10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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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 May 31, 2008
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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
(State or other jurisdiction of
incorporation or organization)
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20-8700615
(I.R.S. Employer
Identification Number) |
888 Seventh Ave
New York, New York 10019
(Address of principal executive offices)
(212) 884-6200
(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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company 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 July 10, 2008 was 8,291,384.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GSC Investment Corp.
Consolidated Balance Sheets
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As of |
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May 31, 2008 |
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February 29, 2008 |
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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 $146,510,329 and $162,888,724, respectively) |
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$ |
127,162,754 |
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$ |
143,745,269 |
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Control investments (amortized cost of $30,000,000 and $30,000,000, respectively) |
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29,194,602 |
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29,075,299 |
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Affiliate investments (amortized cost of $0 and $0, respectively) |
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16,233 |
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16,233 |
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Total investments at fair value (amortized cost of $176,510,329 and $192,888,724, respectively) |
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156,373,589 |
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172,836,801 |
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Cash and cash equivalents |
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1,963,407 |
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1,072,641 |
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Cash and cash equivalents, securitization accounts |
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10,120,045 |
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14,580,973 |
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Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively) |
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64,735 |
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76,734 |
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Interest receivable |
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3,710,453 |
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2,355,122 |
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Due from manager |
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44,567 |
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940,903 |
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Management fee receivable |
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738,653 |
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215,914 |
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Other assets |
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89,508 |
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39,349 |
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Receivable from unsettled trades |
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493,125 |
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Deferred credit facility financing costs, net |
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678,784 |
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723,231 |
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Total assets |
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$ |
174,276,866 |
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$ |
192,841,668 |
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LIABILITIES |
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Revolving credit facility |
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$ |
60,650,000 |
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$ |
78,450,000 |
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Payable for unsettled trades |
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10,996,930 |
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11,329,150 |
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Dividend payable |
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3,233,640 |
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3,233,640 |
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Management and incentive fees payable |
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1,088,606 |
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943,061 |
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Accounts payable and accrued expenses |
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586,418 |
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713,422 |
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Interest and credit facility fees payable |
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245,388 |
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292,307 |
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Due to manager |
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29,236 |
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11,048 |
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Total liabilities |
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$ |
76,830,218 |
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$ |
94,972,628 |
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STOCKHOLDERS EQUITY |
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Common stock, par value $.0001 per share, 100,000,000 common shares
authorized, 8,291,384 and 8,291,384 common shares issued and outstanding, respectively |
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829 |
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829 |
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Capital in excess of par value |
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116,218,966 |
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116,218,966 |
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Accumulated undistributed net investment income |
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417,409 |
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455,576 |
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Accumulated undistributed net realized gain from investments and derivatives |
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1,012,448 |
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1,299,858 |
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Net unrealized depreciation on investments and derivatives |
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(20,203,004 |
) |
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(20,106,189 |
) |
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Total stockholders equity |
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97,446,648 |
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97,869,040 |
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Total liabilities and stockholders equity |
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$ |
174,276,866 |
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$ |
192,841,668 |
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NET ASSET VALUE PER SHARE |
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$ |
11.75 |
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$ |
11.80 |
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See accompanying notes to consolidated financial statements.
1
GSC Investment Corp.
Consolidated Statement of Operations
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For the three months |
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For the three months |
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ended May 31, 2008 |
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ended May 31, 2007 |
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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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$ |
4,459,124 |
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$ |
3,680,845 |
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Control investments |
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635,386 |
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Total interest income |
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5,094,510 |
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3,680,845 |
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Interest from cash and cash equivalents |
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66,689 |
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21,051 |
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Management fee income |
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522,739 |
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383,562 |
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Other income |
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31,423 |
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16,603 |
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Total investment income |
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5,715,361 |
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4,102,061 |
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EXPENSES |
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Interest and credit facility financing expenses |
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833,198 |
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720,765 |
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Base management fees |
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748,499 |
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360,488 |
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Professional fees |
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345,459 |
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542,616 |
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Administrator expenses |
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248,398 |
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Incentive management fees |
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340,107 |
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359,368 |
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Insurance |
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167,486 |
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118,041 |
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Directors fees |
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66,609 |
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96,090 |
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General & administrative |
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65,037 |
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45,692 |
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Other expense |
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3,208 |
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Cost of acquiring management contract |
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144,000 |
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Organizational expense |
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22,868 |
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Expenses before manager expense waver and reimbursement |
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2,818,001 |
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2,409,928 |
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Expense waver and reimbursement |
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(298,113 |
) |
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(265,766 |
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Total expenses net of expense waver and reimbursement |
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2,519,888 |
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2,144,162 |
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NET INVESTMENT INCOME |
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3,195,473 |
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1,957,899 |
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: |
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Net realized gain/(loss) from investments |
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(287,410 |
) |
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1,021,068 |
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Net unrealized appreciation/(depreciation) on investments |
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(84,817 |
) |
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750,801 |
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Net unrealized depreciation on derivatives |
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(11,998 |
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(50,020 |
) |
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Net gain/(loss) on investments |
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(384,225 |
) |
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1,721,849 |
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
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$ |
2,811,248 |
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$ |
3,679,748 |
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WEIGHTED AVERAGE BASIC AND DILUTED EARNINGS PER COMMON SHARE |
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$ |
0.34 |
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$ |
0.59 |
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WEIGHTED AVERAGE COMMON STOCK OUTSTANDING BASIC AND DILUTED |
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8,291,384 |
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6,218,763 |
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See accompanying notes to consolidated financial statements.
