e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2009
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-33376
GSC Investment Corp.
(Exact name of Registrant as specified in its charter)
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Maryland
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20-8700615 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
500 Campus Drive, Suite 220
Florham Park, New Jersey 07932
(Address of principal executive offices)
(973)-437-1000
(Registrants telephone number, including area code)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer þ (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ
The number of outstanding common shares of the registrant as of January 8, 2010 was
16,940,109.
TABLE OF CONTENTS
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Page |
PART I. FINANCIAL INFORMATION |
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Item 1.
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Financial Statements |
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Consolidated Balance Sheets as of November 30, 2009 (unaudited) and February 28, 2009
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3 |
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Consolidated Statements of Operations for the three and nine months ended November
30, 2009 (unaudited) and November 30, 2008 (unaudited)
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4 |
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Consolidated Schedules of Investments as of November 30, 2009 (unaudited) and
February 28, 2009
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5 |
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Consolidated Statements of Changes in Net Assets for the nine months ended November
30, 2009 (unaudited) and November 30, 2008 (unaudited)
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11 |
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Consolidated Statements of Cash Flows for the nine months ended November 30, 2009
(unaudited) and November 30, 2008 (unaudited)
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12 |
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Notes to Consolidated Financial Statements as of November 30, 2009 (unaudited)
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13 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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28 |
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Quantitative and Qualitative Disclosures about Market Risk
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41 |
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Controls and Procedures
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43 |
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PART II. OTHER INFORMATION |
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Legal Proceedings
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44 |
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A. |
Risk Factors
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44 |
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Unregistered Sales of Equity Securities and Use of Proceeds
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44 |
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Defaults Upon Senior Securities
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44 |
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Submission of Matters to a Vote of Security Holders
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44 |
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Other Information
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44 |
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Exhibits
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44 |
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46 |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
2
GSC Investment Corp.
Consolidated Balance Sheets
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As of |
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November 30, 2009 |
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February 28, 2009 |
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(unaudited) |
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ASSETS |
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Investments at fair value |
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Non-control/non-affiliate investments (amortized cost of $126,612,792 and $137,020,449,
respectively) |
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$ |
81,805,383 |
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$ |
96,462,919 |
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Control investments (cost of $29,233,097 and $29,905,194, respectively) |
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21,464,041 |
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22,439,029 |
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Affiliate investments (cost of $0 and $0, respectively) |
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318 |
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10,527 |
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Total investments at fair value (amortized cost of $155,845,889 and $166,925,643, respectively) |
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103,269,742 |
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118,912,475 |
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Cash and cash equivalents |
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5,459,780 |
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6,356,225 |
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Cash and cash equivalents, securitization accounts |
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839,290 |
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1,178,201 |
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Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively) |
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72,593 |
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39,513 |
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Interest receivable, net of reserve |
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3,122,764 |
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3,087,668 |
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Deferred credit facility financing costs, net |
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529,767 |
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Management fee receivable |
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1,058,861 |
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237,370 |
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Other assets |
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113,150 |
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321,260 |
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Receivable from unsettled trades |
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600,036 |
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Total assets |
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$ |
114,536,216 |
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$ |
130,662,479 |
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LIABILITIES |
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Revolving credit facility |
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$ |
43,840,749 |
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$ |
58,994,673 |
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Dividend payable |
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2,073,066 |
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Management and incentive fees payable |
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3,093,400 |
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2,880,667 |
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Accounts payable and accrued expenses |
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827,707 |
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700,537 |
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Interest and credit facility fees payable |
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357,455 |
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72,825 |
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Total liabilities |
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$ |
50,192,377 |
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$ |
62,648,702 |
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NET ASSETS |
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Common
stock, par value $.0001 per share, 100,000,000 common shares authorized, 16,940,109 and 8,291,384 common shares issued and outstanding, respectively |
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1,694 |
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829 |
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Capital in excess of par value |
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130,001,583 |
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116,943,738 |
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Accumulated undistributed net investment income (loss) |
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(4,496,445 |
) |
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6,122,492 |
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Accumulated net realized loss from investments and derivatives |
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(8,528,440 |
) |
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(6,948,628 |
) |
Net unrealized depreciation on investments and derivatives |
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(52,634,553 |
) |
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(48,104,654 |
) |
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Total Net Assets |
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64,343,839 |
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68,013,777 |
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Total liabilities and Net Assets |
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$ |
114,536,216 |
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$ |
130,662,479 |
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NET ASSET VALUE PER SHARE |
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$ |
3.80 |
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$ |
8.20 |
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See accompanying notes to consolidated financial statements.
3
GSC Investment Corp.
Consolidated Statements of Operations
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For the three months ended |
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For the nine months ended |
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November 30 |
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November 30 |
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2009 |
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2008 |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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INVESTMENT INCOME |
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Interest from investments |
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Non-control/Non-affiliate investments |
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$ |
2,593,082 |
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$ |
4,269,985 |
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$ |
8,566,587 |
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$ |
12,873,546 |
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Control investments |
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368,374 |
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1,452,237 |
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1,686,088 |
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3,198,626 |
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Total interest income |
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2,961,456 |
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5,722,222 |
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10,252,675 |
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16,072,172 |
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Interest from cash and cash equivalents |
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2,752 |
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38,377 |
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22,934 |
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141,074 |
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Management fee income |
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511,236 |
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517,875 |
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1,549,167 |
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1,529,762 |
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Other income |
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54,699 |
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82,189 |
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155,111 |
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164,683 |
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Total investment income |
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3,530,143 |
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6,360,663 |
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11,979,887 |
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17,907,691 |
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EXPENSES |
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Interest and credit facility financing expenses |
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1,126,162 |
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693,830 |
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3,174,603 |
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2,150,639 |
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Base management fees |
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462,755 |
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653,995 |
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1,515,813 |
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2,108,026 |
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Professional fees |
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714,789 |
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272,196 |
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1,396,567 |
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932,785 |
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Administrator expenses |
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171,861 |
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241,317 |
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515,583 |
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750,661 |
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Incentive management fees |
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542,231 |
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322,183 |
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1,289,365 |
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Insurance |
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220,059 |
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173,353 |
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649,535 |
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518,001 |
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Directors fees and expenses |
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71,989 |
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72,490 |
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217,125 |
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212,375 |
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General & administrative |
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65,298 |
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65,289 |
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191,223 |
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208,230 |
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Expenses before expense waiver and reimbursement |
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2,832,913 |
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2,714,701 |
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7,982,632 |
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8,170,082 |
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Expense reimbursement |
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(171,861 |
) |
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(241,317 |
) |
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(515,583 |
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(800,376 |
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Total expenses net of expense waiver and reimbursement |
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2,661,052 |
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2,473,384 |
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7,467,049 |
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7,369,706 |
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NET INVESTMENT INCOME |
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869,091 |
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3,887,279 |
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4,512,838 |
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10,537,985 |
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
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Net realized loss from investments |
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(549,864 |
) |
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(7,293,875 |
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(1,579,812 |
) |
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(7,423,694 |
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Net realized gain from derivatives |
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30,454 |
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Net unrealized appreciation/(depreciation) on investments |
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8,825,100 |
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(4,142,827 |
) |
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(4,562,979 |
) |
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(10,422,015 |
) |
Net unrealized appreciation/(depreciation) on derivatives |
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(16,754 |
) |
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(1,419 |
) |
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33,080 |
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(29,745 |
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Net gain/(loss) on investments |
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8,258,482 |
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(11,438,121 |
) |
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(6,109,711 |
) |
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(17,845,000 |
) |
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
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$ |
9,127,573 |
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$ |
(7,550,842 |
) |
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$ |
(1,596,873 |
) |
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$ |
(7,307,015 |
) |
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WEIGHTED AVERAGE BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE |
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$ |
1.01 |
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$ |
(0.91 |
) |
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$ |
(0.19 |
) |
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$ |
(0.88 |
) |
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WEIGHTED AVERAGE COMMON STOCK OUTSTANDING BASIC AND DILUTED |
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9,051,711 |
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|
8,291,384 |
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|
|
8,542,983 |
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|
8,291,384 |
|
See accompanying notes to consolidated financial statements.
4
GSC Investment Corp.
Consolidated Schedule of Investments
November 30, 2009
(unaudited)
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% of |
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Investment Interest |
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Principal/ |
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Stockholders |
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Company (a, c) |
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Industry |
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Rate/Maturity |
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Number of Shares |
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Cost |
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Fair Value |
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Equity |
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Non-control/Non-affiliated investments 127.1% (b) |
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GFSI Inc (d) |
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Apparel |
|
Senior Secured Notes 10.50%, 6/1/2011 |
|
$ |
7,082,000 |
|
|
$ |
7,082,000 |
|
|
$ |
6,463,741 |
|
|
|
10.0 |
% |
|
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|
|
|
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|
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Legacy Cabinets, Inc. (d, i) |
|
Building Products |
|
First Lien Term Loan 6.54%, 8/18/2012 |
|
|
1,455,877 |
|
|
|
1,439,194 |
|
|
|
444,043 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
Legacy Cabinets, Inc. (d, i) |
|
Building Products |
|
Second Lien Term Loan 10.50%, 8/18/2013 |
|
|
1,862,420 |
|
|
|
1,828,197 |
|
|
|
96,846 |
|
|
|
0.1 |
% |
|
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|
|
|
|
|
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|
|
|
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|
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|
|
|
|
Total Building Products |
|
|
3,318,297 |
|
|
|
3,267,391 |
|
|
|
540,889 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
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|
Hopkins Manufacturing Corporation (d) |
|
Consumer Products |
|
Second Lien Term Loan 7.53%, 1/26/2012 |
|
|
3,250,000 |
|
|
|
3,247,681 |
|
|
|
3,051,425 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
Targus Group International, Inc. (d) |
|
Consumer Products |
|
First Lien Term Loan 5.75%, 11/22/2012 |
|
|
3,114,831 |
|
|
|
2,927,489 |
|
|
|
2,341,730 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targus Group International, Inc. (d, i) |
|
Consumer Products |
|
Second Lien Term Loan 10.75%, 5/22/2013 |
|
|
5,000,000 |
|
|
|
4,777,205 |
|
|
|
1,802,500 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Products |
|
|
11,364,831 |
|
|
|
10,952,375 |
|
|
|
7,195,655 |
|
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFF Acquisition LLC (d) |
|
Consumer Services |
|
First Lien Term Loan 7.50%, 7/31/2013 |
|
|
308,030 |
|
|
|
308,030 |
|
|
|
276,272 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M/C Communications, LLC (d) |
|
Education |
|
First Lien Term Loan 6.75%, 12/31/2012 |
|
|
827,005 |
|
|
|
827,005 |
|
|
|
549,876 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M/C Communications, LLC (d, i) |
|
Education |
|
Class A Common Stock |
|
|
166,327 |
|
|
|
30,241 |
|
|
|
59,878 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Education |
|
|
993,332 |
|
|
|
857,246 |
|
|
|
609,754 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Lighting Technologies, Inc. (d) |
|
Electronics |
|
Second Lien Term Loan 6.24%, 6/1/2014 |
|
|
2,000,000 |
|
|
|
1,804,225 |
|
|
|
1,734,400 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Dekko (d) |
|
Electronics |
|
Second Lien Term Loan 10.50%, 1/20/2012 |
|
|
6,843,861 |
|
|
|
6,843,861 |
|
|
|
4,487,520 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Electronics |
|
|
8,843,861 |
|
|
|
8,648,086 |
|
|
|
6,221,920 |
|
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USS Mergerco, Inc. (d, i) |
|
Environmental |
|
Second Lien Term Loan 4.53%, 6/29/2013 |
|
|
5,960,000 |
|
|
|
5,846,833 |
|
|
|
2,693,324 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy Management Solutions, Inc. (d) |
|
Financial Services |
|
Second Lien Term Loan 6.48%, 7/31/2013 |
|
|
4,850,000 |
|
|
|
4,825,546 |
|
|
|
2,121,875 |
|
|
|
3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Train, Inc. (d) |
|
Food and Beverage |
|
First Lien Term Loan 7.75%, 3/31/2012 |
|
|
1,985,368 |
|
|
|
1,454,623 |
|
|
|
1,765,786 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDI Acquisition Corp. (d) |
|
Healthcare Services |
|
Senior Secured Notes 10.75%, 12/15/2011 |
|
|
3,800,000 |
|
|
|
3,665,945 |
|
|
|
3,565,540 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRACS Institute, LTD (d) |
|
Healthcare Services |
|
Second Lien Term Loan 8.31%, 4/17/2013 |
|
|
4,093,750 |
|
|
|
4,055,868 |
|
|
|
3,535,363 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Healthcare Services |
|
|
7,893,750 |
|
|
|
7,721,813 |
|
|
|
7,100,903 |
|
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McMillin Companies LLC (d) |
|
Homebuilding |
|
Senior Secured Notes 9.53%, 10/31/2013 |
|
|
7,700,000 |
|
|
|
7,314,750 |
|
|
|
4,894,890 |
|
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC (d) |
|
Logistics |
|
First Lien Term Loan 10.00%, 6/30/2013 |
|
|
2,802,960 |
|
|
|
2,798,751 |
|
|
|
2,406,061 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (d, i) |
|
Manufacturing |
|
Unsecured Notes 13.00%, 11/1/2010 |
|
|
12,000,000 |
|
|
|
12,000,000 |
|
|
|
3,907,200 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (d, i) |
|
Manufacturing |
|
Unsecured Notes 13.00%, 11/1/2010 |
|
|
1,700,000 |
|
|
|
1,700,000 |
|
|
|
553,520 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialized Technology Resources, Inc. (d) |
|
Manufacturing |
|
Second Lien Term Loan 7.24%, 12/15/2014 |
|
|
5,000,000 |
|
|
|
4,791,877 |
|
|
|
4,607,000 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufacturing |
|
|
18,700,000 |
|
|
|
18,491,877 |
|
|
|
9,067,720 |
|
|
|
14.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC (d) |
|
Metals |
|
Senior Secured Notes 13.00%, 3/1/2013 |
|
|
5,000,000 |
|
|
|
4,872,888 |
|
|
|
4,151,000 |
|
|
|
6.5 |
% |
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
Investment Interest |
|
Principal/ |
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
Company (a, c) |
|
Industry |
|
Rate/Maturity |
|
Number of Shares |
|
|
Cost |
|
|
Fair Value |
|
|
Equity |
|
Elyria Foundry Company, LLC (i) |
|
Metals |
|
Warrants |
|
$ |
3,000 |
|
|
$ |
|
|
|
$ |
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Metals |
|
|
5,003,000 |
|
|
|
4,872,888 |
|
|
|
4,151,000 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abitibi-Consolidated Company of Canada (d, e) |
|
Natural Resources |
|
First Lien Term Loan 11.00%, 3/30/2009 |
|
|
2,948,640 |
|
|
|
2,948,640 |
|
|
|
2,565,316 |
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant U.S. Holdings LLP (d, e) |
|
Natural Resources |
|
Second Lien Term Loan 10.75%, 9/20/2013 |
|
|
6,349,512 |
|
|
|
6,349,348 |
|
|
|
317,476 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Natural Resources |
|
|
9,298,152 |
|
|
|
9,297,988 |
|
|
|
2,882,792 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edgen Murray II, L.P. (d) |
|
Oil and Gas |
|
Second Lien Term Loan 6.28%, 5/11/2015 |
|
|
3,000,000 |
|
|
|
2,830,602 |
|
|
|
2,226,300 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Alloys, LLC (d, i) |
|
Oil and Gas |
|
Second Lien Term Loan 3.00%, 6/30/2015 |
|
|
6,200,000 |
|
|
|
6,200,000 |
|
|
|
2,421,720 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Alloys, LLC (d, i) |
|
Oil and Gas |
|
Warrants |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas |
|
|
9,200,003 |
|
|
|
9,030,602 |
|
|
|
4,648,020 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 12.50%, 6/15/2010 |
|
|
4,850,000 |
|
|
|
4,850,000 |
|
|
|
4,347,540 |
|
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 12.50%, 6/15/2010 |
|
|
5,087,250 |
|
|
|
5,087,250 |
|
|
|
4,560,211 |
|
|
|
7.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 10.92%, 6/15/2010 |
|
|
500,000 |
|
|
|
500,000 |
|
|
|
448,200 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Packaging |
|
|
10,437,250 |
|
|
|
10,437,250 |
|
|
|
9,355,951 |
|
|
|
14.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom Direct, Inc. (d) |
|
Printing |
|
First Lien Term Loan 3.03%, 12/31/2013 |
|
|
1,977,812 |
|
|
|
1,615,866 |
|
|
|
1,676,196 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 12.75%, 3/31/2010 |
|
|
362,106 |
|
|
|
358,620 |
|
|
|
329,517 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 12.75%, 3/31/2010 |
|
|
388,144 |
|
|
|
384,412 |
|
|
|
353,211 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Publishing Company (d, i) |
|
Publishing |
|
Second Lien Term Loan 8.76%, 9/19/2014 |
|
|
1,203,226 |
|
|
|
1,198,390 |
|
|
|
35,013 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Communications, Inc. (d) |
|
Publishing |
|
Unsecured Notes 10.75%, 12/1/2013 |
|
|
5,000,000 |
|
|
|
5,073,062 |
|
|
|
2,847,500 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penton Media, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 2.53%, 2/1/2013 |
|
|
4,860,264 |
|
|
|
3,868,044 |
|
|
|
3,214,093 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Publishing |
|
|
11,813,740 |
|
|
|
10,882,528 |
|
|
|
6,779,334 |
|
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GXS Worldwide, Inc. (d) |
|
Software |
|
Second Lien Term Loan 13.75%, 9/30/2013 |
|
|
1,000,000 |
|
|
|
906,349 |
|
|
|
953,300 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Non-control/Non-affiliated investments |
|
|
|
|
|
|
|
126,612,792 |
|
|
|
81,805,383 |
|
|
|
127.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments 33.3% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (h) |
|
Financial Services |
|
100% General Partnership Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0 |
% |
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
Investment Interest |
|
Principal/ |
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
Company (a, c) |
|
Industry |
|
Rate/Maturity |
|
Number of Shares |
|
|
Cost |
|
|
Fair Value |
|
|
Equity |
|
GSC Investment Corp. CLO
2007 LTD. (f, h) |
|
Structured Finance Securities |
|
Other/Structured
Finance Securities 10.96%, 1/21/2020 |
|
$ |
30,000,000 |
|
|
$ |
29,233,097 |
|
|
$ |
21,464,041 |
|
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Control investments |
|
|
|
|
|
|
|
|
29,233,097 |
|
|
|
21,464,041 |
|
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate investments 0.1% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (g) |
|
Financial Services |
|
6.24% Limited Partnership Interest |
|
|
|
|
|
|
|
|
|
|
318 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Affiliate investments |
|
|
|
|
|
|
|
|
|
|
318 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT ASSETS 160.5% (b) |
|
|
|
|
|
|
|
$ |
155,845,889 |
|
|
$ |
103,269,742 |
|
|
|
160.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
Outstanding interest rate cap |
|
Interest rate |
|
|
Maturity |
|
|
Notional |
|
|
Cost |
|
|
Fair Value |
|
|
Equity |
|
Interest rate cap |
|
|
8.0 |
% |
|
|
2/9/2014 |
|
|
$ |
40,000,000 |
|
|
$ |
87,000 |
|
|
$ |
51,046 |
|
|
|
0.1 |
% |
Interest rate cap |
|
|
8.0 |
% |
|
|
11/30/2013 |
|
|
|
26,433,408 |
|
|
|
44,000 |
|
|
|
21,547 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Outstanding interest rate cap |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
131,000 |
|
|
$ |
72,593 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All of the Funds equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Abitibi-Consolidated
Company of Canada, Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007 Ltd., Terphane Holdings Corp., and GSC Partners CDO GP III, LP. |
|
(b) |
|
Percentages are based on net assets of $64,343,839 as of November 30, 2009. |
|
(c) |
|
Fair valued investment (see Note 4 to the consolidated financial statements). |
|
(d) |
|
All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements). |
|
(e) |
|
Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada. |
|
(f) |
|
10.96% represents the modeled effective interest rate that is expected to be earned over the life of the investment. |
|
(g) |
|
As defined in the Investment Company Act, we are an Affiliate of this portfolio company because we own 5% or more of the portfolio companys outstanding voting
securities. Transactions during the period in which the issuer was an Affiliate are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Management |
|
Net Realized |
|
Net unrealized |
Company |
|
Purchases |
|
Redemptions |
|
Sales (cost) |
|
Income |
|
fee income |
|
gains/(losses) |
|
gains/(losses) |
GSC Partners CDO GP III, LP |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$(10,209) |
|
|
|
(h) |
|
As defined in the Investment Company Act, we are an
Affiliate of this portfolio company because we own 5% or more of the
portfolio companys outstanding voting securities. In addition, as
defined in the Investment Company Act, we Control this portfolio
company because we own more than 25% of the portfolio companys
outstanding voting securities. Transactions during the period in which
the issuer was both an Affiliate and a portfolio company that we
Control are as follows: |
|
(i) |
|
Non-income producing at November 30, 2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
Management |
|
|
Net Realized |
|
|
Net unrealized |
|
Company |
|
Purchases |
|
|
Redemptions |
|
|
Sales (cost) |
|
|
Income |
|
|
fee income |
|
|
gains/(losses) |
|
|
gains/(losses) |
|
GSC Investment Corp. CLO 2007 LTD. |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,686,088 |
|
|
$ |
1,549,167 |
|
|
$ |
|
|
|
$(204,480) |
GSC Partners CDO GP III, LP |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ (98,412) |
7
GSC Investment Corp.
