ Howard Amster |  | Director
Howard Amster |  |

75