2
GSC Investment Corp.
Consolidated Schedule of Investments
May 31, 2008
(Unaudited)
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% of |
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Stockholders |
Company (a) |
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Industry |
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Investment |
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Principal |
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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 - 130.5% (b) |
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Decrane Aircraft Holdings, Inc. (c, d) |
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Aerospace and Defense |
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Second Lien Term Loan
12.37%, 2/21/2014 |
|
$ |
4,000,000 |
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$ |
3,700,000 |
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$ |
3,600,000 |
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3.7 |
% |
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EuroFresh Inc. (d) |
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Agriculture |
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Unsecured Notes
11.50%, 1/15/2013 |
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7,000,000 |
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6,894,636 |
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|
4,585,000 |
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4.7 |
% |
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GFSI Inc (d) |
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Apparel |
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Senior Secured Notes
10.50%, 6/1/2011 |
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7,425,000 |
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7,425,000 |
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|
6,905,250 |
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|
7.1 |
% |
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Key Safety Systems (d) |
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Automotive |
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First Lien Term Loan
4.94%, 3/8/2014 |
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|
1,493,703 |
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1,107,649 |
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1,214,828 |
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1.2 |
% |
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Legacy Cabinets, Inc. (d) |
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Building Products |
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First Lien Term Loan
6.50%, 8/18/2012 |
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|
1,866,750 |
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|
1,843,934 |
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|
1,306,725 |
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|
1.3 |
% |
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Legacy Cabinets, Inc. (d) |
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Building Products |
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Second Lien Term Loan
7.50%, 8/18/2013 |
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|
2,400,000 |
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|
2,356,654 |
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|
1,440,000 |
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1.5 |
% |
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Total Building Products |
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4,266,750 |
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4,200,588 |
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2,746,725 |
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2.8 |
% |
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Hopkins Manufacturing Corporation (c, d) |
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Consumer Products |
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Second Lien Term Loan
11.82%, 1/26/2012 |
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|
3,250,000 |
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|
3,246,065 |
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|
3,087,500 |
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3.2 |
% |
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Targus Group International, Inc. (d) |
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Consumer Products |
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First Lien Term Loan
7.06%, 11/22/2012 |
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|
3,122,943 |
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|
2,859,522 |
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2,498,354 |
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2.6 |
% |
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Targus Group International, Inc. (d) |
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Consumer Products |
|
Second Lien Term Loan
11.35%, 5/22/2013 |
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|
5,000,000 |
|
|
|
4,751,718 |
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|
3,650,000 |
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3.7 |
% |
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Total Consumer Products |