Consolidated Schedule of Investments
February 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
Investment Interest |
|
Principal |
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
Company (a, c) |
|
Industry |
|
Rate/Maturity |
|
Number
of Shares |
|
|
Cost |
|
|
Fair Value |
|
|
Equity |
|
Non-control/Non-affiliated investments 141.8% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GFSI Inc (d) |
|
Apparel |
|
Senior Secured Notes 10.50%, 6/1/2011 |
|
$ |
7,082,000 |
|
|
$ |
7,082,000 |
|
|
$ |
6,616,004 |
|
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Cabinets, Inc. (d) |
|
Building Products |
|
First Lien Term Loan 5.75%, 8/18/2012 |
|
|
1,437,555 |
|
|
|
1,420,872 |
|
|
|
975,956 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Cabinets, Inc. (d) |
|
Building Products |
|
Second Lien Term Loan 9.75%, 8/18/2013 |
|
|
1,862,420 |
|
|
|
1,828,197 |
|
|
|
450,519 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Building Products |
|
|
3,299,975 |
|
|
|
3,249,069 |
|
|
|
1,426,475 |
|
|
|
2.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.75%, 12/20/2013 |
|
|
32,381 |
|
|
|
27,281 |
|
|
|
6,152 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.47%, 12/20/2013 |
|
|
77,141 |
|
|
|
64,991 |
|
|
|
14,657 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.16%, 12/20/2014 |
|
|
92,962 |
|
|
|
78,320 |
|
|
|
17,663 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.16%, 12/20/2014 |
|
|
92,962 |
|
|
|
78,320 |
|
|
|
17,663 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.16%, 12/20/2014 |
|
|
92,962 |
|
|
|
78,320 |
|
|
|
17,663 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.75%, 12/20/2013 |
|
|
121,428 |
|
|
|
102,303 |
|
|
|
23,071 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 5.75%, 12/20/2013 |
|
|
231,354 |
|
|
|
194,916 |
|
|
|
43,957 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 7.00%, 12/20/2014 |
|
|
403,388 |
|
|
|
339,854 |
|
|
|
76,644 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 7.00%, 12/20/2014 |
|
|
403,388 |
|
|
|
339,854 |
|
|
|
76,644 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lyondell Chemical Company (d) |
|
Chemicals |
|
First Lien Term Loan 7.00%, 12/20/2014 |
|
|
403,388 |
|
|
|
339,854 |
|
|
|
76,644 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chemicals |
|
|
1,951,354 |
|
|
|
1,644,013 |
|
|
|
370,758 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hopkins Manufacturing Corporation (d) |
|
Consumer Products |
|
Second Lien Term Loan 7.70%, 1/26/2012 |
|
|
3,250,000 |
|
|
|
3,246,870 |
|
|
|
2,627,950 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targus Group International, Inc. (d) |
|
Consumer Products |
|
First Lien Term Loan 4.67%, 11/22/2012 |
|
|
3,122,943 |
|
|
|
2,895,723 |
|
|
|
2,089,561 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targus Group International, Inc. (d) |
|
Consumer Products |
|
Second Lien Term Loan 9.75%, 5/22/2013 |
|
|
5,000,000 |
|
|
|
4,777,205 |
|
|
|
3,126,000 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Products |
|
|
11,372,943 |
|
|
|
10,919,798 |
|
|
|
7,843,511 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFF Acquisition LLC (d) |
|
Consumer Services |
|
First Lien Term Loan 8.57%, 7/31/2013 |
|
|
308,912 |
|
|
|
308,912 |
|
|
|
243,793 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M/C Communications, LLC (d) |
|
Education |
|
First Lien Term Loan 13.12%, 12/31/2010 |
|
|
1,697,164 |
|
|
|
1,590,350 |
|
|
|
674,283 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Lighting Technologies, Inc. (d) |
|
Electronics |
|
Second Lien Term Loan 8.53%, 6/1/2014 |
|
|
2,000,000 |
|
|
|
1,771,457 |
|
|
|
1,503,200 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Dekko (d) |
|
Electronics |
|
Second Lien Term Loan 6.45%, 1/20/2012 |
|
|
6,670,000 |
|
|
|
6,670,000 |
|
|
|
5,321,326 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPC Systems, Inc. (d) |
|
Electronics |
|
First Lien Term Loan 3.71%, 3/31/2014 |
|
|
46,332 |
|
|
|
42,367 |
|
|
|
24,621 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Electronics |
|
|
8,716,332 |
|
|
|
8,483,824 |
|
|
|
6,849,147 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USS Mergerco, Inc. (d) |
|
Environmental |
|
Second Lien Term Loan 4.73%, 6/29/2013 |
|
|
5,960,000 |
|
|
|
5,846,833 |
|
|
|
3,592,092 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy Management Solutions, Inc. (d) |
|
Financial Services |
|
Second Lien Term Loan 6.70%, 7/31/2013 |
|
|
4,887,500 |
|
|
|
4,858,282 |
|
|
|
3,053,221 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Train, Inc. (d) |
|
Food and Beverage |
|
First Lien Term Loan 4.98%, 3/31/2012 |
|
|
2,478,660 |
|
|
|
1,671,647 |
|
|
|
1,706,557 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDI Acquisition Corp. (d) |
|
Healthcare Services |
|
Senior Secured Notes 10.75%, 12/15/2011 |
|
|
3,800,000 |
|
|
|
3,623,605 |
|
|
|
2,428,580 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRACS Institute, LTD (d) |
|
Healthcare Services |
|
Second Lien Term Loan 11.13%, 4/17/2013 |
|
|
4,093,750 |
|
|
|
4,047,419 |
|
|
|
3,581,213 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Healthcare Services |
|
|
7,893,750 |
|
|
|
7,671,024 |
|
|
|
6,009,793 |
|
|
|
8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McMillin Companies LLC (d) |
|
Homebuilding |
|
Senior Secured Notes 9.53%, 4/30/2012 |
|
|
7,700,000 |
|
|
|
7,294,643 |
|
|
|
3,489,640 |
|
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asurion Corporation (d) |
|
Insurance |
|
First Lien Term Loan 3.76%, 7/3/2014 |
|
|
2,000,000 |
|
|
|
1,704,665 |
|
|
|
1,493,400 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC (d) |
|
Logistics |
|
First Lien Term Loan 6.95%, 6/30/2013 |
|
|
2,820,779 |
|
|
|
2,815,612 |
|
|
|
2,133,637 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (d) |
|
Manufacturing |
|
Unsecured Notes 13.00%, 11/1/2010 |
|
|
12,000,000 |
|
|
|
12,000,000 |
|
|
|
8,652,000 |
|
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (d) |
|
Manufacturing |
|
Unsecured Notes 13.00%, 11/1/2010 |
|
|
1,700,000 |
|
|
|
1,700,000 |
|
|
|
1,225,700 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialized Technology Resources, Inc. (d) |
|
Manufacturing |
|
Second Lien Term Loan 7.48%, 12/15/2014 |
|
|
5,000,000 |
|
|
|
4,769,304 |
|
|
|
4,602,000 |
|
|
|
6.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufacturing |
|
|
18,700,000 |
|
|
|
18,469,304 |
|
|
|
14,479,700 |
|
|
|
21.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
Investment Interest |
|
Principal |
|
|
|
|
|
|
|
|
Stockholders |
|
Company (a, c) |
|
Industry |
|
Rate/Maturity |
|
Number
of Shares |
|
|
Cost |
|
Fair Value |
|
|
Equity |
|
Blaze Recycling & Metals, LLC (d) |
|
Metals |
|
Senior Secured Notes 10.88%, 7/15/2012 |
|
$ |
2,500,000 |
|
$ |
2,494,342 |
|
$ |
1,850,500 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC (d) |
|
Metals |
|
Senior Secured Notes 13.00%, 3/1/2013 |
|
|
5,000,000 |
|
|
4,853,894 |
|
|
3,753,000 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC |
|
Metals |
|
Warrants |
|
|
|
|
|
|
|
|
89,610 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Metals |
|
|
7,500,000 |
|
|
7,348,236 |
|
|
5,693,110 |
|
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abitibi-Consolidated Company of Canada (d, e)
|
|
Natural Resources |
|
First Lien Term Loan 11.50%, 3/30/2009 |
2,948,640 |
|
|
2,940,073 |
|
|
2,081,740 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant U.S. Holdings LLP (d, e) |
|
Natural Resources |
|
Second Lien Term Loan 9.81%, 9/20/2013 |
|
|
6,139,928 |
|
|
6,139,764 |
|
|
2,388,432 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Natural Resources |
|
|
9,088,568 |
|
|
9,079,837 |
|
|
4,470,172 |
|
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edgen Murray II, L.P. (d) |
|
Oil and Gas |
|
Second Lien Term Loan 7.24%, 5/11/2015 |
|
|
3,000,000 |
|
|
2,815,938 |
|
|
2,072,700 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Alloys, LLC (d) |
|
Oil and Gas |
|
Second Lien Term Loan 11.75%, 10/5/2012 |
|
|
6,200,000 |
|
|
6,200,000 |
|
|
5,286,740 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas |
|
|
9,200,000 |
|
|
9,015,938 |
|
|
7,359,440 |
|
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stronghaven, Inc. (d) |
|
Packaging |
|
Second Lien Term Loan 13.00%,
10/31/2010 |
|
|
2,500,000 |
|
|
2,500,000 |
|
|
2,375,500 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 12.50%, 6/15/2009 |
|
|
4,850,000 |
|
|
4,846,976 |
|
|
3,575,420 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 12.50%, 6/15/2009 |
|
|
5,087,250 |
|
|
5,084,820 |
|
|
3,750,321 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (d, e) |
|
Packaging |
|
Senior Secured Notes 12.02%, 6/15/2009 |
|
|
500,000 |
|
|
499,670 |
|
|
368,600 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Packaging |
|
|
12,937,250 |
|
|
12,931,466 |
|
|
10,069,841 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom Direct, Inc. (d) |
|
Printing |
|
First Lien Term Loan 4.21%, 12/31/2013 |
|
|
2,049,694 |
|
|
1,618,148 |
|
|
1,638,526 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanstar Communications Inc. (d) |
|
Publishing |
|
First Lien Term Loan 3.71%, 5/31/2014 |
|
|
1,970,000 |
|
|
1,553,133 |
|
|
807,700 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 3.01%, 6/24/2009 |
|
|
476,261 |
|
|
468,285 |
|
|
418,872 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 2.98%, 6/24/2009 |
|
|
511,811 |
|
|
503,239 |
|
|
450,137 |
|
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Publishing Company (d) |
|
Publishing |
|
Second Lien Term Loan 8.76%, 9/19/2014 |
|
|
1,203,226 |
|
|
1,198,390 |
|
|
288,774 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Communications, Inc. (d) |
|
Publishing |
|
Unsecured Notes 10.75%, 12/1/2013 |
|
|
5,000,000 |
|
|
5,082,100 |
|
|
2,503,000 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penton Media, Inc. (d) |
|
Publishing |
|
First Lien Term Loan 3.35%, 2/1/2013 |
|
|
4,897,651 |
|
|
3,723,761 |
|
|
2,008,037 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Publishing |
|
|
14,058,949 |
|
|
12,528,908 |
|
|
6,476,520 |
|
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GXS Worldwide, Inc. (d) |
|
Software |
|
Second Lien Term Loan 8.63%, 9/30/2013 |
|
|
1,000,000 |
|
|
887,940 |
|
|
773,299 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Non-control/Non-affiliated investments |
|
|
|
|
|
137,020,449 |
|
|
96,462,919 |
|
|
|
141.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments 33.0% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (h) |
|
Financial Services |
|
100% General Partnership interest |
|
|
|
|
|
|
|
|
98,412 |
|
|
|
0.1 |
% |
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
Investment Interest |
|
Principal |
|
|
|
|
|
|
|
|
Stockholders |
|
Company (a, c) |
|
Industry |
|
Rate/Maturity |
|
Number
of Shares |
|
Cost |
|
Fair Value |
|
|
Equity |
|
GSC Investment Corp. CLO 2007 LTD. (f, h) |
|
Structured Finance Securities |
|
Other/Structured Finance Securities
12.15%, 1/21/2020 |
|
$ |
30,000,000 |
|
$ |
29,905,194 |
|
$ |
22,340,617 |
|
|
|
32.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Control investments |
|
|
|
|
|
|
|
|
|
29,905,194 |
|
|
22,439,029 |
|
|
|
33.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate investments 0.0% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (g) |
|
Financial Services |
|
6.24% Limited Partnership Interest |
|
|
|
|
|
|
|
|
10,527 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Affiliate investments |
|
|
|
|
|
|
|
|
|
|
|
|
10,527 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT ASSETS 174.8% (b) |
|
|
|
|
|
|
$ |
166,925,643 |
|
$ |
118,912,475 |
|
|
|
174.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
|
Outstanding interest rate cap |
|
Interest rate |
|
|
Maturity |
|
|
Notional |
|
|
Cost |
|
|
Fair Value |
|
|
Equity |
|
Interest rate cap |
|
|
8.0 |
% |
|
|
2/9/2014 |
|
|
$ |
40,000,000 |
|
|
$ |
87,000 |
|
|
$ |
27,682 |
|
|
|
0.0 |
% |
Interest rate cap |
|
|
8.0 |
% |
|
|
11/30/2013 |
|
|
|
26,433,408 |
|
|
|
44,000 |
|
|
|
11,831 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Outstanding interest
rate cap |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
131,000 |
|
|
$ |
39,513 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All of the Funds equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Abitibi-Consolidated
Company of Canada, Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007, Terphane Holdings Corp., and GSC Partners CDO GP III, LP. |
|
(b) |
|
Percentages are based on net assets of $68,013,777 as of February 28, 2009. |
|
(c) |
|
Fair valued investment (see Note 4 to the consolidated financial statements). |
|
(d) |
|
All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements). |
|
(e) |
|
Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada. |
|
(f) |
|
12.15% represents the modeled effective interest rate that is expected to be earned over the life of the investment. |
|
(g) |
|
As defined in the Investment Company Act, we are an Affiliate of this portfolio company because we own 5% or more of the portfolio companys outstanding voting
securities. Transactions during the period in which the issuer was an Affiliate are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Management |
|
Net Realized |
|
Net unrealized |
Company |
|
Purchases |
|
Redemptions |
|
Sales (cost) |
|
Income |
|
fee income |
|
gains/(losses) |
|
gains/(losses) |
GSC Partners CDO GP III, LP
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
(5,706 |
) |
|
|
|
(h) |
|
As defined in the Investment Company Act, we are an Affiliate of this portfolio
company because we own 5% or more of the portfolio companys outstanding voting securities. In
addition, as defined in the Investment Company Act, we Control this portfolio company because we
own more than 25% of the portfolio companys outstanding voting securities. Transactions during the
period in which the issuer was both an Affiliate and a portfolio company that we Control are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Management |
|
Net Realized |
|
Net unrealized |
|
Company |
|
Purchases |
|
Redemptions |
|
Sales (cost) |
|
Income |
|
fee income |
|
gains/(losses) |
|
gains/(losses) |
|
GSC Investment Corp. CLO
2007 LTD.
|
|
$
|
|
$
|
|
$
|
|
$4,393,818 |
|
|
$2,049,717 |
|
|
$
|
|
$ |
(6,479,722) |
|
GSC Partners CDO GP III, LP
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(61,741) |
|
10
GSC Investment Corp.