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11,372,943 |
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|
10,857,305 |
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|
|
9,235,854 |
|
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|
9.5 |
% |
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|
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CFF Acquisition LLC (c, d) |
|
Consumer Services |
|
First Lien Term Loan
6.41%, 7/31/2013 |
|
|
397,886 |
|
|
|
397,886 |
|
|
|
358,098 |
|
|
|
0.4 |
% |
|
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|
|
|
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|
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|
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|
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M/C Communications, LLC (d) |
|
Education |
|
First Lien Term Loan
5.43%, 12/31/2010 |
|
|
1,715,473 |
|
|
|
1,564,727 |
|
|
|
943,510 |
|
|
|
1.0 |
% |
|
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|
|
|
|
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|
|
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|
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|
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|
Advanced Lighting Technologies, Inc. (c, d) |
|
Electronics |
|
Second Lien Term Loan
8.53%, 6/1/2014 |
|
|
2,000,000 |
|
|
|
1,740,000 |
|
|
|
1,800,000 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Group Dekko (c, d) |
|
Electronics |
|
Second Lien Term Loan
8.64%, 1/20/2012 |
|
|
6,670,000 |
|
|
|
6,670,000 |
|
|
|
6,136,400 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPC Systems, Inc. (d) |
|
Electronics |
|
First Lien Term Loan
4.95%, 5/31/2014 |
|
|
49,625 |
|
|
|
44,740 |
|
|
|
38,211 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Total
Electronics |
|
|
8,719,625 |
|
|
|
8,454,740 |
|
|
|
7,974,611 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
USS Mergerco, Inc. (c, d) |
|
Environmental |
|
Second Lien Term Loan
6.95%, 6/29/2013 |
|
|
5,960,000 |
|
|
|
5,831,901 |
|
|
|
4,768,000 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy Management Solutions, Inc. (d) |
|
Financial Services |
|
Second Lien Term Loan
8.63%, 7/31/2013 |
|
|
4,925,000 |
|
|
|
4,891,145 |
|
|
|
3,718,375 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Train, Inc. (c, d) |
|
Food and Beverage |
|
First Lien Term Loan
6.88%, 3/31/2012 |
|
|
2,628,155 |
|
|
|
1,638,167 |
|
|
|
1,813,427 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDI Acquisition Corp. (d) |
|
Healthcare Services |
|
Senior Secured Notes
10.75%, 12/15/2011 |
|
|
3,800,000 |
|
|
|
3,587,087 |
|
|
|
3,040,000 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRACS Institute, LTD (c, d) |
|
Healthcare Services |
|
Second Lien
Term Loan
9.57%, 4/17/2013 |
|
|
4,093,750 |
|
|
|
4,039,063 |
|
|
|
4,093,750 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Healthcare
Services |
|
|
7,893,750 |
|
|
|
7,626,150 |
|
|
|
7,133,750 |
|
|
|
7.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McMillin Companies LLC (c, d) |
|
Homebuilding |
|
Senior Secured Notes
9.53%, 4/30/2012 |
|
|
7,700,000 |
|
|
|
7,219,630 |
|
|
|
6,198,500 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asurion Corporation (d) |
|
Insurance |
|
First Lien Term Loan
5.78%, 7/3/2014 |
|
|
2,000,000 |
|
|
|
1,674,242 |
|
|
|
1,863,200 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC (c, d) |
|
Logistics |
|
First Lien Term Loan
6.97%, 6/30/2013 |
|
|
2,843,712 |
|
|
|
2,837,604 |
|
|
|
2,570,716 |
|
|
|
2.6 |
% |
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
Company (a) |
|
Industry |
|
Investment |
|
Principal |
|
Cost |
|
Fair Value |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (c, d) |
|
Manufacturing |
|
Unsecured Notes
13.00%, 11/1/2010 |
|
|
12,000,000 |
|
|
|
12,000,000 |
|
|
|
11,712,000 |
|
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (c, d) |
|
Manufacturing |
|
Unsecured Notes
13.00%, 11/1/2010 |
|
|
1,700,000 |
|
|
|
1,700,000 |
|
|
|
1,659,200 |
|
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufacturing |
|
|
13,700,000 |
|
|
|
13,700,000 |
|
|
|
13,371,200 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blaze Recycling & Metals, LLC (d) |
|
Metals |
|
Senior Secured Notes
10.88%, 7/15/2012 |
|
|
2,500,000 |
|
|
|
2,493,394 |
|
|
|
2,375,000 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC (c, d) |
|
Metals |
|
Senior Secured Notes
13.00%, 3/1/2013 |
|
|
3,000,000 |
|
|
|
2,896,355 |
|
|
|
2,697,000 |
|
|
|
2.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC (c, d) |
|
Metals |
|
Warrants |
|
|
|
|
|
|
|
|
|
|
250,620 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Metals |
|
|
5,500,000 |
|
|
|
5,389,749 |
|
|
|
5,322,620 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abitibi-Consolidated Company of Canada (d, e) |
|
Natural Resources |
|
First Lien Term Loan
11.50%, 3/30/2009 |
|
|
2,948,640 |
|
|
|
2,859,430 |
|
|
|
2,946,870 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant U.S. Holdings LLP (d, e) |
|
Natural Resources |
|
Second Lien Term Loan
12.75%, 9/20/2013 |
|
|
5,666,022 |
|
|
|
5,665,832 |
|
|
|
4,277,847 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Natural Resources |
|
|
8,614,662 |
|
|
|
8,525,262 |
|
|
|
7,224,717 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edgen Murray II, L.P. (c, d) |
|
Oil and Gas |
|
Second Lien Term Loan
8.94%, 5/11/2015 |
|
|
2,000,000 |
|
|
|
1,948,516 |
|
|
|
1,670,000 |
|
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Alloys, LLC (c, d) |
|
Oil and Gas |
|
Second Lien Term Loan
11.50%, 10/5/2012 |
|
|
6,200,000 |
|
|
|
6,200,000 |
|
|
|
5,859,000 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas |
|
|
8,200,000 |
|
|
|
8,148,516 |
|
|
|
7,529,000 |
|
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantis Plastics Films, Inc. (d) |
|
Packaging |
|
First Lien Term Loan
7.44%, 9/22/2011 |
|
|
6,499,493 |
|
|
|
6,476,904 |
|
|
|
3,964,690 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stronghaven, Inc. (c, d) |
|
Packaging |
|
Second Lien Term Loan
11.00%, 10/31/2010 |
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
|
2,475,000 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
12.50%, 6/15/2009 |
|
|
4,850,000 |
|
|
|
4,854,132 |
|
|
|
3,443,500 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
12.50%, 6/15/2009 |
|
|
5,087,250 |
|
|
|
5,094,049 |
|
|
|
3,611,948 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
15.11%, 6/15/2009 |
|
|
500,000 |
|
|
|
498,822 |
|
|
|
355,000 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Packaging |
|
|
19,436,743 |
|
|
|
19,423,907 |
|
|
|
13,850,138 |
|
|
|
14.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom Direct, Inc. (c, d) |
|
Printing |
|
First Lien Term Loan
5.45%, 12/31/2013 |
|
|
2,294,250 |
|
|
|
1,762,662 |
|
|
|
1,835,400 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanstar Communications Inc. (d) |
|
Publishing |
|
First Lien Term Loan
4.92%, 5/31/2014 |
|
|
1,985,000 |
|
|
|
1,524,815 |
|
|
|
1,588,000 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan
5.39%, 6/24/2009 |
|
|
479,990 |
|
|
|
454,113 |
|
|
|
453,591 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Publishing |
|
First Lien Term Loan
5.39%, 6/24/2009 |
|
|
517,028 |
|
|
|
489,060 |
|
|
|
488,591 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Publishing Company (c, d) |
|
Publishing |
|
Second Lien Term Loan
9.89%, 9/19/2014 |
|
|
1,203,226 |
|
|
|
1,197,739 |
|
|
|
1,070,871 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Communications, Inc. (c, d) |
|
Publishing |
|
Unsecured Notes
10.75%, 12/1/2013 |
|
|
5,000,000 |
|
|
|
5,093,732 |
|
|
|
3,825,000 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penton Media, Inc. (d) |
|
Publishing |
|
First Lien Term Loan
5.14%, 2/1/2013 |
|
|
4,940,038 |
|
|
|
3,609,404 |
|
|
|
4,013,782 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Publishing |
|
|
14,125,282 |
|
|
|
12,368,863 |
|
|
|
11,439,835 |
|
|
|
11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GXS Worldwide, Inc. (d) |
|
Software |
|
Second Lien Term Loan
10.52%, 9/30/2013 |
|
|
1,000,000 |
|
|
|
870,000 |
|
|
|
960,000 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Non-control/Non-affiliated investments |
|
|
|
|
|
|
146,510,329 |
|
|
|
127,162,754 |
|
|
|
130.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments - 0.2% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC CDO III, LLC (c, h) |
|
Financial Services |
|
100% membership
interest |
|
|
|
|
|
|
|
|
|
|
160,153 |
|
|
|
0.2 |
% |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
Company (a) |
|
Industry |
|
Investment |
|
Principal |
|
Cost |
|
Fair Value |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Investment Corp. CLO 2007 LTD.
(c, f, h) |
|
Structured Finance Securities |
|
Other/Structured
Finance Securities
20.36%, 1/21/2020 |
|
|
30,000,000 |
|
|
|
30,000,000 |
|
|
|
29,034,449 |
|
|
|
29.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Control investments |
|
|
|
|
|
|
30,000,000 |
|
|
|
29,194,602 |
|
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate investments - 0.0% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (c, g) |
|
Financial Services |
|
6.24% Partnership
interest |
|
|
|
|
|
|
|
|
|
|
16,233 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT ASSETS - 160.5% (b) |
|
|
|
|
|
$ |
176,510,329 |
|
|
$ |
156,373,589 |
|
|
|
160.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
Outstanding interest rate cap |
|
Interest rate |
|
|
Maturity |
|
Notional |
|
Cost |
|
Fair value |
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap |
|
|
8.0 |
% |
|
2/9/2014 |
|
$ |
40,000,000 |
|
|
$ |
87,000 |
|
|
$ |
41,925 |
|
|
|
0.0 |
% |
Interest rate cap |
|
|
8.0 |
% |
|
11/30/2013 |
|
|
46,637,408 |
|
|
|
44,000 |
|
|
|
22,810 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Outstanding interest rate cap |
|
|
|
|
|
|
|
|
|
|
|
$ |
131,000 |
|
|
$ |
64,735 |
|
|
|
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, Atlantis Plastics Films, Inc., Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007, Terphane Holdings Corp., GSC CDO III LLC, and GSC Partners CDO GP III,
LP. |
|
(b) |
|
Percentages are based on net assets of $97,446,648 as of May 31, 2008. |
|
(c) |
|
Fair valued investment (see Note 2 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) |
|
20.36% represents the modeled effective interest rate that will 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(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. |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
635,386 |
|
|
$ |
522,739 |
|
|
$ |
|
|
|
$ |
119,303 |
|
GSC CDO III, LLC |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
5
GSC Investment Corp.