Consolidated Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
For the nine months ended |
|
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
OPERATIONS: |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
4,512,838 |
|
|
$ |
10,537,985 |
|
Net realized loss from investments |
|
|
(1,579,812 |
) |
|
|
(7,423,694 |
) |
Net realized gain from
derivatives |
|
|
|
|
|
|
30,454 |
|
Net unrealized depreciation on investments |
|
|
(4,562,979 |
) |
|
|
(10,422,015 |
) |
Net unrealized appreciation/(depreciation) on derivatives |
|
|
33,080 |
|
|
|
(29,745 |
) |
|
|
|
|
|
|
|
Net decrease in net assets from operations |
|
|
(1,596,873 |
) |
|
|
(7,307,015 |
) |
|
|
|
|
|
|
|
SHAREHOLDER DISTRIBUTIONS: |
|
|
|
|
|
|
|
|
Distributions declared |
|
|
(2,073,065 |
) |
|
|
(6,467,280 |
) |
|
|
|
|
|
|
|
Net decrease in net assets from shareholder distributions |
|
|
(2,073,065 |
) |
|
|
(6,467,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total decrease in net assets |
|
|
(3,669,938 |
) |
|
|
(13,774,295 |
) |
Net assets at beginning of period |
|
|
68,013,777 |
|
|
|
97,869,040 |
|
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
64,343,839 |
|
|
$ |
84,094,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per common share |
|
$ |
3.80 |
|
|
$ |
10.14 |
|
Common shares outstanding at end of period |
|
|
16,940,109 |
|
|
|
8,291,384 |
|
See accompanying notes to consolidated financial statements.
11
GSC Investment Corp.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
For the nine months ended |
|
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Operating activities |
|
|
|
|
|
|
|
|
NET DECREASE IN NET ASSETS FROM OPERATIONS |
|
$ |
(1,596,873 |
) |
|
$ |
(7,307,015 |
) |
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Paid-in-kind interest income |
|
|
(701,348 |
) |
|
|
(623,724 |
) |
Net accretion of discount on investments |
|
|
(747,058 |
) |
|
|
(1,012,971 |
) |
Amortization of deferred credit facility financing costs |
|
|
633,349 |
|
|
|
132,858 |
|
Net realized loss from investments |
|
|
1,579,812 |
|
|
|
7,423,694 |
|
Net unrealized depreciation on investments |
|
|
4,562,979 |
|
|
|
10,422,015 |
|
Unrealized (appreciation) depreciation on derivatives |
|
|
(33,080 |
) |
|
|
29,745 |
|
Proceeds from sale and redemption of investments |
|
|
10,948,348 |
|
|
|
48,713,273 |
|
Purchase of investments |
|
|
|
|
|
|
(28,259,995 |
) |
(Increase) decrease in operating assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents, securitization accounts |
|
|
338,911 |
|
|
|
7,255,273 |
|
Interest receivable |
|
|
(35,096 |
) |
|
|
(876,033 |
) |
Due from manager |
|
|
|
|
|
|
940,903 |
|
Management fee receivable |
|
|
(821,491 |
) |
|
|
(20,535 |
) |
Other assets |
|
|
208,110 |
|
|
|
(165,392 |
) |
Receivable from unsettled trades |
|
|
(600,036 |
) |
|
|
(1,600,000 |
) |
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Payable for unsettled trades |
|
|
|
|
|
|
(11,329,150 |
) |
Management and incentive fees payable |
|
|
212,733 |
|
|
|
1,556,508 |
|
Accounts payable and accrued expenses |
|
|
127,170 |
|
|
|
131,012 |
|
Interest and credit facility fees payable |
|
|
284,630 |
|
|
|
(71,800 |
) |
Due to manager |
|
|
|
|
|
|
(11,048 |
) |
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
14,361,060 |
|
|
|
25,327,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Borrowings on debt |
|
|
|
|
|
|
7,800,000 |
|
Paydowns on debt |
|
|
(15,153,923 |
) |
|
|
(20,000,000 |
) |
Credit facility financing cost |
|
|
(103,582 |
) |
|
|
|
|
Payments of cash dividends |
|
|
|
|
|
|
(9,700,920 |
) |
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES |
|
|
(15,257,505 |
) |
|
|
(21,900,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(896,445 |
) |
|
|
3,426,698 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
6,356,225 |
|
|
|
1,072,641 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
5,459,780 |
|
|
$ |
4,499,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
2,256,624 |
|
|
$ |
2,089,581 |
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash information |
|
|
|
|
|
|
|
|
Paid-in-kind interest income |
|
$ |
701,348 |
|
|
$ |
623,724 |
|
Net accretion of discount on investments |
|
$ |
747,058 |
|
|
$ |
1,012,971 |
|
Amortization of deferred credit facility financing costs |
|
$ |
633,349 |
|
|
$ |
132,858 |
|
See accompanying notes to consolidated financial statements.
12
GSC INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2009
(unaudited)
Note 1. Organization and Basis of Presentation
GSC Investment Corp. (the Company, we and us) is a non-diversified closed-end management
investment company incorporated in Maryland that has elected to be treated and is regulated as a
business development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). We
commenced operations on March 23, 2007 and completed our initial public offering (IPO) on March
28, 2007. We have elected to be treated as a regulated investment company (RIC) under subchapter
M of the Internal Revenue Code (the Code). We expect to continue to qualify and to elect to be
treated for tax purposes as a RIC. Our investment objectives are to generate both current income
and capital appreciation through debt and equity investments by primarily investing in private
middle market companies and select high yield bonds.
GSC Investment, LLC (the LLC) was organized in May 2006 as a Maryland limited liability company.
On March 21, 2007, the Company was incorporated and concurrently, the LLC was merged with and into
the Company in accordance with the procedure for such merger in the LLCs limited liability company
agreement and Maryland law. In connection with such merger, each outstanding common share of the
LLC was converted into an equivalent number of shares of common stock of the Company and the
Company is the surviving entity.
We are externally managed and advised by our investment adviser, GSCP (NJ), L.P. (individually and
collectively with its affiliates, GSC Group or the Manager), pursuant to an investment advisory
and management agreement.
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 accounts of the Company and its special purpose financing subsidiaries, GSC Investment Funding,
LLC and GSC Investment Funding II, LLC. The consolidated financial statements reflect all
adjustments and reclassifications which, in the opinion of management, are necessary for the fair
presentation of the results of the operations and financial condition for the periods presented.
All intercompany accounts and transactions have been eliminated in consolidation. All references
made to the Company, we, and us in the financial statements encompass these consolidated
subsidiaries, except as stated otherwise.
Note 2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of the accompanying consolidated financial statements 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, and disclosure of contingent assets and
liabilities at the date of the financial statements, and income, gains (losses) and expenses during
the period reported. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and
cash equivalents are carried at cost which approximates fair value.
13
Cash and cash equivalents, Securitization Accounts
Cash and cash equivalents, securitization accounts include amounts held in designated bank accounts
in the form of cash and short-term liquid investments in money market funds representing payments
received on securitized investments or other reserved amounts associated with the Companys
securitization facilities. The Company is required to use a portion of these amounts to pay
interest expense, reduce borrowings, or pay other amounts in accordance with the related
securitization agreements. Cash held in such accounts may not be available for the general use of
the Company.
Risk Management
In the ordinary course of its business, the Company manages a variety of risks, including market
risk and credit risk. Market risk is the risk of potential adverse changes to the value of
investments because of changes in market conditions such as interest rate movements and volatility
in investment prices.
Credit risk is the risk of default or non-performance by portfolio companies equivalent to the
investments carrying amount.
The Company is also exposed to credit risk related to maintaining all of its cash and cash
equivalents including those in securitization accounts at a major financial institution and credit
risk related to the derivative counterparty.
The Company has investments in lower rated and comparable quality unrated high yield bonds and bank
loans. Investments in high yield investments are accompanied by a greater degree of credit risk.
The risk of loss due to default by the issuer is significantly greater for holders of high yield
securities, because such investments are generally unsecured and are often subordinated to other
creditors of the issuer.
Investment Classification
The Company classifies its investments in accordance with the requirements of the 1940 Act. Under
the 1940 Act, Control Investments are defined as investments in companies in which we own more
than 25% of the voting securities or maintain greater than 50% of the board representation. Under
the 1940 Act, Affiliated Investments are defined as those non-control investments in companies in
which we own between 5% and 25% of the voting securities. Under the 1940 Act, Non-affiliated
Investments are defined as investments that are neither Control Investments or Affiliated
Investments.
Investment Valuation
The fair value of the Companys assets and liabilities which qualify as financial instruments under
Accounting Standards Codification (ASC) 825 (previously Statement of Financial Accounting
Standards No. 107, Disclosure About Fair Value of Financial Instruments), approximates the
carrying amounts presented in the consolidated balance sheets.
Investments for which market quotations are readily available are fair valued at such market
quotations obtained from independent third party pricing services and market makers subject to any
decision by our board of directors to make a fair value determination to reflect significant events
or conditions affecting the value of these investments. We value investments for which market
quotations are not readily available as stated above at fair value as determined in good faith by
our board of directors based on input from our Manager, our audit committee and, if our board or
audit committee so request, a third party independent valuation firm. Determinations of fair value
may involve subjective judgments and estimates. The types of factors that may be considered in a
fair value pricing include the nature and realizable value of any collateral, the portfolio
companys ability to make payments, market yield trend analysis, the markets in which the portfolio
company does business, comparison to publicly traded companies, discounted cash flow and other
relevant factors.
We undertake a multi-step valuation process each quarter when valuing investments for which market
quotations are not readily available, as described below:
|
|
|
Each investment is initially valued by the responsible investment professionals and
preliminary valuation conclusions are documented and discussed with our senior management;
and
|
14
|
|
|
An independent valuation firm engaged by our board of directors reviews at least one
quarter of these preliminary valuations each quarter so that the valuation of each
investment for which market quotes are not readily available is reviewed by the independent
valuation firm at least annually. |
In addition, all our investments are subject to the following valuation process.
|
|
|
The audit committee of our board of directors reviews each preliminary valuation and our
investment adviser and independent valuation firm (if applicable) will supplement the
preliminary valuation to reflect any comments provided by the audit committee; and |
|
|
|
|
Our board of directors discuss the valuations and determine the fair value of each
investment in good faith based on the input of our investment adviser, independent valuation
firm (if applicable) and audit committee. |
Our equity investment in GSC Investment Corp. CLO 2007, Ltd. (GSCIC CLO) is carried at fair
value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and
loss assumptions based on historical experience and projected performance, economic factors, the
characteristics of the underlying cash flow, and comparable yields for similar CLO equity, when
available, as determined by our investment advisor and recommended to our board of directors.
Because these valuations, and particularly valuations of private investments and private companies,
are inherently uncertain, they may fluctuate over short periods of time and may be based on
estimates. The determination of fair value by our board of directors may differ materially from the
values that would have been used if a ready market for these investments existed and such
differences could be material.
Our net asset value could be materially affected if the determinations regarding the fair value of
our investments were materially higher or lower than the values that we may ultimately realize upon
the disposal of such investments.
We account for derivative financial instruments in accordance with ASC 815 (previously, Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities). ASC 815 requires recognizing all derivative instruments as either assets or
liabilities on the consolidated balance sheets at fair value. The Company values derivative
contracts at the closing fair value provided by the counterparty. Changes in the values of
derivative contracts are included in the consolidated statement of operations.
Income Recognition
Purchases and sales of investments and the related realized gains or losses are recorded on a
trade-date basis. Interest income, adjusted for amortization of premium and accretion of discount,
is recorded on an accrual basis to the extent that such amounts are expected to be collected. The
Company stops accruing interest on its investments when it is determined that interest is no longer
collectible. If any cash is received after it is determined that interest is no longer collectible,
we will treat the cash as payment on the principal balance until the entire principal balance has
been repaid, before any interest income is recognized. Discounts and premiums on investments
purchased are accreted/amortized over the life of the respective investment using the effective
yield method. The amortized cost of investments represents the original cost adjusted for the
accretion of discounts and amortizations of premium on investments.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or
interest will be collected. A reserve for accrued interest is generally made when a loan is placed
on non-accrual status. However, the Company may also establish a reserve against accrued interest
on currently performing loans if there is doubt regarding future collectability. For the nine
months ended November 30, 2009, the Company established a reserve against accrued interest of $1.9
million. Interest payments received on non-accrual loans may be recognized as principal depending
upon managements judgment regarding collectability. Non-accrual loans are restored to accrual
status when past due principal and interest is paid and, in managements judgment, are likely to
remain current. The Company may make exceptions to this if the loan has sufficient collateral value
and is in the process of collection.
Interest income on our investment in GSCIC CLO is recorded using the effective interest method in
accordance with the provision of ASC 325 (previously, EITF 99-20), based on the anticipated yield
and the estimated cash flows over the projected life of the investment. Yields are revised when
there are changes in actual or estimated cash flows due to changes in prepayments and/or re-
15
investments, credit losses or asset pricing. Changes in estimated yield are recognized as an
adjustment to the estimated yield over the remaining life of the investment from the date the
estimated yield was changed.
Paid-in-Kind Interest
The Company includes in income certain amounts that it has not yet received in cash, such as
contractual paid-in-kind interest (PIK), which represents contractually deferred interest added
to the principal balance that is generally due at maturity. We stop accruing PIK if we do not
expect the issuer to be able to pay all principal and interest when due.
Deferred Credit Facility Financing Costs
Financing costs incurred in connection with each respective credit facility have been deferred and
are being amortized using the straight line method over the life of each respective facility. For
the nine months ended November 30, 2009, the Company amortized $0.6 million of deferred financing
costs of which $0.5 million related to the write off of all remaining deferred credit facility
financing costs due to the default of Companys revolving credit facility.
Indemnifications
In the ordinary course of its business, the Company may enter into contracts or agreements that
contain indemnifications or warranties. Future events could occur that lead to the execution of
these provisions against the Company. Based on its history and experience, management feels that
the likelihood of such an event is remote.
Income Taxes
The Company has filed an election to be treated for tax purposes as a RIC under Subchapter M of the
Code and, among other things, intends to make the requisite distributions to its stockholders which
will relieve the Company from federal income taxes. Therefore, no provision has been recorded for
federal income taxes.
In order to qualify as a RIC, among other requirements, the Company is required to timely
distribute to its stockholders at least 90% of its investment company taxable income, as defined by
the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal
excise tax of 4% on undistributed income if we do not distribute at least 98% of our investment
company taxable income in any calendar year and 98% of our capital gain net income for each
one-year period ending on October 31.
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 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, the Company accrues excise tax, if any, on estimated excess taxable income as
taxable income is earned.
The Company accounts for income taxes in accordance with the provisions of ASC 740, including
accounting for uncertain tax positions (previously, FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109). ASC 740 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements and
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC
740 also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition.
Dividends
Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as
a dividend is determined by the board of directors. Net realized capital gains, if any, are
generally distributed at least annually, although we may decide to retain such capital gains for
reinvestment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of our dividend
distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a
result, if our board of directors authorizes, and we declare, a cash dividend, then our
stockholders who have not opted out of our dividend reinvestment plan will have their cash
dividends
16
automatically reinvested in additional shares of our common stock, rather than receiving the cash
dividends. If the Companys common stock is trading below net asset value at the time of valuation,
the plan administrator will receive the dividend or distribution in cash and will purchase common
stock in the open market, on the New York Stock Exchange or elsewhere, for the account of each
Participant.
New Accounting Pronouncements
In May 2009, the FASB issued ASC 855 (previously Statement of Financial Accounting Standards
(SFAS) No. 165, Subsequent Events), which addresses accounting and disclosure requirements
related to subsequent events. ASC 855 requires management to evaluate subsequent events through the
date the financial statements are either issued or available to be issued, depending on the
Companys expectation of whether it will widely distribute its financial statements to its
shareholders and other financial statement users. Companies are required to disclose the date
through which subsequent events have been evaluated. ASC 855 is effective for interim or annual
financial periods ending after June 15, 2009 and should be applied prospectively. The adoption of
ASC 855 did not have a material effect on our financial condition or results of operations.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140, (SFAS No. 166) which amends the derecognition guidance in
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, eliminates the concept of a qualifying special-purpose entity (QSPE) and requires
more information about transfers of financial assets, including securitization transactions as well
as a companys continuing exposure to the risks related to transferred financial assets. SFAS No.
166 has not yet been codified and in accordance with ASC 105, remains authoritative guidance until
such time that it is integrated in the FASB ASC. SFAS No. 166 is effective for financial asset
transfers occurring after the beginning of an entitys first fiscal year that begins after November
15, 2009 and early adoption is prohibited. The Company is currently evaluating the impact on our
interim consolidated financial statements of adopting SFAS No. 166.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46) (SFAS No.
167), which amends the
consolidation guidance applicable to variable interest entities. The amendments will significantly
affect the overall consolidation analysis under FASB Interpretation No. 46(R), Consolidation of
Variable Interest Entitiesan interpretation of ARB No. 51, which is codified in FASB ASC 810,
Consolidation (ASC 810), and change the way entities account for securitizations and special
purpose entities as a result of the elimination of the QSPE concept in SFAS No. 166. SFAS No. 167
does not amend the ASC 810 exception that investments accounted for at fair value in accordance
with the specialized accounting guidance in the AICPA Audit And Accounting Guide, Investment
Companies, codified in FASB ASC 946, Financial Services Investment Companies (ASC 946), are
not subject to the requirements of ASC 810. SFAS No. 167 has not yet been codified and in
accordance with ASC 105, remains authoritative guidance until such time that it is integrated in
the FASB ASC. SFAS No. 167 is effective as of the beginning of the first fiscal year that begins
after November 15, 2009 and early adoption is prohibited. The Company is currently evaluating the
impact on our interim consolidated financial statements of adopting SFAS No. 167.
In June 2009, the FASB issued ASC 105, (previously SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB
Statement No. 162) ASC 105 establishes the Codification as the source of authoritative GAAP in the
United States (the GAAP hierarchy) to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. Once the Codification is in effect, all of its content will
carry the same level of authority and the GAAP hierarchy will be modified to include only two
levels of GAAP, authoritative and non-authoritative. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. This adoption by the Company
has changed the Companys references to U.S. GAAP accounting standards but did not impact any of
the Companys significant accounting policies or its results of operations or financial position.
Note 3. Going Concern
As of November 30, 2009, the Company remained in default on its Revolving Facility (see Note
7) and as a result of the default, our lender has the right to accelerate repayment of the
outstanding indebtedness and to foreclose and liquidate the collateral pledged thereunder.
Acceleration of the outstanding indebtedness and/or liquidation of the collateral would have a
material adverse effect on our liquidity, financial condition and operations. The deleveraging of
the Company may significantly impair the Companys ability to effectively operate. There is no
assurance that we will have sufficient funds available to pay in full the total amount of
obligations that
17
would become due as a result of such acceleration or that we will be able to obtain additional or
alternative financing to pay or refinance any such accelerated obligations.
However, we continue to believe that we will have adequate liquidity to continue to fund our
operations and the interest payments on our outstanding debt, including any default interest. We
continue to have discussions with our lender regarding resolutions of the default. The Company is
also working with the investment banking firm Stifel, Nicolaus & Company, which it retained to
evaluate strategic transaction opportunities and consider alternatives. We are focused on resolving
the default and continuing to exist as a going concern.
A fundamental principle of the preparation of financial statements in accordance with GAAP is the
assumption that an entity will continue in existence as a going concern, which contemplates
continuity of operations and the realization of assets and settlement of liabilities occurring in
the ordinary course of business. This principle is applicable to all entities except for entities
in liquidation or entities for which liquidation appears imminent. In accordance with this
requirement, our policy is to prepare our consolidated financial statements on a going concern
basis unless we intend to liquidate or have no other alternative but to liquidate. Our interim
consolidated financial statements have been prepared on a going concern basis and do not reflect
any adjustments that might specifically result from the outcome of this uncertainty or our debt
restructuring activities.
Note 4. Investments
The Company values all investments in accordance with ASC 820 Fair Value Measurements and
Disclosures (ASC 820) (previously, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements). ASC 820 requires enhanced disclosures about investments that are measured and
reported at fair value. As defined in ASC 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC 820 establishes a hierarchal disclosure framework which prioritizes
and ranks the level of market price observability of inputs used in measuring investments at fair
value. Market price observability is affected by a number of factors, including the type of
investment and the characteristics specific to the investment. Investments with readily available
active quoted prices or for which fair value can be measured from actively quoted prices generally
will have a higher degree of market price observability and a lesser degree of judgment used in
measuring fair value.
Based on the observability of the inputs used in the valuation techniques the Company is required
to provide the fair value information according to the fair value hierarchy. The fair value
hierarchy ranks the quality and reliability of the inputs used to determine fair values.
Investments carried at fair value are classified and disclosed in one of the following three
categories:
|
|
|
Level 1 Valuations based on quoted prices in active markets for identical assets or
liabilities that the Company has the ability to access. |
|
|
|
|
Level 2 Valuations based on inputs other than quoted prices in active markets, which
are either directly or indirectly observable. |
|
|
|
|
Level 3 Valuations based on inputs that are unobservable and significant to the overall
fair value measurement. The inputs into the determination of fair value may require
significant management judgment or estimation. Even if observable-market data is 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
disclaimer would result in classification as Level III information, assuming no additional
corroborating evidence. |
In addition to using the above inputs in investment valuations, we continue to employ the valuation
policy approved by our 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.
18
The following table presents fair value measurements of investments as of November 30, 2009
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Non-control/non-affiliate |
|
$ |
|
|
|
$ |
|
|
|
$ |
81,805 |
|
|
$ |
81,805 |
|
Control investments |
|
|
|
|
|
|
|
|
|
|
21,464 |
|
|
|
21,464 |
|
Affiliate investments |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
103,270 |
|
|
$ |
103,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents fair value measurements of investments as of February 28, 2009
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Non-control/non-affiliate |
|
$ |
|
|
|
$ |
|
|
|
$ |
96,463 |
|
|
$ |
96,463 |
|
Control investments |
|
|
|
|
|
|
|
|
|
|
22,439 |
|
|
|
22,439 |
|
Affiliate investments |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
118,912 |
|
|
$ |
118,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation of the beginning and ending balances for investments
that use Level 3 inputs for the nine months ended November 30, 2009 (dollars in thousands):
|
|
|
|
|
|
|
Level 3 |
|
Balance as of February 28, 2009 |
|
$ |
118,912 |
|
Net unrealized losses |
|
|
(4,563 |
) |
Purchases and other adjustments to cost |
|
|
1,449 |
|
Sales and redemptions |
|
|
(10,948 |
) |
Net realized loss from investments |
|
|
(1,580 |
) |
Net transfers in and/or out |
|
|
|
|
|
|
|
|
Balance as of November 30, 2009 |
|
$ |
103,270 |
|
|
|
|
|
The change in unrealized depreciation on securities still held at November 30, 2009
was $8.4 million, which is included in the related net change in unrealized
appreciation/depreciation on the Consolidated Statement of Operations.
Purchases and other adjustments to cost include purchases of new investments at cost, effects of
refinancing/restructuring, accretion of discount, and amortization of premium on debt securities,
and PIK.
Sales and redemptions represent net proceeds received.
Net transfers in and/or out represent existing investments that were either previously categorized
as another level and the inputs to the model became unobservable or investments that were
previously classified as level 3 and such input became observable during the period. Transfers
to/from level 3 are shown at their end of period fair values.
The composition of our investments as of November 30, 2009, at amortized cost and fair value were
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Investments at |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Total Portfolio |
|
First lien term loans |
|
$ |
18,931 |
|
|
$ |
15,922 |
|
|
|
15.4 |
% |
Second lien term loans |
|
|
55,506 |
|
|
|
30,084 |
|
|
|
29.1 |
|
Senior secured notes |
|
|
33,373 |
|
|
|
28,431 |
|
|
|
27.5 |
|
Unsecured notes |
|
|
18,773 |
|
|
|
7,309 |
|
|
|
7.1 |
|
Structured finance securities |
|
|
29,233 |
|
|
|
21,464 |
|
|
|
20.8 |
|
Equity/limited partnership interest |
|
|
30 |
|
|
|
60 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
155,846 |
|
|
$ |
103,270 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
19
The composition of our investments as of February 28, 2009, at amortized cost and fair value were
as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Investments at |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Total Portfolio |
|
First lien term loans |
|
$ |
24,901 |
|
|
$ |
17,117 |
|
|
|
14.4 |
% |
Second lien term loans |
|
|
57,558 |
|
|
|
41,043 |
|
|
|
34.5 |
|
Senior secured notes |
|
|
35,780 |
|
|
|
25,832 |
|
|
|
21.7 |
|
Unsecured notes |
|
|
18,782 |
|
|
|
12,381 |
|
|
|
10.4 |
|
Structured finance securities |
|
|
29,905 |
|
|
|
22,341 |
|
|
|
18.8 |
|
Equity/limited partnership interest |
|
|
|
|
|
|
198 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
166,926 |
|
|
$ |
118,912 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Note 5. Investment in GSC Investment Corp. CLO 2007, Ltd.
On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of GSC
Investment Corp. CLO 2007, Ltd., (the GSCIC CLO), a $400 million CLO managed by us that invests
primarily in senior secured loans. Additionally, we entered into a collateral management agreement
with GSCIC CLO pursuant to which we will act as collateral manager to it. In return for our
collateral management services, we are entitled to a senior collateral management fee of 0.10% and
a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC CLOs
assets, to be paid quarterly to the extent of available proceeds. We are also entitled to an
incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO subordinated
notes receive an internal rate of return equal to or greater than 12%. For the three and nine
months ended November 30, 2009, we accrued $0.5 and $1.5 million in management fees and $0.4 and
$1.7 million in interest income, respectively. For the three and nine months ended November 30,
2008, we accrued $0.5 and $1.5 million in management fees and $1.5 and $3.2 million in interest
income, respectively. We did not earn any amounts related to the incentive management fee as the
12% hurdle rate has not yet been achieved.
Note 6. Agreements
On March 21, 2007, the Company entered into an investment advisory and management agreement (the
Management Agreement) with GSC Group. The initial term of the Management Agreement is two years,
with automatic, one-year renewals at the end of each year subject to certain approvals by our board
of directors and/or our stockholders. Pursuant to the Management Agreement, our investment adviser
implements our business strategy on a day-to-day basis and performs certain services for us,
subject to oversight by our board of directors. Our investment adviser is responsible for, among
other duties, determining investment criteria, sourcing, analyzing and executing investments
transactions, asset sales, financings and performing asset management duties. Under the Management
Agreement, we have agreed to pay our investment adviser a management fee for investment advisory
and management services consisting of a base management fee and an incentive fee.
The base management fee of 1.75% is calculated based on the average value of our total assets
(other than cash or cash equivalents but including assets purchased with borrowed funds) at the end
of the two most recently completed fiscal quarters, and appropriately adjusted for any share
issuances or repurchases during the applicable fiscal quarter.
The incentive fee consists of the following two parts:
The first, payable quarterly in arrears, equals 20% of our pre-incentive fee net investment income
(not including excise taxes), expressed as a rate of return on the value of the net assets at the
end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle
rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter,
our investment adviser receives no incentive fee unless our pre-incentive fee net investment
income, as defined above, exceeds the hurdle rate of 1.875%. Amounts received as a return of
capital are not included in calculating this portion of the incentive fee. Since the hurdle rate is
based on net assets, a return of less than the hurdle rate on total assets may still result in an
incentive fee.
20
The second, payable at the end of each fiscal year equals 20% of our net realized capital gains, if
any, computed net of all realized capital losses and unrealized capital depreciation, in each case
on a cumulative basis, less the aggregate amount of such incentive fees paid to the investment
adviser through such date.
We will defer cash payment of any incentive fee otherwise earned by our investment adviser if,
during the most recent four full fiscal quarter period ending on or prior to the date such payment
is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in
net assets (defined as total assets less liabilities) (before taking into account any incentive
fees payable during that period) is less than 7.5% of our net assets at the beginning of such
period. These calculations will be appropriately pro rated for the first three fiscal quarters of
operation and adjusted for any share issuances or repurchases during the applicable period. Such
incentive fee will become payable on the next date on which such test has been satisfied for the
most recent four full fiscal quarters or upon certain terminations of the Management Agreement.
For the three and nine months ended November 30, 2009 we incurred $0.5 and $1.5 million in base
management fees, respectively. For the three months ended November 30, 2009, we incurred no
incentive management fees related to pre-incentive fee net investment income. For the nine months
ended November 30, 2009 we incurred $0.3 million in incentive fees related to pre-incentive fee net
investment income. For the three and nine months ended November 30, 2009 we incurred no incentive
management fees related to net realized capital gains. As of November 30, 2009, $0.5 million of
base management fees and $2.6 million of incentive fees were unpaid and included in management and
incentive fees payable in the accompanying consolidated balance sheet.
For the three and nine months ended November 30, 2008, we incurred $0.7 and $2.1 million in base
management fees and $0.5 and $1.3 million in incentive fees related to pre-incentive fee net
investment income. For the three and nine months ended November 30, 2008, we incurred no incentive
management fees related to net realized capital gains.
As of November 30, 2009, the end of the third quarter of fiscal year 2010, the sum of our aggregate
distributions to our stockholders and our change in net assets (defined as total assets less
liabilities) (before taking into account any incentive fees payable during that period) was less
than 7.5% of our net assets at the beginning of the third fiscal quarter of fiscal year 2009.
Accordingly, the payment of the incentive fee for the quarter ended November 30, 2009 was deferred.
The total deferred incentive fee payable at November 30, 2009 is $2.6 million.
On March 21, 2007, the Company entered into a separate administration agreement (the
Administration Agreement) with GSC Group, pursuant to which GSC Group, as our administrator, has
agreed to furnish us with the facilities and administrative services necessary to conduct our
day-to-day operations and provide managerial assistance on our behalf to those portfolio companies
to which we are required to provide such assistance. Our allocable portion is based on the
proportion that our total assets bears to the total assets or a subset of total assets administered
by our administrator.
For the three and nine months ended November 30, 2009 we incurred $0.2 and $0.5 million of
administrator expenses, respectively, pertaining to bookkeeping, record keeping and other
administrative services provided to the Company in addition to our allocable portion of rent and
other overhead related expenses. For the three and nine months ended November 30, 2008 we incurred
$0.2 and $0.8 million of administrator expenses, respectively. GSC Group has agreed not to be
reimbursed by the Company for any expenses incurred in performing its obligations under the
Administration Agreement until the Companys total assets exceeds $500 million. Additionally, the
Companys requirement to reimburse GSC Group is capped such that the amounts payable, together with
the Companys other operating expenses, will not exceed an amount equal to 1.5% per annum of the
Companys net assets attributable to the Companys common stock. Accordingly, for the three and
nine months ended November 30, 2009 we have recorded $0.2 and $0.5 million in expense waiver
reimbursement, respectively, under the Administration Agreement in the accompanying consolidated
statements of operations. For the three and nine months ended November 30, 2008 we have recorded
$0.2 and $0.8 million in expense waiver and reimbursement, respectively.
On March 23, 2007, the Manager provided the Company with a Notification of Fee Reimbursement (the
Expense Reimbursement Agreement). The Expense Reimbursement Agreement provides for the Manager to
reimburse the Company for operating expenses to the extent that our total annual operating expenses
(other than investment advisory and management fees, interest and credit facility expenses, and
organizational expense) exceed an amount equal to 1.55% of our net assets attributable to common
stock. The Manager is not entitled to recover any reimbursements under this agreement in future
periods. The term of the Expense Reimbursement Agreement is for a period of 12 months beginning
March 23, 2007 and for each twelve month period thereafter unless otherwise
21
agreed by the Manager and the Company. On April 15, 2008, the Manager and the Company agreed not to
extend the agreement for an additional twelve month period and terminated the Expense Reimbursement
Agreement as of March 23, 2008.
Note 7. Borrowings
As a BDC, we are 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.
On April 11, 2007, we formed GSC Investment Funding LLC (GSC Funding), a wholly owned
consolidated subsidiary of the Company, through which we entered into a revolving securitized
credit facility (the Revolving Facility) with Deutsche Bank AG, as administrative agent, under
which we may borrow up to $100 million. A significant percentage of our total assets have been
pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving
Facility, funds are borrowed from or through certain lenders at prevailing commercial paper rates
or, if the commercial paper market is at any time unavailable, at prevailing LIBOR rates, plus
0.70% payable monthly. As of November 30, 2009, there was $43.8 million outstanding under the
Revolving Facility. As of February 28, 2009, there was $59.0 million outstanding under the
Revolving Facility. For the three and nine months ended November 30, 2009, we recorded $1.1 and
$2.6 million of interest expense, respectively. For the nine months ended November 30, 2009, we
recorded $0.6 million of amortization of deferred financing costs related to the Revolving
Facility, and the interest rates during the quarter on the outstanding borrowings was 9.25%. For
the three and nine months ended November 30, 2008, we recorded $0.6 and $2.0 million of interest
expense and $43,964 and $132,858 of amortization of deferred financing costs related to the
Revolving Facility, respectively, and the interest rates during the quarter on the outstanding
borrowings ranged from 3.34% to 5.22%.
On May 1, 2007, we formed GSC Investment Funding II LLC (GSC Funding II), a wholly owned
consolidated subsidiary of the Company, through which we entered into a $25.7 million term
securitized credit facility (the Term Facility and, together with the Revolving Facility, the
Facilities) with Deutsche Bank AG, as administrative agent, which was fully drawn at closing. A
significant percentage of our total assets were pledged under the Term Facility to secure our
obligations thereunder. The Term Facility bears interest at prevailing commercial paper rates or,
if the commercial paper market is at any time unavailable, at prevailing LIBOR rates, plus 0.70%,
payable quarterly.
Each of the Facilities contain limitations as to how borrowed funds may be used, such as
restrictions on industry concentrations, asset size, payment frequency and status, average life,
collateral interests and investment ratings. The Facilities also include certain requirements
relating to portfolio performance, the violation of which could result in the early amortization of
the Facilities, limit further advances (in the case of the Revolving Facility) and, in some cases,
result in an event of default, allowing the lenders to accelerate repayment of amounts owed
thereunder.
On December 12, 2007, the Company consolidated its Facilities by using the proceeds of a draw under
the Revolving Facility to repay and terminate the Term Facility and transferring all assets in GSC
Funding II to GSC Funding. The Companys aggregate indebtedness and cost of funding were unchanged
as a result of this consolidation.
In March 2009, we amended the Revolving Credit Facility to increase the portion of the portfolio
that can be invested in CCC rated investments in return for an increased interest rate and
expedited amortization. As a result of these transactions, it was expected that we would have
additional cushion under our Borrowing Base (as defined below) that would allow us to better manage
our capital in times of declining asset prices and market dislocation. If we continue to be unable
to obtain new sources of financing, however, we expect our portfolio will gradually de-lever as
principal payments are received, which may negatively impact our net investment income and ability
to pay dividends.
At November 30, 2009 and February 28, 2009, we had $43.8 million and $59.0 million in borrowings
under the Revolving Facility, respectively. The actual amount that may be outstanding at any given
time (the Borrowing Base) is dependent upon the amount and quality of the collateral securing the
Revolving Facility. Our Borrowing Base was $12.1 million at November 30, 2009 versus $59.9 million
at February 28, 2009. The decline in our Borrowing Base during this period is mainly attributable
to the decline in the value of the pledged collateral and the downgrade of certain public ratings
or private credit estimates of the pledged collateral.
For purposes of determining the Borrowing Base, most assets are assigned the values set forth in
our most recent quarterly report filed with the SEC. Accordingly, the November 30, 2009 Borrowing
Base relies upon the valuations set forth in the August 31, 2009
22
quarterly report. The valuations presented in this quarterly report will not be incorporated into
the Borrowing Base until after this report is filed with the SEC.