Consolidated Schedule of Investments
February 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
Company (a) |
|
Industry |
|
Investment |
|
Principal |
|
Cost |
|
Fair Value |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-control/Non-affiliated investments - 146.9% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EuroFresh Inc. (d) |
|
Agriculture |
|
Unsecured Notes
11.50%, 1/15/2013 |
|
$ |
7,000,000 |
|
|
$ |
6,890,639 |
|
|
$ |
3,850,000 |
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GFSI Inc (c, d) |
|
Apparel |
|
Senior Secured Notes
10.50%, 6/1/2011 |
|
|
8,425,000 |
|
|
|
8,421,760 |
|
|
|
8,003,750 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Safety Systems (d) |
|
Automotive |
|
First Lien Term Loan
6.68%, 3/8/2014 |
|
|
2,500,000 |
|
|
|
1,837,500 |
|
|
|
1,875,000 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILLC Holdings, LLC (c, d) |
|
Automotive |
|
Second Lien Term Loan
9.86%, 5/24/2011 |
|
|
23,049,210 |
|
|
|
22,865,049 |
|
|
|
20,283,305 |
|
|
|
20.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive |
|
|
25,549,210 |
|
|
|
24,702,549 |
|
|
|
22,158,305 |
|
|
|
22.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Cabinets, Inc. (d) |
|
Building Products |
|
First Lien Term Loan
8.56%, 8/18/2012 |
|
|
1,871,500 |
|
|
|
1,847,290 |
|
|
|
1,403,625 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Cabinets, Inc. (d) |
|
Building Products |
|
Second Lien Term Loan
12.31%, 8/18/2013 |
|
|
2,400,000 |
|
|
|
2,354,989 |
|
|
|
1,560,000 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Building Products |
|
|
4,271,500 |
|
|
|
4,202,280 |
|
|
|
2,963,625 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hopkins Manufacturing Corporation (c, d) |
|
Consumer Products |
|
Second Lien Term Loan 11.82%, 1/26/2012 |
|
|
3,250,000 |
|
|
|
3,245,793 |
|
|
|
3,152,500 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targus Group International, Inc. (d) |
|
Consumer Products |
|
First Lien Term Loan
7.61%, 11/22/2012 |
|
|
3,408,271 |
|
|
|
3,095,060 |
|
|
|
2,851,701 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Targus Group International, Inc. (d) |
|
Consumer Products |
|
Second Lien Term Loan
13.35%, 5/22/2013 |
|
|
5,000,000 |
|
|
|
4,743,768 |
|
|
|
4,016,500 |
|
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Products |
|
|
11,658,271 |
|
|
|
11,084,621 |
|
|
|
10,020,701 |
|
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Consumer Services |
|
First Lien Term Loan
5.62%, 6/24/2009 |
|
|
481,233 |
|
|
|
449,953 |
|
|
|
444,371 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affinity Group, Inc. (d) |
|
Consumer Services |
|
First Lien Term Loan
5.74%, 6/24/2009 |
|
|
518,767 |
|
|
|
485,047 |
|
|
|
479,859 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFF Acquisition LLC (c, d) |
|
Consumer Services |
|
First Lien Term Loan
8.77%, 7/31/2013 |
|
|
406,228 |
|
|
|
406,228 |
|
|
|
365,605 |
|
|
|
0.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consumer Services |
|
|
1,406,228 |
|
|
|
1,341,228 |
|
|
|
1,289,835 |
|
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M/C Communications, LLC (c, d) |
|
Education |
|
First Lien Term Loan
5.54%, 12/31/2010 |
|
|
1,736,766 |
|
|
|
1,571,773 |
|
|
|
1,545,721 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Dekko (c, d) |
|
Electronics |
|
Second Lien Term Loan
9.38%, 1/20/2012 |
|
|
6,670,000 |
|
|
|
6,670,000 |
|
|
|
6,336,500 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPC Systems, Inc. (d) |
|
Electronics |
|
First Lien Term Loan
7.09%, 5/31/2014 |
|
|
49,750 |
|
|
|
44,647 |
|
|
|
40,497 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Electronics |
|
|
6,719,750 |
|
|
|
6,714,647 |
|
|
|
6,376,997 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USS Mergerco, Inc. (c, d) |
|
Environmental |
|
Second Lien Term Loan
9.08%, 6/29/2013 |
|
|
5,960,000 |
|
|
|
5,827,121 |
|
|
|
5,066,000 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy Management Solutions, Inc. (d) |
|
Financial Services |
|
Second Lien Term Loan 9.37%, 7/31/2013 |
|
|
4,937,500 |
|
|
|
4,902,101 |
|
|
|
3,555,000 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realogy Corp. (d) |
|
Financial Services |
|
First Lien Term Loan