On July 30, 2009 we exceeded the permissible borrowing limit for 30 consecutive days, resulting in
an event of default under our Revolving Facility that is continuing. As a result of this event of
default, our lender has the right to accelerate repayment of the outstanding indebtedness under and
Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration
of the outstanding indebtedness and/or liquidation of the collateral would have a material adverse
effect on our liquidity, financial condition and operations. As a result of the continuing default,
the Company may be forced to sell its investments to raise funds to repay outstanding amounts. Such
forced sales may result in values that could be less than carrying values reported in these
financial statements. The deleveraging of the Company may significantly impair the Companys
ability to effectively operate. Please see Part II, Item 1A. Risk FactorsAn event of default
under the Revolving Facility may lead to a forced liquidation of the pledged assets that may yield
less than the fair value of the assets in the quarterly report on form 10-Q for the quarterly
period ended May 31, 2009 for more information. Our lender has elected not to accelerate the
obligation to date, but has reserved the right to do so. We continue to discuss possible solutions
to the event of default with our lender.
During the continuance of an event of default, the interest rate on the Revolving Facility is
increased from the commercial paper rate plus 4.00% to the greater of the commercial paper rate and
our lenders prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market
is unavailable, the greater of the prevailing LIBOR rates and our lenders prime rate plus 6.00%
plus a default rate of 3.00%.
Note 8. Interest Rate Cap Agreements
In April and May 2007, pursuant to the requirements of the Facilities, GSC Funding and GSC Funding
II entered into interest rate cap agreements with Deutsche Bank AG with notional amounts of $34.0
million and $60.9 million at costs of $75,000, and $44,000, respectively. In May 2007 GSC Funding
increased the notional under its agreement from $34.0 million to $40.0 million for an additional
cost of $12,000. The agreements expire in February 2014 and November 2013 respectively. These
interest rate caps are treated as free-standing derivatives under ASC 815 and are presented at
their fair value on the consolidated balance sheet and changes in their fair value are included on
the consolidated statement of operations.
The agreements provide for a payment to the Company in the event LIBOR exceeds 8%, mitigating our
exposure to increases in LIBOR. With respect to calculating the payments under these agreements,
the notional amount is determined based on a pre-determined schedule set forth in the respective
agreements which provides for a reduction in the notional at specified dates until the maturity of
the agreements. As of November 30, 2009, we did not receive any such payments as the LIBOR has not
exceeded 8%. At November 30, 2009, the total notional outstanding for the interest rate caps was
$66.4 million with an aggregate fair value of $0.07 million, which is recorded in outstanding
interest cap at fair value on the Companys consolidated balance sheet. For the three and nine
months ended November 30, 2009, the Company recorded $0.02 million of unrealized depreciation and
$0.03 million of unrealized appreciation, respectively, on derivatives in the consolidated
statement of operations related to the change in the fair value of the interest rate cap
agreements.
The table below summarizes our interest rate cap agreements as of November 30, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
Instrument |
|
|
|
Type |
|
Notional |
|
|
Rate Cap |
|
|
Maturity |
|
|
Fair Value |
|
|
Interest Rate Cap |
|
|
|
Free Standing Derivative |
|
$ |
40,000 |
|
|
|
8.0 |
% |
|
Feb 2014 |
|
$ |
51 |
|
Interest Rate Cap |
|
|
|
Free Standing Derivative |
|
|
26,433 |
|
|
|
8.0 |
|
|
Nov 2013 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The table below summarizes our interest rate cap agreements as of February 28, 2009 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
Instrument |
|
|
|
Type |
|
Notional |
|
|
Rate Cap |
|
|
Maturity |
|
|
Fair Value |
|
|
Interest Rate Cap |
|
|
|
Free Standing
Derivative |
|
$ |
40,000 |
|
|
|
8.0 |
% |
|
Feb 2014 |
|
$ |
28 |
|
Interest Rate Cap |
|
|
|
Free Standing
Derivative |
|
|
26,433 |
|
|
|
8.0 |
|
|
Nov 2013 |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
40 |
|
Note 9. Directors Fees
The independent directors receive an annual fee of $40,000. They also receive $2,500 plus
reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board
meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in
connection with attending each committee meeting. In addition, the chairman of the Audit Committee
receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of
$2,000 for their additional services in these capacities. In addition, we have purchased directors
and officers liability insurance on behalf of our directors and officers. Independent directors
have the option to receive their directors fees in the form of our common stock issued at a price
per share equal to the greater of net asset value or the market price at the time of payment. No
compensation is paid to directors who are interested persons. For the three and nine months ended
November 30, 2009, we accrued $0.07 and $0.2 million for directors fees expense. As of November 30,
2009, we had not issued any common stock to our directors as compensation for their services.
Note 10. Stockholders Equity
On May 16, 2006, GSC Group capitalized the LLC, by contributing $1,000 in exchange for 67 shares,
constituting all of the issued and outstanding shares of the LLC.
On March 20, 2007, the Company issued 959,955 and 81,362 shares of common stock, priced at $15.00
per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange
for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP,
LP, collectively valued at $15.6 million. At this time, the 67 shares owned by GSC Group in the LLC
were exchanged for 67 shares of GSC Investment Corp.
On March 28, 2007, the Company completed its IPO of 7,250,000 shares of common stock, priced at
$15.00 per share, before underwriting discounts and commissions. Total proceeds received from the
IPO, net of $7.1 million in underwriters discount and commissions, and $1.0 million in offering
costs, were $100.7 million.
Note 11. Earnings Per Share
In accordance with the provisions of FASB ASC 260, Earnings per Share (ASC 260), basic earnings
per share is computed by dividing earnings available to common shareholders 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.
On November 13, 2009, we declared a dividend of $1.825 per share payable on December 31, 2009.
Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or
a combination of cash and shares of common stock, provided that the aggregate cash payable to all
shareholders was limited to $2.1 million or $0.25 per share.
Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares
of common stock, or 104% of our outstanding common stock prior to the dividend payment. The amount
of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend
amount, thus resulting in the payment of a combination of cash and stock to shareholders who
elected to receive cash. The number of shares of common stock comprising the stock portion was
calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading
price per share of the common stock on December 24 and 28, 2009. The financial statements for the
period ended November 30, 2009 have been retroactively adjusted to reflect the increase in common
stock as a result of the dividend in accordance with the provisions of ASC 505-20-S50 regarding
disclosure of a capital structure change after the interim balance sheet but before the release of
the financial statements.
24
The following information sets forth the computation of the weighted average basic and diluted net
decrease in net assets per share from operations for the nine months ended November 30, 2009, and
November 30, 2008 (dollars in thousands except share and per share amounts):
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
November 30, 2009 |
|
November 30, 2008 |
|
|
|
Net decrease in net assets from operations |
|
$ |
(1,597 |
) |
|
$ |
(7,307 |
) |
Weighted average common shares outstanding |
|
|
8,542,983 |
|
|
|
8,291,384 |
|
Loss per common share-basic and diluted |
|
$ |
(0.19 |
) |
|
$ |
(0.88 |
) |
Note 12. Dividend
The following tables summarize dividends declared during the three months ended November 30, 2009
and November 30, 2008 (dollars in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Per |
|
|
Date Declared |
|
Record Date |
|
Payment Date |
|
Share * |
|
Total Amount |
|
November 13, 2009 |
|
November 25, 2009 |
|
December 31, 2009 |
|
$ |
1.825 |
|
|
$ |
15,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends declared |
|
|
|
|
|
$ |
1.825 |
|
|
$ |
15,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Per |
|
|
Date Declared |
|
Record Date |
|
Payment Date |
|
Share * |
|
Total Amount |
|
May 22, 2008 |
|
May 30, 2008 |
|
June 13, 2008 |
|
$ |
0.39 |
|
|
$ |
3,234 |
|
August 20, 2008 |
|
August 29, 2008 |
|
September 15, 2008 |
|
|
0.39 |
|
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends declared |
|
|
|
|
|
$ |
0.78 |
|
|
$ |
6,468 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount per share is calculated based on the number of shares outstanding at the date of
declaration. |
Note 13. Financial Highlights
The following is a schedule of financial highlights for the nine months ended November 30, 2009 and
November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period |
|
$ |
8.20 |
|
|
$ |
11.80 |
|
|
|
|
|
|
|
|
|
|
Net investment income (1) |
|
|
0.53 |
|
|
|
1.27 |
|
Net realized losses on investments and derivatives |
|
|
(0.18 |
) |
|
|
(0.89 |
) |
Net unrealized depreciation on investments and derivatives |
|
|
(0.53 |
) |
|
|
(1.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in stockholders equity |
|
|
(0.18 |
) |
|
|
(0.88 |
) |
Distributions declared from net investment income |
|
|
(1.83 |
) |
|
|
(0.78 |
) |
Other
(6) |
|
|
(2.39 |
) |
|
|
|
|
|
|
|
Total distributions to stockholders |
|
|
(4.22 |
) |
|
|
(0.78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
3.80 |
|
|
$ |
10.14 |
|
Net assets at end of period |
|
$ |
64,343,839 |
|
|
$ |
84,094,745 |
|
Shares outstanding at end of period |
|
|
16,940,109 |
|
|
|
8,291,384 |
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period |
|
$ |
2.16 |
|
|
$ |
1.55 |
|
Total return
based on market value
(2) |
|
|
139.7 |
% |
|
|
(78.89 |
)% |
Total return
based on net asset value
(3) |
|
|
(2.35 |
)% |
|
|
(7.46 |
)% |
|
|
|
|
|
|
|
|
|
Ratio/Supplemental data: |
|
|
|
|
|
|
|
|
Ratio of net
investment income to average net assets
(4) (5) |
|
|
8.07 |
% |
|
|
13.93 |
% |
Ratio of
operating expenses to average net assets
(4) (5) |
|
|
9.05 |
% |
|
|
6.77 |
% |
Ratio of
incentive management fees to average net assets
(5) |
|
|
0.65 |
% |
|
|
1.84 |
% |
Ratio of
credit facility related expenses to average net assets
(5) |
|
|
6.41 |
% |
|
|
3.08 |
% |
Ratio of
total expenses to average net assets
(4) (5) |
|
|
16.11 |
% |
|
|
11.69 |
% |
25
|
|
|
(1) |
|
Net investment income excluding expense waiver and reimbursement equals $0.47 and $1.17 per
share for the nine months ended November 30, 2009 and November 30, 2008, respectively. |
|
(2) |
|
Total return based on market value equals the change in market value of the Companys shares
taking into the account dividend distribution of $1.825 and assumes such dividend is
reinvested in accordance with the terms of the dividend reinvestment plan at a price of
$1.5099 per share to be consistent with ASC 505-20-S50 as more fully described in Note
11. For the nine months ended November 30, 2008, the total return based on market
value equals the decrease in market value at November 30, 2008, of $9.49 per share over the
price per share at February 29, 2008, of $11.04, plus the declared cash dividends of $0.39 per
share for stockholders of record on May 30, 2008, and $0.39 per share for stockholders of
record on August 29, 2008, divided by the February 29, 2008 price per share. Total return
based on market value is not annualized. |
|
(3) |
|
For the nine months ended November 30, 2009, the total return based on net asset value equals
the change in net asset value during the period plus the declared cash dividend of $2,073,066
for stockholders of record on November 25, 2009, divided by the beginning net asset value
during the period. For the nine months ended November 30, 2008, the total return based on net
asset value equals the change in net asset value during the period plus the declared cash
dividends of $0.39 per share for stockholders of record on May 30, 2008, and $0.39 per share
for stockholders of record on August 29, 2008, divided by the beginning net asset value during
the period. Total return based on net asset value is not annualized. |
|
(4) |
|
For the nine months ended November 30, 2009, incorporating the expense waiver and
reimbursement arrangement, the ratio of net investment income, operating expenses, total
expenses to average net assets is 9.11%, 8.01%, and 15.07%, respectively. For the nine months
ended November 30, 2008, incorporating the expense waiver and reimbursement arrangement, the
ratio of net investment income, operating expenses, total expenses to average net assets is
15.08%, 5.62%, and 10.54%, respectively. |
|
(5) |
|
Annualized. |
|
(6) |
|
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
period end. |
Note 14. Related Party Transaction
On March 20, 2007, the Company issued 959,955 and 81,362 shares of common stock, priced at $15.00
per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange
for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP,
LP, collectively valued at $15.6 million. Additionally, GSC Group assigned its rights to act as
collateral manager for GSC Partners CDO Fund III, Limited (CDO III) to the Company. The Company
paid GSC Group $0.1 million to acquire the rights to act as collateral manager and expected to
receive collateral management fees of $0.2 million. As of November 30, 2009, the fair value of the
general partnership interest and limited partnership interest is $318.
On January 10, 2008, GSC Group notified our Dividend Reinvestment Plan Administrator that it was
electing to receive dividends and other distributions in cash (rather than in additional shares of
common stock) with respect to all shares of stock held by it and the investment funds under its
control. For the year ended February 28, 2009, GSC Group received 35,911 of additional shares under
the dividend reinvestment plan. As of November 30, 2009, GSC Group and its affiliates own
approximately 12% of the outstanding common shares of the Company.
On January 22, 2008, we entered into a collateral management agreement with GSCIC CLO pursuant to
which we will act as collateral manager to it. In return for our collateral management services, we
are entitled to a senior collateral management fee of 0.10% and a subordinate collateral management
fee of 0.40% of the outstanding principal amount of GSCIC CLOs assets, to be paid quarterly to the
extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of
excess cash flow to the extent the GSCIC CLO subordinated notes receive an internal rate of return
equal to or greater than 12%. We do not expect to enter into additional collateral management
agreements in the near future.
26
Note 15. Subsequent Events
For the third quarter of 2009, the Company evaluated subsequent events through January 14, 2010,
the date the financial statements were issued.
On December 7, 2009 the Company repaid $0.5 million of outstanding borrowings primarily from excess
interest collections.
On December 23, 2009 the Company received full par redemptions of $3.0 million and $1.0 million
related to Edgen Murray II, L.P. and GXS Worldwide, Inc., respectively. On January 7, 2010, the
proceeds from these redemptions plus excess interest collections were used to make a repayment of
$5.8 million of outstanding borrowings.
On December 31, 2009, we paid a dividend of $1.825 per share to shareholders of record as of the
close of business on November 25, 2009. Shareholders had until December 17, 2009 to elect whether
to receive the dividend in cash (up to an aggregate maximum cash amount of approximately $2.1
million or approximately 13.7% of the total dividend paid) or in shares of common stock. Due to the
original terms of the dividend, shareholders who elected to receive cash received a combination of
cash and common stock.
Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares
of common stock, or 104% of our outstanding common stock prior to the dividend payment. The amount
of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend
amount, thus resulting in the payment of a combination of cash and stock to shareholders who
elected to receive cash. The number of shares of common stock comprising the stock portion was
calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading
price per share of the common stock on December 24 and 28, 2009.
As previously mentioned in Note 11
the financial statements for the period ended November 30, 2009 have been retroactively adjusted to
reflect the increase in common stock as a result of the dividend.
Shareholders who elected to receive the dividend solely in shares of common stock and shareholders
who did not make an election will receive 1.209 shares of common stock for each share of common
stock they owned on the record date. Holders of approximately 39% of the Companys common stock
elected to receive only stock or did not make an election.
Shareholders electing to receive the dividend in all cash, will receive cash in the amount of
$0.411 per share or 22.5% of the $1.825 dividend and 0.936 shares of common stock or 77.5% of the
total dividend for each share of common stock they owned on the record date. Cash in lieu of
fractional shares will be issued, if applicable.
27
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with our financial statements and
related notes and other financial information appearing elsewhere in this quarterly report. In
addition to historical information, the following discussion and other parts of this quarterly
report contain forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking information due to
the factors discussed in Item 1A in our Annual Report on Form 10-K for the fiscal year ended
February 28, 2009 and Part II, Item 1A in our quarterly reports on Form 10-Q for the quarterly
periods ended May 31, 2009.
The forward-looking statements are based on our beliefs, assumptions and expectations of our
future performance, taking into account all information currently available to us. These beliefs,
assumptions and expectations can change as a result of many possible events or factors, not all of
which are known to us or are within our control. If a change occurs, our business, financial
condition, liquidity and results of operations may vary materially from those expressed in our
forward-looking statements.
The forward-looking statements contained in this quarterly report include statements as to:
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our future operating results; |
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our business prospects and the prospects of our portfolio companies; |
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the impact of investments that we expect to make; |
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declines in the value of the investments we have made; |
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our contractual arrangements and relationships with third parties; |
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the dependence of our future success on the general economy and its impact on the
industries in which we invest; |
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the ability of our portfolio companies to achieve their objectives; |
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our expected financings and investments; |
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our regulatory structure and tax treatment, including our ability to operate as a
business development company and a regulated investment company; |
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the adequacy of our cash resources and working capital; |
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the timing of cash flows, if any, from the operations of our portfolio companies; |
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the ability of our investment adviser to locate suitable investments for us and to
monitor and effectively administer our investments; and |
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continued access to our Revolving Facility and the decision by our lender to
accelerate repayment of our outstanding bank indebtedness. |
You should not place undue reliance on these forward-looking statements. The forward-looking
statements made in this quarterly report relate only to events as of the date on which the
statements are made. We undertake no obligation to update any forward-looking statement to reflect
events or circumstances occurring after the date of this quarterly report.
Overview
GSC Investment Corp. is a Maryland corporation that has elected to be treated as a business
development company (BDC) under the Investment Company Act of 1940 (the 1940 Act). Our
investment objectives are to generate current income and capital
28
appreciation through debt and
equity investments by primarily investing in middle market companies and select high yield bonds.
We have elected to be treated as a regulated investment company (RIC) under subchapter M of the
Internal Revenue Code. We commenced operations on March 23, 2007, and completed our initial public
offering (IPO) on March 28, 2007. We are externally managed and advised by our investment
adviser, GSCP (NJ), L.P. (together with certain of its affiliates, GSC Group).