6.11%, 10/10/2013 |
|
|
21,106 |
|
|
|
19,693 |
|
|
|
17,746 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realogy Corp. (d) |
|
Financial Services |
|
First Lien Term Loan
7.51%, 10/10/2013 |
|
|
78,394 |
|
|
|
73,147 |
|
|
|
65,733 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financial
Services |
|
|
5,037,000 |
|
|
|
4,994,941 |
|
|
|
3,638,479 |
|
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CCM Merger Inc. (d) |
|
Gaming |
|
First Lien Term Loan
6.35%, 7/13/2012 |
|
|
2,000,000 |
|
|
|
1,670,000 |
|
|
|
1,730,000 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDI Acquisition Corp. (d) |
|
Healthcare Services |
|
Senior Secured Notes
10.75%, 12/15/2011 |
|
|
3,800,000 |
|
|
|
3,574,228 |
|
|
|
3,040,000 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRACS Institute, LTD (c, d) |
|
Healthcare Services |
|
Second Lien Term Loan
11.41%, 4/17/2013 |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Healthcare
Services |
|
|
6,800,000 |
|
|
|
6,574,228 |
|
|
|
6,040,000 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McMillin Companies LLC (c, d) |
|
Homebuilding |
|
Senior Secured Notes
9.53%, 4/30/2012 |
|
|
7,700,000 |
|
|
|
7,194,636 |
|
|
|
5,912,060 |
|
|
|
6.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asurion Corporation (d) |
|
Insurance |
|
First Lien Term Loan
6.10%, 7/3/2014 |
|
|
2,000,000 |
|
|
|
1,665,000 |
|
|
|
1,699,600 |
|
|
|
1.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Worldwide Express Operations, LLC (c, d) |
|
Logistics |
|
First Lien Term Loan 7.89%, 6/30/2013 |
|
|
2,973,362 |
|
|
|
2,966,658 |
|
|
|
2,687,919 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (c, d) |
|
Manufacturing |
|
Unsecured Notes
13.00%, 11/1/2008 |
|
|
12,000,000 |
|
|
|
12,000,000 |
|
|
|
11,712,000 |
|
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason Incorporated (c, d) |
|
Manufacturing |
|
Unsecured Notes
13.00%, 11/1/2008 |
|
|
3,400,000 |
|
|
|
3,400,000 |
|
|
|
3,318,400 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufacturing |
|
|
15,400,000 |
|
|
|
15,400,000 |
|
|
|
15,030,400 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blaze Recycling & Metals, LLC (d) |
|
Metals |
|
Senior Secured Notes
10.88%, 7/15/2012 |
|
|
2,500,000 |
|
|
|
2,493,087 |
|
|
|
2,218,750 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elyria Foundry Company, LLC (c, d) |
|
Metals |
|
Senior Secured Notes
13.00%, 3/1/2013 |
|
|
3,000,000 |
|
|
|
2,893,873 |
|
|
|
2,910,000 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Metals |
|
|
5,500,000 |
|
|
|
5,386,960 |
|
|
|
5,128,750 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant U.S. Holdings LLP (d, e) |
|
Natural Resources |
|
Second Lien Term Loan
12.75%, 9/20/2013 |
|
|
5,365,592 |
|
|
|
5,365,393 |
|
|
|
4,167,456 |
|
|
|
4.3 |
% |
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders |
Company (a) |
|
Industry |
|
Investment |
|
Principal |
|
Cost |
|
Fair Value |
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edgen Murray II, L.P. (c, d) |
|
Oil and Gas |
|
Second Lien Term Loan
9.32%, 5/11/2015 |
|
|
2,000,000 |
|
|
|
1,947,348 |
|
|
|
1,600,000 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Alloys, LLC (c, d) |
|
Oil and Gas |
|
Second Lien Term Loan
12.15%, 10/5/2012 |
|
|
6,200,000 |
|
|
|
6,200,000 |
|
|
|
6,138,000 |
|
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas |
|
|
8,200,000 |
|
|
|
8,147,348 |
|
|
|
7,738,000 |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlantis Plastics Films, Inc. (c, d) |
|
Packaging |
|
First Lien Term Loan
8.71%, 9/22/2011 |
|
|
6,516,244 |
|
|
|
6,491,835 |
|
|
|
4,298,114 |
|
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stronghaven, Inc. (c, d) |
|
Packaging |
|
Second Lien Term Loan
11.00%, 10/31/2010 |
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
|
2,500,000 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
12.50%, 6/15/2009 |
|
|
4,850,000 |
|
|
|
4,853,648 |
|
|
|
4,447,450 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
12.50%, 6/15/2009 |
|
|
5,087,250 |
|
|
|
5,094,096 |
|
|
|
4,665,008 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terphane Holdings Corp. (c, d, e) |
|
Packaging |
|
Senior Secured Notes
15.11%, 6/15/2009 |
|
|