We used the net proceeds of our IPO to purchase approximately $100.7 million in aggregate
principal amount of debt investments from GSC Partners CDO Fund III, Limited (CDO Fund III), a
collateralized loan obligation (CLO) fund managed by our investment adviser. We used borrowings
under our credit facilities to purchase approximately $115.1 million in aggregate principal amount
of debt investments in April and May 2007 from CDO Fund III and GSC Partners CDO Fund Limited (CDO
Fund I), a collateralized debt obligation fund managed by our investment adviser. As of November
30, 2009, our portfolio consisted of $103.3 million of investments at fair value, in 29 portfolio
companies and one CLO.
Our portfolio is comprised primarily of investments in first and second lien leveraged loans
issued by middle market companies and high yield bonds. Our strategy has been to create a
diversified portfolio by investing up to 5% of our total assets in each investment, although the
investment sizes may be more or less than the targeted range. These investments have been sourced
in both the primary and secondary markets through a network of relationships with commercial and
investment banks, commercial finance companies and financial sponsors. The leveraged loans and high
yield bonds are generally used to finance buyouts, acquisitions, growth, recapitalizations and
other types of transactions. Leveraged loans are generally senior debt instruments that rank ahead
of subordinated debt of the portfolio company. Leveraged loans also have the benefit of security
interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other
security interests. High yield bonds are typically subordinated to leveraged loans and generally
unsecured, though a substantial amount of the high yield bonds that we currently own are secured.
Substantially all of the debt investments held in our portfolio hold a non-investment grade rating
by Moodys Investors Service (Moodys) and/or Standard & Poors or, if not rated, would be rated
below investment grade if rated. High yield bonds rated below investment grade are commonly
referred to as junk bonds. For purposes of this quarterly report, we generally use the term
middle market to refer to companies with annual EBITDA of between $5 million and $50 million.
EBITDA represents earnings before net interest expense, income taxes, depreciation and
amortization. Investments in middle market companies are generally less liquid than equivalent
investments in companies with larger capitalizations.
While our primary focus is to generate current income and capital appreciation through
investments in debt and equity securities of middle market companies and high yield bonds, we
intend to invest up to 30% of our total assets in opportunistic investments. Opportunistic
investments may include investments in distressed debt, debt and equity securities of public
companies, credit default swaps, emerging market debt, and structured finance vehicles, including
CLOs. Given our primary investment focus on first and second lien term loans issued by middle
market companies and high yield bonds, we believe our opportunistic investments allow us to
supplement our core investments with other investments that are within our investment advisers
expertise that we believe offer attractive yields and/or the potential for capital appreciation. As
of November 30, 2009, our investment in the subordinated notes of GSC Investment Corp. CLO 2007,
Ltd. (GSCIC CLO), a CLO we manage, constituted 18.7% of our total assets. We do not expect to
manage and purchase all of the equity in another CLO transaction in the near future.
As a BDC, we are required to comply with certain regulatory requirements. For instance, we
have to invest at least 70% of our total assets in qualifying assets, including securities of
U.S. operating companies whose securities are not listed on a national securities exchange (i.e.,
New York Stock Exchange, American Stock Exchange and The NASDAQ Global Market), U.S. operating
companies with listed securities that have market capitalizations of less than $250 million, 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, which,
as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding
borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited
exceptions.
Since the third quarter of fiscal year 2009 (November 30, 2008), due to constraints imposed by
our Revolving Facility (as defined below), we have had limited investment activity in both the
primary and secondary markets. The Company is working with the investment banking firm of Stifel,
Nicolaus & Company, which it retained to evaluate strategic transaction opportunities and consider
alternatives. There is no assurance that the exploration and evaluation of strategic opportunities
and alternatives will result in any transaction.
On July 30, 2009, we exceeded permissible borrowing limits for 30 consecutive days, resulting
in an event of default under our credit facility. During the continuance of an event of default,
the interest rate on the Revolving Facility is increased from the
29
commercial paper rate plus 4.00%
to the greater of the commercial paper rate and our lenders prime rate plus 4.00% plus a default
rate of 2.00% or, if the commercial paper market is unavailable, the greater of the prevailing
LIBOR rates and our lenders prime rate plus 6.00% plus a default rate of 3.00%. Under this
formula, for the three months ended November 30, 2009, the interest rate on the Revolving Facility
was 9.25%.
Substantially all of our assets other than our investment in the subordinated notes of GSCIC
CLO are held in a special purpose subsidiary and pledged under our Revolving Facility. We commenced
the two year amortization period under the Revolving Facility in January 2009, during which time
all principal proceeds from the pledged assets are used to repay the Revolving Facility. In
addition, during the continuance of an event of default, all interest proceeds from the pledged
assets are also used to repay the Revolving Facility. As a result, the Company is required to fund
is operating expenses and dividends solely from cash on hand, management fees earned from, and the
proceeds of the subordinated notes of, GSCIC CLO. Please see Part II, Item 1A. Risk
FactorsContinuance of an Event of Default under our Revolving Facility and/or deferral of
payments from GSCIC CLO may result in a shortage of working capital in this quarterly report for
more information.
As of November 30, 2009, the Company remained in default on its Revolving Facility and as a
result of the default, our lender has the right to accelerate repayment of the outstanding
indebtedness and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the
outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect
on our liquidity, financial condition and operations. Please see Part II, Item 1A. Risk
FactorsAn event of default under the Revolving Facility may lead to a forced liquidation of the
pledged assets that may yield less than the fair value of the assets in the quarterly report on
form 10-Q for the quarterly period ended May 31, 2009 for more information. To date, our lender has
not accelerated the debt, but has reserved the right to do so. The deleveraging of the Company may
significantly impair the Companys ability to effectively operate. There is no assurance that we
will have sufficient funds available to pay in full the total amount of obligations that would
become due as a result of such acceleration or that we will be able to obtain additional or
alternative financing to pay or refinance any such accelerated obligations.
However, we continue to believe that we will have adequate liquidity to continue to fund our
operations and the interest payments on our outstanding debt, including any default interest. We
continue to have discussions with our lender regarding resolutions of the default. The Company is
also working with the investment banking firm Stifel, Nicolaus & Company, which it retained to
evaluate strategic transaction opportunities and consider alternatives. We are focused on resolving
the default and continuing to exist as a going concern.
Revenues
We generate revenue in the form of interest income and capital gains on the debt investments
that we hold and capital gains, if any, on equity interests that we may acquire. Our debt
investments, whether in the form of first and second lien term loans, mezzanine debt or high yield
bonds, generally have terms of up to ten years, and bear interest at either a fixed or floating
rate. Interest on debt is payable generally either quarterly or semi-annually. In some cases our
debt investments may provide for a portion of the interest to be paid-in-kind (PIK). To the
extent interest is paid-in-kind, 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. We may also invest in preferred equity
securities that pay dividends on a current basis.
Pursuant to an agreement with our investment adviser entered into on October 17, 2006, prior
to becoming a BDC, we acquired the right to act as investment adviser to CDO Fund III and collect
the management fees related thereto from March 20, 2007 until the liquidation of the CDO Fund III
assets. We paid our investment adviser a fair market price of $0.1 million for the right to act as
investment advisor to CDO Fund III.
On January 22, 2008, we entered into a collateral management agreement with GSCIC CLO pursuant
to which we act as its collateral manager and receive a senior collateral management fee of 0.10%
and a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC
CLOs assets, paid quarterly to the extent of available proceeds. We are also entitled to an
incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO
subordinated notes receive an internal rate of return equal to or greater than 12%.
30
We recognize interest income on our investment in the subordinated notes of GSCIC CLO using
the effective interest method, based on the anticipated yield and the estimated cash flows over the
projected life of the investment. Yields are revised when there are changes in actual or estimated
cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing.
Changes in estimated yield are recognized as an adjustment to the estimated yield over the
remaining life of the investment from the date the estimated yield was changed.
Expenses
Our primary operating expenses include the payment of investment advisory and management fees,
professional fees, directors and officers insurance, fees paid to independent directors and
administrator expenses, including our allocable portion of our administrators overhead. Our
allocable portion is based on the ratio of our total assets to the total assets administered by our
administrator. Our investment advisory and management fees compensate our investment adviser 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 that may relate
to:
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calculating our net asset value (including the costs and expenses of any
independent valuation firm); |
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|
expenses incurred by our investment adviser 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; |
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interest payable on debt, if any, incurred to finance our investments; |
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offerings of our common stock and other securities; |
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investment advisory and management fees; |
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fees payable to third parties, including agents, consultants or other advisers,
relating to, or associated with, evaluating and making investments; |
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transfer agent and custodial fees; |
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registration and listing fees; |
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independent directors fees and expenses; |
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costs of preparing and filing reports or other documents with the SEC; |
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the costs of any reports; |
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proxy statements or other notices to stockholders, including printing costs; |
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to the extent we are covered by any joint insurance policies, our allocable portion
of the insurance premiums for such joint policies; |
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direct costs and expenses of administration, including auditor and legal costs; and |
31
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all other expenses incurred by us or our administrator in connection with
administering our business. |
The amount payable to GSC Group as administrator under the administration agreement is capped
to the effect that such amount, together with our other operating expenses, does not exceed an
amount equal to 1.5% per annum of our net assets attributable to common stock. In addition, for the
current one-year term of the administration agreement (expiring March 21, 2010), GSC Group has
waived our reimbursement obligation under the administration agreement until our total assets
exceed $500 million.
Pursuant to the investment advisory and management agreement, we pay GSC Group as investment
adviser a quarterly base management fee of 1.75% of the average value of our total assets (other
than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the
two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or
repurchases during the applicable fiscal quarter, and an incentive fee.
The incentive fee has two parts:
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A fee, payable quarterly in arrears, equal to 20% of our pre-incentive fee net
investment income, expressed as a rate of return on the value of the net assets at the
end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5%
annualized) hurdle rate measured as of the end of each fiscal quarter. Under this
provision, in any fiscal quarter, our investment adviser receives no incentive fee unless
our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Amounts
received as a return of capital are not included in calculating this portion of the
incentive fee. Since the hurdle rate is based on net assets, a return of less than the
hurdle rate on total assets may still result in an incentive fee. |
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A fee, payable at the end of each fiscal year, equal to 20% of our net realized
capital gains, if any, computed net of all realized capital losses and unrealized capital
depreciation, in each case on a cumulative basis, less the aggregate amount of capital
gains incentive fees paid to the investment adviser through such date. |
We will defer cash payment of any incentive fee otherwise earned by our investment adviser if,
during the most recent four full fiscal quarterly periods ending on or prior to the date such
payment is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our
change in net assets (defined as total assets less liabilities) (before taking into account any
incentive fees payable during that period) is less than 7.5% of our net assets at the beginning of
such period. These calculations will be appropriately pro rated for the first three fiscal quarters
of operation and adjusted for any share issuances or repurchases during the applicable period. Such
incentive fee will become payable on the next date on which such test has been satisfied for the
most recent four full fiscal quarters or upon certain terminations of the investment advisory and
management agreement. We commenced deferring cash payment of incentive fees during the quarterly
period ended August 31, 2007, and have continued to defer such payments through the current
quarterly period; we have recorded a payable in respect of such deferred fees in the amount of $2.6
million as of November 30, 2009.
To the extent that any of our leveraged loans are denominated in a currency other than U.S.
dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in
currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging
activities, which will be subject to compliance with applicable legal requirements, may include the
use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into
or settling such contracts will be borne by us.
From the commencement of operations until March 23, 2008, GSC Group reimbursed us for
operating expenses to the extent that our total annual operating expenses (other than investment
advisory and management fees and interest and credit facility expenses) exceeded an amount equal to
1.55% of our net assets attributable to common stock. GSC Group has not reimbursed us since that
date and we do not expect to be reimbursed in the future.
32
Portfolio and Investment Activity
Corporate Debt Portfolio Overview(1)
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At November 30, 2009 |
|
At February 28, 2009 |
|
|
($ in millions) |
Number of investments |
|
|
38 |
|
|
|
42 |
|
Number of portfolio companies |
|
|
29 |
|
|
|
35 |
|
Average investment size |
|
$ |
2.2 |
|
|
$ |
2.3 |
|
Weighted average maturity |
|
2.8 |
years |
|
3.3 |
years |
Number of industries |
|
|
20 |
|
|
|
22 |
|
Average investment per portfolio company |
|
$ |
2.8 |
|
|
$ |
2.8 |
|
Non-Performing or delinquent investments |
|
$ |
21.8 |
|
|
$ |
0.4 |
|
Fixed rate debt (% of interest bearing portfolio) |
|
$ |
35.3(43.2 |
%) |
|
$ |
40.3(41.8 |
%) |
Weighted average current coupon |
|
|
11.7 |
% |
|
|
11.7 |
% |
Floating rate debt (% of interest bearing portfolio) |
|
$ |
46.5(56.8 |
%) |
|
$ |
56.2(58.2 |
%) |
Weighted average current spread over LIBOR |
|
|
7.1 |
% |
|
|
5.9 |
% |
|
|
|
(1) |
|
Excludes our investment in the subordinated notes of GSCIC CLO and GSC Partners CDO GP III,
LP. |
During the nine months ended November 30, 2009, we made no investments in new or existing
portfolio companies and had $10.9 million in aggregate amount of exits and repayments, resulting in
net repayments of $10.9 million for the period. During the nine months ended November 30, 2008, we
made 17 investments in an aggregate amount of $28.3 million consisting of $23.0 million in new
portfolio companies and $5.3 million to existing portfolio companies and $48.7 million in aggregate
amount of exits and repayments, resulting in net repayments of $20.4 million for the period.
During the three months ended November 30, 2009, we made no investments in new or existing
portfolio companies and had $5.7 million in aggregate amount of exits and repayments, resulting in
net repayments of $5.7 million for the period. During the three months ended November 30, 2008 we
made 2 investments in an aggregate amount of $3.0 million consisting of $3.0 million in new
portfolio companies and no investments in existing portfolio companies. Also during the three
months ended November 30, 2008, we had $10.0 million in aggregate amount of exits and repayments,
resulting in net repayments of $7.0 million in aggregate amount for the period.
Due to unfavorable conditions in the credit market and constraints imposed by our Revolving
Facility, we do not expect to make any further investments unless and until we obtain a new source
of financing in place of our Revolving Facility.
As of November 30, 2009, twelve investments in eight portfolio companies were non-performing or
delinquent investments. Non-performing investments are investments in which the Company has stopped
accruing interest income or for which the Company has established a partial or full reserve against
the interest income accrual. Delinquent investments are investments that have missed a scheduled
interest or maturity payment. Two of the delinquent investments did not make their respective
maturity repayments, however, as of November 30, 2009, these two investments were performing and we
accrued current interest income.
33
The non-performing or delinquent investments as of November 30, 2009 were as follows:
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Percentage of |
Portfolio Company |
|
Asset |
|
Fair Value |
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Total Portfolio |
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|
($ in thousands) |
Terphane Holdings Corp. |
|
Senior secured notes |
|
$ |
9,356 |
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|
|
9.1 |
% |
Jason Incorporated |
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Unsecured notes |
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4,461 |
|
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|
4.3 |
|
USS Mergerco, Inc. |
|
Second lien term loan |
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2,693 |
|
|
|
2.6 |
|
Abitibi-Consolidated |
|
First lien term loan |
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|
2,565 |
|
|
|
2.5 |
|
Targus Group International |
|
Second lien term loan |
|
|
1,802 |
|
|
|
1.7 |
|
Legacy Cabinets, Inc. |
|
First lien term loan |
|
|
444 |
|
|
|
0.4 |
|
Grant U.S. Holdings |
|
Second lien term loan |
|
|
318 |
|
|
|
0.3 |
|
Legacy Cabinets, Inc. |
|
Second lien term loan |
|
|
97 |
|
|
|
0.1 |
|
Brown Publishing Company |
|
Second lien term loan |
|
|
35 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
21,771 |
|
|
|
21.1 |
% |
|
|
|
|
|
|
|
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|
Our portfolio composition at November 30, 2009 and February 28, 2009 was as follows:
Portfolio composition
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2009 |
|
At February 28, 2009 |
|
|
Percentage of |
|
Weighted Average |
|
Percentage of |
|
Weighted Average |
|
|
Total Portfolio |
|
Current Yield |
|
Total Portfolio |
|
Current Yield |
First lien term loans |
|
|
15.4 |
% |
|
|
7.8 |
% |
|
|
14.4 |
% |
|
|
6.8 |
% |
Second lien term loans |
|
|
29.1 |
|
|
|
8.0 |
|
|
|
34.5 |
|
|
|
9.0 |
|
Senior secured notes |
|
|
27.5 |
|
|
|
11.6 |
|
|
|
21.7 |
|
|
|
11.6 |
|
Unsecured notes |
|
|
7.1 |
|
|
|
12.3 |
|
|
|
10.4 |
|
|
|
12.3 |
|
Structured Finance Securities |
|
|
20.8 |
|
|
|
11.0 |
|
|
|
18.8 |
|
|
|
12.2 |
|
Equity/limited partnership interests |
|
|
0.1 |
|
|
|
N/A |
|
|
|
0.2 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
9.8 |
% |
|
|
100.0 |
% |
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our investment in the subordinated notes of GSCIC CLO represents a first loss position in a
portfolio that, at November 30, 2009, was composed of $395.3 million in aggregate principal amount
of predominantly senior secured first lien term loans. This investment is subject to unique risks.
(See Part I, Item 1A Risk FactorsRisks related to our investmentsOur investment in GSCIC CLO
constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term
loans and is subject to additional risks and volatility of our Annual Report on Form 10-K for the
fiscal year ended February 28, 2009). We do not consolidate the GSCIC CLO portfolio in our
financial statements. Accordingly, the metrics below do not include the underlying GSCIC CLO
portfolio investments. However, at November 30, 2009, 97.7% of the GSCIC CLO portfolio investments
were performing and over 92.5% of the GSCIC CLO portfolio investments had a CMR (as defined below)
rating of Green or Yellow.
GSC Group normally grades all of our investments using an internally developed credit and
monitoring rating system (CMR). Prior to November 30, 2009 the CMR rating consists of two
components: (i) a numerical debt score and (ii) a corporate letter rating.