500,000 |
|
|
|
498,536 |
|
|
|
459,500 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Packaging |
|
|
19,453,494 |
|
|
|
19,438,114 |
|
|
|
16,370,073 |
|
|
|
16.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanstar Communications Inc. (d) |
|
Publishing |
|
First Lien Term Loan
7.09%, 5/31/2014 |
|
|
1,990,000 |
|
|
|
1,516,878 |
|
|
|
1,492,500 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brown Publishing Company (c, d) |
|
Publishing |
|
Second Lien Term Loan
11.09%, 9/19/2014 |
|
|
1,203,226 |
|
|
|
1,197,520 |
|
|
|
1,070,871 |
|
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network Communications, Inc. (c, d) |
|
Publishing |
|
Unsecured Notes
10.75%, 12/1/2013 |
|
|
5,000,000 |
|
|
|
5,095,198 |
|
|
|
4,400,000 |
|
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penton Media, Inc. (c, d) |
|
Publishing |
|
First Lien Term Loan
5.37%, 2/1/2013 |
|
|
2,962,500 |
|
|
|
2,134,841 |
|
|
|
2,325,563 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Publishing |
|
|
11,155,726 |
|
|
|
9,944,437 |
|
|
|
9,288,934 |
|
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QCE LLC (d) |
|
Restaurants |
|
First Lien Term Loan
7.03%, 5/5/2013 |
|
|
992,443 |
|
|
|
804,673 |
|
|
|
859,456 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claires Stores, Inc. (d) |
|
Retail |
|
First Lien Term Loan
6.47%, 5/29/2014 |
|
|
2,786,000 |
|
|
|
2,579,717 |
|
|
|
2,179,209 |
|
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Non-control/Non-affiliated investments |
|
|
|
|
|
|
162,888,724 |
|
|
|
143,745,269 |
|
|
|
146.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control investments - 29.7% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC CDO III, LLC (c, g) |
|
Financial Services |
|
100% membership
interest |
|
|
|
|
|
|
|
|
|
|
160,153 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Investment Corp. CLO 2007 LTD. (c, g) |
|
Structured Finance Securities |
|
Other/Structured Finance Securities
20.36%, 1/21/2020 |
|
|
30,000,000 |
|
|
|
30,000,000 |
|
|
|
28,915,146 |
|
|
|
29.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Control investments |
|
|
|
|
|
|
30,000,000 |
|
|
|
29,075,299 |
|
|
|
29.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate investments - 0.0% (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSC Partners CDO GP III, LP (c, f) |
|
Financial Services |
|
6.24% Partnership
interest |
|
|
|
|
|
|
|
|
|
|
16,233 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENT ASSETS - 176.6% (b) |
|
|
|
|
|
$ |
192,888,724 |
|
|
$ |
172,836,801 |
|
|
|
176.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
Outstanding interest rate cap |
|
Interest rate |
|
|
Maturity |
|
Notional |
|
|
Cost |
|
Fair value |
|
Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap |
|
|
8.0 |
% |
|
2/9/2014 |
|
$ |
40,000,000 |
|
|
$ |
87,000 |
|
|
$ |
50,703 |
|
|
|
0.1 |
% |
Interest rate cap |
|
|
8.0 |
% |
|
11/30/2013 |
|
|
46,637,408 |
|
|
|
44,000 |
|
|
|
26,031 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub Total Outstanding interest rate cap |
|
|
|
|
|
|
|
|
|
|
|
$ |
131,000 |
|
|
$ |
76,734 |
|
|
|
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 Atlantis
Plastics Films, Inc., Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007, Terphane Holdings Corp. |
|
(b) |
|
Percentages are based on net assets of $97,869,040 as of February 29, 2008. |
|
(c) |
|
Fair valued investment (see Note 2 to the consolidated financial statements). |
|
(d) |
|
All or a portion of the investment is 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 Grant U.S. Holdings LLP is Canada. |
|
(f) |
|
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 |
|
$ |
2,045,067 |
|
|
$ |
2,084,214 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
39,147 |
|
|
$ |
16,233 |
|
|
(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. 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. |
|
$ |
30,000,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
262,442 |
|
|
$ |
215,914 |
|
|
$ |
|
|
|
$ |
(1,084,854 |
) |
GSC CDO III, LLC |
|
$ |
13,574,694 |
|
|
$ |
14,003,367 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
428,673 |
|
|
$ |
160,153 |
|
See accompanying notes to consolidated financial statements.