The numerical debt score is based on the objective evaluation of six risk categories: (i)
leverage; (ii) seniority in the capital structure; (iii) fixed charge coverage ratio; (iv) debt
service coverage/liquidity; (v) operating performance; and (vi) business/industry risk. The
numerical debt score ranges from 1.00 to 5.00, which can generally be characterized as follows:
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|
1.00-2.00 represents investments that hold senior positions in the capital
structure and, typically, have low financial leverage and/or strong historical operating
performance; |
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|
2.00-3.00 represents investments that hold relatively senior positions in the
capital structure, either senior secured, senior unsecured, or senior subordinate, and
have moderate financial leverage and/or are performing at or above expectations; |
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|
|
3.00-4.00 represents investments that are junior in the capital structure, have
moderate financial leverage and/or are performing at or below expectations; and |
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|
|
4.00-5.00 represents investments that are highly leveraged and/or have poor
operating performance. |
34
The numerical debt score is designed to produce higher scores for debt positions that are more
subordinate in the capital structure. Therefore, second lien term loans, high-yield bonds and
mezzanine debt will generally be assigned scores of 2.25 or higher.
The corporate letter rating is based on several subjective criteria, including perceived
financial and operating strength and covenant compliance. The corporate letter ratings range from
(A) through (F) and are characterized as follows: (A) equals strong credit; (B) equals satisfactory
credit; (C) equals special attention credit; (D) equals payment default risk; (E) equals payment
default; and (F) equals restructured equity security.
Effective November 30, 2009, the CMR consisted of a single component: a color rating. The
color rating is based on several criteria, including financial and operating strength, probability
of default, and restructuring risk.. The color ratings range from (Green) through (Red) and are
characterized as follows: (Green) strong credit; (Yellow) satisfactory credit; (Red) payment
default risk, in payment default and/or significant restructuring activity.
The CMR distribution of our investments at November 30, 2009 was as follows:
Portfolio CMR distribution
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2009 |
|
|
|
Investments at |
|
|
Percentage of |
|
Color Score |
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
Green |
|
$ |
10,346 |
|
|
|
10.0 |
% |
Yellow |
|
|
28,555 |
|
|
|
27.7 |
|
Red |
|
|
42,904 |
|
|
|
41.5 |
|
N/A(1) |
|
|
21,465 |
|
|
|
20.8 |
|
|
|
|
|
|
|
|
Total |
|
$ |
103,270 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Predominantly comprised of our investment in the subordinated notes of GSCIC CLO. |
The CMR distribution of our investments at February 28, 2009 was as follows:
Portfolio CMR distribution
|
|
|
|
|
|
|
|
|
|
|
At February 28, 2009 |
|
|
|
Investments at |
|
|
Percentage of |
|
Numerical Debt Score |
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
1.00 - 1.99 |
|
$ |
8,941 |
|
|
|
7.5 |
% |
2.00 - 2.99 |
|
|
33,831 |
|
|
|
28.5 |
|
3.00 - 3.99 |
|
|
49,076 |
|
|
|
41.2 |
|
4.00 - 4.99 |
|
|
4,614 |
|
|
|
3.9 |
|
5.00 |
|
|
|
|
|
|
|
|
N/A(1) |
|
|
22,450 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
Total |
|
$ |
118,912 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At February 28, 2009 |
|
|
|
Investments at |
|
|
Percentage of |
|
Corporate Letter Rating |
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
A |
|
$ |
4,602 |
|
|
|
3.9 |
% |
B |
|
|
36,818 |
|
|
|
30.9 |
|
C |
|
|
42,700 |
|
|
|
35.9 |
|
D |
|
|
11,668 |
|
|
|
9.8 |
|
E |
|
|
674 |
|
|
|
0.6 |
|
F |
|
|
|
|
|
|
|
|
N/A(1) |
|
|
22,450 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
Total |
|
$ |
118,912 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Predominantly comprised of our investment in the subordinated notes of GSCIC CLO. |
35
The following table shows the portfolio composition by industry grouping at fair value at
November 30, 2009 and February 28, 2009.
Portfolio composition by industry grouping at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2009 |
|
|
At February 28, 2009 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
Structured Finance Securities(1) |
|
$ |
21,464 |
|
|
|
20.8 |
% |
|
$ |
22,341 |
|
|
|
18.8 |
% |
Packaging |
|
|
9,356 |
|
|
|
9.1 |
|
|
|
10,070 |
|
|
|
8.5 |
|
Manufacturing |
|
|
9,068 |
|
|
|
8.8 |
|
|
|
14,480 |
|
|
|
12.2 |
|
Consumer Products |
|
|
7,196 |
|
|
|
7.0 |
|
|
|
7,843 |
|
|
|
6.6 |
|
Healthcare Services |
|
|
7,101 |
|
|
|
6.9 |
|
|
|
6,010 |
|
|
|
5.0 |
|
Publishing |
|
|
6,779 |
|
|
|
6.6 |
|
|
|
6,477 |
|
|
|
5.4 |
|
Apparel |
|
|
6,464 |
|
|
|
6.3 |
|
|
|
6,616 |
|
|
|
5.5 |
|
Electronics |
|
|
6,222 |
|
|
|
6.0 |
|
|
|
6,849 |
|
|
|
5.8 |
|
Homebuilding |
|
|
4,895 |
|
|
|
4.7 |
|
|
|
3,490 |
|
|
|
2.9 |
|
Oil and Gas |
|
|
4,648 |
|
|
|
4.5 |
|
|
|
7,359 |
|
|
|
6.2 |
|
Metals |
|
|
4,151 |
|
|
|
4.0 |
|
|
|
5,693 |
|
|
|
4.8 |
|
Natural Resources |
|
|
2,883 |
|
|
|
2.8 |
|
|
|
4,470 |
|
|
|
3.8 |
|
Environmental |
|
|
2,693 |
|
|
|
2.6 |
|
|
|
3,592 |
|
|
|
3.0 |
|
Logistics |
|
|
2,406 |
|
|
|
2.3 |
|
|
|
2,134 |
|
|
|
1.8 |
|
Financial Services |
|
|
2,122 |
|
|
|
2.0 |
|
|
|
3,162 |
|
|
|
2.7 |
|
Food and Beverage |
|
|
1,766 |
|
|
|
1.7 |
|
|
|
1,707 |
|
|
|
1.4 |
|
Printing |
|
|
1,676 |
|
|
|
1.6 |
|
|
|
1,638 |
|
|
|
1.4 |
|
Software |
|
|
953 |
|
|
|
0.9 |
|
|
|
773 |
|
|
|
0.6 |
|
Education |
|
|
610 |
|
|
|
0.6 |
|
|
|
674 |
|
|
|
0.6 |
|
Building Products |
|
|
541 |
|
|
|
0.5 |
|
|
|
1,426 |
|
|
|
1.2 |
|
Consumer Services |
|
|
276 |
|
|
|
0.3 |
|
|
|
244 |
|
|
|
0.2 |
|
Chemicals |
|
|
|
|
|
|
|
|
|
|
371 |
|
|
|
0.3 |
|
Insurance |
|
|
|
|
|
|
|
|
|
|
1,493 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103,270 |
|
|
|
100.0 |
% |
|
$ |
118,912 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Comprised of our investment in the subordinated notes of GSCIC CLO. |
The following table shows the portfolio composition by geographic location at fair value at
November 30, 2009 and February 28, 2009. The geographic composition is determined by the location
of the corporate headquarters of the portfolio company.
Portfolio composition by geographic location at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2009 |
|
|
At February 28, 2009 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
Midwest |
|
$ |
26,060 |
|
|
|
25.2 |
% |
|
$ |
31,716 |
|
|
|
26.7 |
% |
Other(1) |
|
|
21,464 |
|
|
|
20.8 |
|
|
|
22,449 |
|
|
|
18.9 |
|
West |
|
|
16,769 |
|
|
|
16.2 |
|
|
|
16,137 |
|
|
|
13.6 |
|
Southeast |
|
|
13,978 |
|
|
|
13.6 |
|
|
|
23,094 |
|
|
|
19.4 |
|
International |
|
|
12,239 |
|
|
|
11.9 |
|
|
|
12,165 |
|
|
|
10.2 |
|
Northeast |
|
|
11,807 |
|
|
|
11.4 |
|
|
|
12,578 |
|
|
|
10.6 |
|
Mid-Atlantic |
|
|
953 |
|
|
|
0.9 |
|
|
|
773 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
103,270 |
|
|
|
100.0 |
% |
|
$ |
118,912 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Predominantly comprised of our investment in the subordinated notes of GSCIC CLO. |
36
Results of Operations
Investment Income
Total investment income was $3.5 million for the three months ended November 30, 2009 versus
$6.4 million for the three months ended November 30, 2008, a decrease of $2.9 million or 44.5%.
Total investment income was $12.0 million for the nine months ended November 30, 2009 versus $17.9
million for the nine months ended November 30, 2008, a decrease of $5.9 million or 33.1%. The
composition of our investment income in each period was as follows:
Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
|
($ in thousands) |
|
Interest from investments |
|
$ |
2,961 |
|
|
$ |
5,722 |
|
|
$ |
10,253 |
|
|
$ |
16,072 |
|
Management of GSCIC CLO |
|
|
511 |
|
|
|
518 |
|
|
|
1,549 |
|
|
|
1,530 |
|
Interest from cash and cash equivalents and other income |
|
|
58 |
|
|
|
121 |
|
|
|
178 |
|
|
|
306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,530 |
|
|
$ |
6,361 |
|
|
$ |
11,980 |
|
|
$ |
17,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in interest from investments for the three months ended November 30, 2009 versus
the three months ended November 30, 2008 was primarily due to a reduction in income from the GSCIC
CLO of $1.1 million, an increase in the allowance for impaired loans and bonds of $0.6 million, a
reduction in income from investments that were sold of $0.3 million, and a decrease in market
discount income and the LIBOR rate earned on floating rate investments between the periods of $0.6
million.
The decline in interest from investments for the nine months ended November 30, 2009 versus
the nine months ended November 30, 2008 was primarily due to an increase in the allowance for
impaired loans and bonds of $1.9 million, a reduction in income from investments that were sold of
$1.6 million, a reduction in income from the GSCIC CLO of $1.5 million, and a decrease in market
discount income and the LIBOR rate earned on floating rate investments between the periods of $0.8
million.
For the three and nine months ended November 30, 2009, total PIK income was $0.1 million and
$0.7 million, respectively. For the equivalent periods in 2008, total PIK income was $0.2 million
and $0.6 million, respectively.
Operating Expenses
Total operating expenses before manager expense waiver and reimbursement were $2.8 million for
the three months ended November 30, 2009 versus $2.7 million for the three months ended November
30, 2008, an increase of $0.1 million, or 4.4%. Total operating expenses before manager expense
waiver and reimbursement were $8.0 million for the nine months ended November 30, 2009 versus $8.2
million for the nine months ended November 30, 2008, a decrease of $0.2 million, or 2.3%. The
composition of our operating expenses in each period was as follows:
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
November 30, 2009 |
|
|
November 30, 2008 |
|
|
|
($ in thousands) |
|
Interest and credit facility expense |
|
$ |
1,126 |
|
|
$ |
694 |
|
|
$ |
3,175 |
|
|
$ |
2,151 |
|
Base management fees |
|
|
463 |
|
|
|
654 |
|
|
|
1,516 |
|
|
|
2,108 |
|
Professional fees |
|
|
715 |
|
|
|
272 |
|
|
|
1,397 |
|
|
|
933 |
|
Incentive management fees |
|
|
|
|
|
|
542 |
|
|
|
322 |
|
|
|
1,289 |
|
Administrator expenses |
|
|
172 |
|
|
|
241 |
|
|
|
516 |
|
|
|
751 |
|
Insurance expenses |
|
|
220 |
|
|
|
174 |
|
|
|
650 |
|
|
|
518 |
|
Directors fees |
|
|
72 |
|
|
|
73 |
|
|
|
217 |
|
|
|
212 |
|
General and administrative expenses |
|
|
65 |
|
|
|
65 |
|
|
|
190 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,833 |
|
|
$ |
2,715 |
|
|
$ |
7,983 |
|
|
$ |
8,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
The change in operating expenses between the three months ended November 30, 2009 versus the
three months ended November 30, 2008 was primarily attributable to the increase in interest and
credit facility expense arising from an increase in the interest rate on our credit facility from
the commercial paper rate plus 70 basis points to the greater of the commercial paper rate and our
lenders prime rate plus 4.00% plus a default rate of 2.00%, and a one time non-cash charge of $0.5
million as a result of the write-off of deferred financing costs on our credit facility, in each
case, as a result of our July 30 event of default (please see Financial Condition, Liquidity and
Capital Resources below for more information). For the three and nine month periods ended November
30, 2009, the weighted average interest rate on the Revolving Facility was 9.25% and 6.21%
respectively, compared to 3.99 and 3.89% for the same periods in the prior year. We also incurred
an additional $0.5 million of non-recurring legal and professional fees associated with the engagement of Stifel, Nicolaus & Company
and the evaluation of strategic transaction opportunities. This increase was balanced by a decrease
in base management fees for the three and nine months ended November 30, 2009, resulting from the
decrease in the average value of our total net assets and an incentive management fee not being
earned for the three months ended November 30, 2009.
For the three months ended November 30, 2009, we recorded $0.2 million in expense waiver and
reimbursement from the administrator and Manager versus $0.2 million for the three months ended
November 30, 2008. For the nine months ended November 30, 2009, we recorded $0.5 million in expense
waiver and reimbursement from the administrator and Manager versus $0.8 million for the nine months
ended November 30, 2008. The decline was due to a cost reduction initiative by the administrator
which resulted in a smaller allocation of expenses.
Net Realized Gains/Losses from Investments
For the three months ended November 30, 2009, the Company had $0.5 million of net realized
losses versus $7.3 million of net realized losses for the three months ended November 30, 2008. For
the nine months ended November 30, 2009, the Company had $1.6 million of net realized losses versus
$7.4 million of net realized losses for the nine months ended November 30, 2008. The most
significant gains and losses for the nine months ended November 30, 2009 were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized |
Issuer |
|
Asset Type |
|
Gross Proceeds |
|
Cost |
|
Gain/(Loss) |
|
|
|
($ in thousands) |
Atlantis Plastics Films, Inc.(1) |
|
First Lien Term Loan |
|
$ |
521 |
|
|
$ |
|
|
|
$ |
482 |
|
Asurion Corporation |
|
First Lien Term Loan |
|
|
1,930 |
|
|
|
(1,725 |
) |
|
|
205 |
|
Big Train, Inc. |
|
First Lien Term Loan |
|
|
493 |
|
|
|
(405 |
) |
|
|
88 |
|
Blaze Recycling & Metals, LLC |
|
Senior Secured Notes |
|
|
1,538 |
|
|
|
(2,495 |
) |
|
|
(957 |
) |
M/C Communications, LLC |
|
First Lien Term Loan |
|
|
853 |
|
|
|
(1,670 |
) |
|
|
(817 |
) |
Lyondell Chemical Company |
|
First Lien Term Loan |
|
|
1,233 |
|
|
|
(1,644 |
) |
|
|
(411 |
) |
|
|
|
(1) |
|
The Companys investment in Atlantis Plastics Films, Inc. was fully realized as of February
28, 2009. The net realized gain of $0.5 million is the result of additional liquidation
proceeds received during the period ended November 30, 2009. |
Net Unrealized Appreciation/Depreciation on Investments
For the three months ended November 30, 2009, the Companys investments had an increase in net
unrealized appreciation of $8.8 million versus an increase in net unrealized depreciation of $4.1
million for the three months ended November 30, 2008. For the nine months ended November 30, 2009,
the Companys investments had an increase in net unrealized depreciation of $4.6 million versus an
increase in net unrealized depreciation of $10.4 million for the nine months ended November 30,
2008. The most significant cumulative changes in unrealized appreciation and depreciation for the
nine months ended November 30, 2009, were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unrealized |
|
YTD Change in Unrealized |
Issuer |
|
Asset Type |
|
Cost |
|
Fair Value |
|
Depreciation |
|
Appreciation/(Depreciation) |
|
|
|
($ in thousands) |
Terphane Holdings Corp. |
|
Senior Secured Notes |
|
$ |
10,437 |
|
|
$ |
9,356 |
|
|
$ |
(1,081 |
) |
|
$ |
1,656 |
|
McMillin Companies, LLC |
|
Senior Secured Notes |
|
|
7,315 |
|
|
|
4,895 |
|
|
|
(2,420 |
) |
|
|
1,385 |
|
Lyondell Chemical Company |
|
First Lien Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,273 |
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unrealized |
|
YTD Change in Unrealized |
Issuer |
|
Asset Type |
|
Cost |
|
Fair Value |
|
Depreciation |
|
Appreciation/(Depreciation) |
|
|
|
($ in thousands) |
IDI Acquisition Corp. |
|
Senior Secured Notes |
|
$ |
3,666 |
|
|
$ |
3,566 |
|
|
$ |
(100 |
) |
|
$ |
1,095 |
|
Jason Incorporated |
|
Unsecured notes |
|
|
13,700 |
|
|
|
4,461 |
|
|
|
(9,239 |
) |
|
|
(5,417 |
) |
Energy Alloys, LLC |
|
Second Lien Term Loan |
|
|
6,200 |
|
|
|
2,422 |
|
|
|
(3,778 |
) |
|
|
(2,865 |
) |
Grant U.S. Holdings LLP |
|
Second Lien Term Loan |
|
|
6,349 |
|
|
|
317 |
|
|
|
(6,032 |
) |
|
|
(2,281 |
) |
The increase in unrealized depreciation in our investments in Jason Incorporated, Energy Alloy
and Grant U.S. Holdings LLP were due to declining prospects for each of the companies. The
unrealized appreciation in our investments in Terphane Holdings Corp., McMillin Companies, LLC and
IDI Acquisition Corp. were due to an improvement in the outlook for these companies. The unrealized
appreciation in our investment in Lyondell Chemical Company was due to the reversal of unrealized
losses upon realization of this investment.
The reasons for changes in the fair value of other portfolio investments must be considered on
a case-by-case basis. However, two factors that we believe have had a significant impact on our
portfolio overall are the market wide decrease in interest yield as a result of risk re-pricing and
the cessation of forced liquidations of loan portfolios. For example, the average yield on the
Credit Suisse High Yield Index decreased from 17.85% to 9.27% from February 28, 2009 to November
30, 2009 and the average bid price on the Credit Suisse Leveraged Loan Index increased from 65.13%
to 84.96% from February 27, 2009 to November 30, 2009. While we continue to believe that positive
and negative market-wide movements are not necessarily indicative of any changes in the condition
or prospects of our portfolio investments, our valuation process requires us to take account of
such conditions in determining the fair value of our portfolio.
Net Unrealized Appreciation/Depreciation on Derivatives
For the three months ended November 30, 2009, changes in the value of the interest rate caps
resulted in an unrealized depreciation of $16,754 versus an unrealized depreciation of $1,419 for
the three months ended November 30, 2008. For the nine months ended November 30, 2009, changes in
the value of the interest rate caps purchased pursuant to the credit facilities resulted in an
unrealized appreciation of $33,080 versus an unrealized depreciation of $29,745 for the nine months
ended November 30, 2008.
Changes in Net Asset Value from Operations
For the three months ended November 30, 2009, we recorded a net increase in net assets
resulting from operations of $9.1 million versus a net decrease in net assets resulting from
operations of $7.6 million for the three months ended November 30, 2008. The difference is
attributable to an increase in unrealized appreciation and a decrease in realized losses, which
outweighed the decrease in net investment income between the two periods. Based on 9,051,711
weighted average common shares outstanding as of November 30, 2009 and 8,291,384 weighted average
common shares outstanding as of November 30, 2008, our per share net increase in net assets
resulting from operations was $1.01 for the three months ended November 30, 2009 versus a per share
net decrease of $0.91 for the three months ended November 30, 2008.
For the nine months ended November 30, 2009, we recorded a net decrease in net assets
resulting from operations of $1.6 million versus a net decrease in net assets resulting from
operations of $7.3 million for the nine months ended November 30, 2008. The difference is
attributable to a decrease in unrealized depreciation and a decrease in realized losses, which
outweighed the decrease in net investment income between the two periods. Based on 8,542,983
weighted average common shares outstanding as of November 30, 2009 and 8,291,384 weighted average
common shares outstanding November 30, 2008, our per share net decrease in net assets resulting
from operations was $0.19 for the nine months ended November 30, 2009 versus a per share net
decrease in net assets resulting from operations of $0.88 for the nine months ended November 30,
2008.
39
Financial condition, liquidity and capital resources
The Companys liquidity and capital resources have been generated primarily from the net
proceeds of its IPO, advances from the Revolving Facility, as well as cash flows from operations.
On March 28, 2007, we completed our IPO and issued 7,250,000 common shares and received net
proceeds of $100.7 million. On April 11, 2007, we entered into a revolving securitized credit
facility (the Revolving Facility). In response to the market wide decline in financial asset
prices, which has negatively affected the value of our portfolio, we terminated the revolving
period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization
period during which all principal proceeds from the collateral will be used to repay outstanding
borrowings. At the end of the two year amortization period, all advances will be due and payable. A
significant percentage of our total investments has been pledged to secure our obligations under
the Revolving Facility.
At November 30, 2009, we had $43.8 million in borrowings under the Revolving Facility versus
$59.0 million in borrowings at February 28, 2009. The actual amount that we are permitted to borrow
under the Revolving Facility at any given time (the Borrowing Base) is dependent upon the amount
and quality of the collateral securing the Revolving Facility. Our Borrowing Base was $12.1 million
at November 30, 2009 versus $59.9 million at February 28, 2009. The decline in our Borrowing Base
during this period is mainly attributable to the decline in the value of the pledged collateral and
the downgrade of certain public ratings or private credit estimates of the pledged collateral.
On July 30, 2009 an unremedied Borrowing Base violation became an event of default, which is
currently continuing. As a result of this event of default, our lender has the right to accelerate
repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and
liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or
liquidation of the collateral would have a material adverse effect on our liquidity, financial
condition and operations. As a result of the continuing default, the Company may be forced to sell
its investments to raise funds to repay outstanding amounts. Such forced sales may result in values
that could be less than carrying values reported in these financial statements. The deleveraging of
the Company may significantly impair the Companys ability to effectively operate. Please see Part
II, Item 1A. Risk Factors- An event of default under the Revolving Facility may lead to a forced
liquidation of the pledged assets that may yield less than the fair value of the assets in the
quarterly report on form 10-Q for the quarterly period ended May 31, 2009 for more information. To
date, our lender has not accelerated the debt with respect to this event of default, but has
reserved the right to do so. We continue to discuss possible solutions to the event of default with
our lender.
During the continuance of an event of default, the interest rate on the Revolving Facility is
increased from the commercial paper rate plus 4.00% to the greater of the commercial paper rate and
our lenders prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market
is unavailable, the greater of the prevailing LIBOR rates and our lenders prime rate plus 6.00%
plus a default rate of 3.00%. Under this formula, the interest rate during the three month period
ended November 30, 2009 was 9.25%.
For purposes of determining the Borrowing Base, most assets are assigned the values set forth
in our most recent quarterly report filed with the SEC. Accordingly, the November 30, 2009
Borrowing Base relies upon the valuations set forth in the quarterly report for the quarter ended
August 31, 2009. The valuations presented in this quarterly report will not be incorporated into
the Borrowing Base until after this report is filed with the SEC. If the November 30, 2009
valuations were used to calculate the Borrowing Base at November 30, 2009, the Borrowing Base would
have been $11.9 million versus $12.1 million when using the August 31, 2009 valuations.
Substantially all of our assets other than our investment in the subordinated notes of GSCIC
CLO are held in a special purpose subsidiary and pledged under our Revolving Facility. We commenced
the two year amortization period under the Revolving Facility in January 2009, during which time
all principal proceeds from the pledged assets are used to repay the Revolving Facility. In
addition, during the continuance of an event of default, all interest proceeds from the pledged
assets are also used to repay the Revolving Facility. As a result, the Company is required to fund
its operating expenses and dividends solely from cash on hand, management fees earned from, and
the proceeds of the subordinated notes of, GSCIC CLO. Please see Part II, Item 1A. Risk
FactorsContinuance of an Event of Default under our Revolving Facility and/or deferral of
payments from GSCIC CLO may result in a shortage of working capital in this quarterly report for
more information.
40
In April 2009, our investment adviser withheld a scheduled principal amortization payment
under its credit facility, resulting in a default thereunder. Since then, our investment adviser
has been in discussions with its secured lenders regarding a consensual restructuring of its
obligations under such credit facility. A material adverse change in the business, condition
(financial or otherwise), operations or performance of our investment adviser could constitute a
default under our Revolving Facility.
Our asset coverage ratio, as defined in the 1940 Act, was 247% at November 30, 2009 versus
215% at February 28, 2009.
At November 30, 2009 and February 28, 2009, the fair value of investments, cash and cash
equivalents and cash and cash equivalents, securitization accounts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2009 |
|
|
At February 28, 2009 |
|
|
|
Fair |
|
|
Percent |
|
|
Fair |
|
|
Percent |
|
|
|
Value |
|
|
of Total |
|
|
Value |
|
|
of Total |
|
|
|
($ in thousands) |
|
Cash and cash equivalents |
|
$ |
5,460 |
|
|
|
5.0 |
% |
|
$ |
6,356 |
|
|
|
5.0 |
% |
Cash and cash equivalents, securitization accounts |
|
|
839 |
|
|
|
0.8 |
|
|
|
1,178 |
|
|
|
0.9 |
|
First lien term loans |
|
|
15,922 |
|
|
|
14.5 |
|
|
|
17,118 |
|
|
|
13.5 |
|
Second lien term loans |
|
|
30,084 |
|
|
|
27.4 |
|
|
|
41,043 |
|
|
|
32.5 |
|
Senior secured notes |
|
|
28,431 |
|
|
|
25.9 |
|
|
|
25,832 |
|
|
|
20.4 |
|
Unsecured notes |
|
|
7,309 |
|
|
|
6.7 |
|
|
|
12,381 |
|
|
|
9.8 |
|
Other/structured finance securities |
|
|
21,464 |
|
|
|
19.6 |
|
|
|
22,341 |
|
|
|
17.7 |
|
Equity/limited partnership interests |
|
|
60 |
|
|
|
0.1 |
|
|
|
198 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
109,569 |
|
|
|
100.0 |
% |
|
$ |
126,447 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 13, 2009, our Board of Directors declared a dividend of $1.825 per share payable
on December 31, 2009, to common stockholders of record on November 25, 2009. Shareholders had the
option to receive payment of the dividend in cash, shares of common stock, or a combination of cash
and shares of common stock, provided that the aggregate cash payable to all shareholders was
limited to $2.1 million or $0.25 per share.
Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares
of common stock, or 104% of our outstanding common stock prior to the dividend payment. The amount
of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend
amount, thus resulting in the payment of a combination of cash and stock to shareholders who
elected to receive cash. The number of shares of common stock comprising the stock portion was
calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading
price per share of the common stock on December 24 and 28, 2009.
Off-Balance Sheet Arrangements
At November 30, 2009 and February 28, 2009, we did not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our business activities contain elements of market risk. We consider our principal market
risks to be fluctuations in interest rates and the inherent difficulty of determining the fair
value of our investments that do not have a readily available market value. Managing these risks is
essential to our business. Accordingly, we have systems and procedures designed to identify and
analyze our risks, to establish appropriate policies and thresholds and to continually monitor
these risks and thresholds by means of administrative and information technology systems and other
policies and processes.
Interest Rate Risk
Interest rate risk is defined as the sensitivity of our current and future earnings to
interest rate volatility, including relative changes in different interest rates, variability of
spread relationships, the difference in re-pricing intervals between our assets and liabilities and
41
the effect that interest rates may have on our cash flows. Changes in the general level of
interest rates can affect our net interest income, which is the difference between the interest
income earned on interest earning assets and our interest expense incurred in connection with our
interest bearing debt and liabilities. Changes in interest rates can also affect, among other
things, our ability to acquire leveraged loans, high yield bonds and other debt investments and the
value of our investment portfolio.
Our investment income is affected by fluctuations in various interest rates, including LIBOR
and the prime rate. A large portion of our portfolio is, and we expect will continue to be,
comprised of floating rate investments that utilize LIBOR. Our interest expense is affected by
fluctuations in the commercial paper rate and our lenders prime rate or, if the commercial paper
market is unavailable, LIBOR and our lenders prime rate. At November 30, 2009, we had $43.8
million of borrowings outstanding at a floating rate tied to the greater of the prevailing
commercial paper rate and our lenders prime rate plus a margin of 4.00% plus a default rate of
2.00% (or, if the commercial paper market is unavailable, the greater of the prevailing LIBOR rates
and our lenders prime rate plus 6.00% plus a default rate of 3.00%).
In April and May 2007, pursuant to the Revolving Facility, the Company entered into two
interest rate cap agreements with notional amounts of $34.0 million (increased to $40.0 million in
May 2007) and $60.9 million. These agreements provide for a payment to the Company in the event
LIBOR exceeds 8%, mitigating our exposure to increases in LIBOR. At November 30, 2009, the
aggregate interest rate cap agreement notional amount was $66.4 million.
We have analyzed the potential impact of changes in interest rates on interest income from
investments net of interest expense on the Revolving Facility. Assuming that our investments at
November 30, 2009 were to remain constant for a full fiscal year and no actions were taken to alter
the existing interest rate terms, a hypothetical change of 1% in interest rates would cause a
corresponding change of approximately $0.3 million to our interest income net of interest expense.
Although management believes that this measure is indicative of our sensitivity to interest
rate changes, it does not adjust for potential changes in credit quality, size and composition of
the assets on the balance sheet and other business developments that could magnify or diminish our
sensitivity to interest rate changes, nor does it account for divergences in LIBOR and the
commercial paper rate, which have historically moved in tandem but, in times of unusual credit
dislocations, have experienced periods of divergence. Accordingly, no assurances can be given that
actual results would not materially differ from the potential outcome simulated by this estimate.
Portfolio Valuation
We carry our investments at fair value, as determined in good faith by our Board of Directors.
Investments for which market quotations are readily available are fair valued at such market
quotations. We value investments for which market quotations are not readily available at fair
value as determined in good faith by our Board under our valuation policy and a consistently
applied valuation process. For investments that are thinly traded, we review the depth and quality
of the available quotations to determine if market quotations are readily available. If the
available quotations are indicative only, we may determine that market quotations are not readily
available. 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 significantly
from the values that would have been used had a ready market existed for such investments, and the
differences could be material. In addition, changes in the market environment and other events that
may occur over the life of the investments may cause the gains or losses ultimately realized on
these investments to be different than the valuations that are assigned.
The types of factors that we may take into account in fair value pricing of our investments
include, as relevant, the nature and realizable value of any collateral, third party valuations,
the portfolio companys ability to make payments and its earnings, the markets in which the
portfolio company does business, market yield trend analysis, comparison to publicly-traded
securities, recent sales of or offers to buy comparable companies, and other relevant factors. The
fair value of our investment in the subordinated notes of GSCIC CLO is based on a discounted cash
flow model that utilizes prepayment, re-investment and loss assumptions which are adjusted to
reflect changes in historical experience and projected performance, economic factors, the
characteristics of the underlying cash flow, and comparable yields for similar CLO subordinated
notes or equity, when available.
The table below describes the primary inputs considered by our Board of Directors in
determining the fair value of our investments at November 30, 2009:
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Total |
|
|
|
Fair Value |
|
|
Investments |
|
|
|
($ in thousands) |
|
Third party independent valuation firm |
|
$ |
41,589 |
|
|
|
40.2 |
% |
Market yield trend analysis and enterprise valuation |
|
|
32,424 |
|
|
|
31.4 |
|
Discounted cash flow model |
|
|
21,464 |
|
|
|
20.8 |
|
Readily available market maker, broker quotes |
|
|
7,733 |
|
|
|
7.5 |
|
Other |
|
|
60 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Total fair valued investments |
|
$ |
103,270 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our CEO and CFO have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the
period covered by this quarterly report. Based upon that evaluation, our CEO and CFO have concluded
that our current disclosure controls and procedures are effective as of the end of the period
covered by this quarterly report.
Changes in internal controls over financial reporting
There have been no changes in the Companys internal control over financial reporting (as
defined in Rules 13a-15(f) of the Exchange Act) that occurred during our most recently completed
fiscal quarter that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither we nor any of our subsidiaries are currently subject to any material legal
proceedings, nor, to our knowledge, are any material legal proceedings threatened against us or our
subsidiaries.
Item 1A. Risk Factors
Our business is subject to certain risks and events that, if they occur, could adversely
affect our financial condition and results of operations and the trading price of our common stock.
For a discussion of these risks, please refer to Part I, Item 1A. Risk Factors in our Annual
Report on Form 10-K for the fiscal year ended February 28, 2009 and Part II, Item 1A. Risk
Factors in our quarterly reports on Form 10-Q for the quarterly periods ended May 31, 2009 and
August 31, 2009.
Continuance of an Event of Default under our Revolving Facility and/or deferral of payments
from GSCIC CLO may result in a shortage of working capital.
During the continuance of an event of default, interest proceeds from the assets pledged under
our Revolving Facility that would otherwise be available to pay dividends of the Company are
diverted to repay amounts owing under the Revolving Facility. As a result, the Company has recourse
only to cash on hand and management fees earned from, and the proceeds of the subordinated notes
of, GSCIC CLO, to fund its operating expenses and dividends. Management fees and subordinated note
distributions from GSCIC CLO are also subject to deferral depending on the performance of the GSCIC
CLO portfolio. If the event of default under the Revolving Facility continues, and/or distributions
from GSCIC CLO are deferred, the Company may find itself with insufficient working capital to fund
its operating expenses and/or pay dividends sufficient to comply with its RIC requirements. If such
an event were to occur, the ability of the Company to continue to operate and/or comply with its
RIC requirements could be seriously impaired.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of unregistered securities
We did not sell any securities during the period covered by this report that were not
registered under the Securities Act.
Issuer purchases of equity securities
We did not purchase any shares of our equity securities during the period covered by this
report.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In November 2009, our principal executive offices were changed from New York City to Florham
Park, New Jersey as a result of our investment advisors consolidating its U.S. operations in New
Jersey.
Item 6. Exhibits
44
|
|
|
Exhibit |
|
|
Number |
|
Description |
31.1 |
|
Chief Executive Officer Certification Pursuant to Rule
13a-14 of the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Chief Financial Officer Certification Pursuant to Rule
13a-14 of the Securities Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Chief Executive Officer and Chief Financial Officer
Certification pursuant to Section 1350, Chapter 63 of Title
18, United States Code, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
GSC Investment CORP. |
|
|
|
|
|
|
|
Date: January 14, 2010
|
|
By
|
|
/s/ Seth M. Katzenstein
Seth M. Katzenstein
|
|
|
|
|
|
|
Chief Executive Officer and President, GSC |
|
|
|
|
|
|
Investment Corp. |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ richard t. allorto, jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard T. Allorto, Jr. |
|
|
|
|
|
|
Chief Financial Officer, GSC Investment Corp. |
|
|
46
exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Seth M. Katzenstein, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of GSC Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The companys other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the companys disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the companys internal control over financial
reporting that occurred during the companys most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the companys internal control over financial reporting; and
5. The companys other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
companys ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
Date: January 14, 2010
|
|
|
|
|
|
|
|
|
/s/ Seth M. Katzenstein
|
|
|
Seth M. Katzenstein |
|
|
Chief Executive Officer and President |
|
exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Richard T. Allorto, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of GSC Investment Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The companys other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the companys disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the companys internal control over financial
reporting that occurred during the companys most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the companys internal control over financial reporting; and
5. The companys other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the companys auditors and the audit
committee of the companys board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
companys ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
Date: January 14, 2010
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/s/ Richard T. Allorto, Jr.
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Richard T. Allorto, Jr. |
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Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with the accompanying
Quarterly Report of GSC Investment Corp. on Form 10-Q (the Report) for the purpose of complying
with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the Exchange Act)
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Seth M. Katzenstein, the Chief Executive Officer and President and Richard T. Allorto, Jr.,
the Chief Financial Officer of GSC Investment Corp., each certifies that, to the best of his
knowledge:
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the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange
Act; and |
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2. |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of GSC Investment Corp. |
Date: January 14, 2010
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/s/ Seth M. Katzenstein
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Seth M. Katzenstein |
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Chief Executive Officer and President |
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/s/ Richard T. Allorto, Jr.
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Richard T. Allorto, Jr. |
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Chief Financial Officer |
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