7
GSC Investment Corp.
Consolidated Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the three months ended |
|
|
|
May 31, 2008 |
|
|
May 31, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
OPERATIONS: |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
3,195,473 |
|
|
$ |
1,957,899 |
|
Net realized gain/(loss) from investments |
|
|
(287,410 |
) |
|
|
1,021,068 |
|
Net unrealized appreciation/(depreciation) on investments |
|
|
(84,817 |
) |
|
|
750,801 |
|
Net unrealized depreciation on derivatives |
|
|
(11,998 |
) |
|
|
(50,020 |
) |
|
|
|
|
|
|
|
Net increase in net assets from operations |
|
|
2,811,248 |
|
|
|
3,679,748 |
|
|
|
|
|
|
|
|
SHAREHOLDER DISTRIBUTIONS: |
|
|
|
|
|
|
|
|
Distributions declared |
|
|
(3,233,640 |
) |
|
|
(1,989,932 |
) |
|
|
|
|
|
|
|
Net decrease in net assets from shareholder distributions |
|
|
(3,233,640 |
) |
|
|
(1,989,932 |
) |
|
|
|
|
|
|
|
CAPITAL SHARE TRANSACTIONS: |
|
|
|
|
|
|
|
|
Issuance of common stock, net |
|
|
|
|
|
|
116,301,011 |
|
|
|
|
|
|
|
|
Net increase in net assets from capital share transactions |
|
|
|
|
|
|
116,301,011 |
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets |
|
|
(422,392 |
) |
|
|
117,990,827 |
|
Net assets at beginning of period |
|
|
97,869,040 |
|
|
|
(129,163 |
) |
|
|
|
|
|
|
|
Net assets at end of period |
|
$ |
97,446,648 |
|
|
$ |
117,861,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per common share |
|
$ |
11.75 |
|
|
$ |
14.21 |
|
Common shares outstanding at end of period |
|
|
8,291,384 |
|
|
|
8,291,384 |
|
See accompanying notes to consolidated financial statements.
8
GSC Investment Corp.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the three months |
|
|
|
ended May 31, 2008 |
|
|
ended May 31, 2007 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Operating activities |
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS FROM OPERATIONS |
|
$ |
2,811,248 |
|
|
$ |
3,679,748 |
|
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Paid-in-kind interest income |
|
|
(300,430 |
) |
|
|
|
|
Net accretion of discount on investments |
|
|
(292,704 |
) |
|
|
(376,683 |
) |
Amortization of deferred credit facility financing costs |
|
|
44,447 |
|
|
|
30,452 |
|
Net realized (gain) loss from investments |
|
|
287,410 |
|
|
|
(1,021,068 |
) |
Net unrealized (appreciation) depreciation on investments |
|
|
84,817 |
|
|
|
(750,801 |
) |
Unrealized depreciation on
derivatives |
|
|
11,998 |
|
|
|
50,020 |
|
Proceeds from sale and redemption of investments |
|
|
32,938,412 |
|
|
|
46,987,424 |
|
Purchase of investments |
|
|
(16,254,292 |
) |
|
|
(238,030,678 |
) |
(Increase) decrease in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Cash and cash equivalents,
securitization accounts |
|
|
4,460,928 |
|
|
|
(3,590,672 |
) |
Interest receivable |
|
|
(1,355,331 |
) |
|
|
(4,441,802 |
) |
Due from manager |
|
|
896,336 |
|
|
|
(747,472 |
) |
Management fee receivable |
|
|
(522,739 |
) |
|
|
|
|
Other assets |
|
|
(50,159 |
) |
|
|
(976,132 |
) |
Receivable from unsettled trades |
|
|
(493,125 |
) |
|
|
(410,586 |
) |
Deferred offering costs |
|
|
|
|
|
|
808,617 |
|
Payable for unsettled trades |
|
|
(332,220 |
) |
|
|
|
|
Management and incentive fees payable |
|
|
145,545 |
|
|
|
719,856 |
|
Accounts payable and accrued expenses |
|
|
(127,004 |
) |
|
|
449,550 |
|
Interest and credit facility fees payable |
|
|
(46,919 |
) |
|
|
690,312 |
|
Due to manager |
|
|
18,188 |
|
|
|
|
|
Accrued offering costs |
|
|
|
|
|
|
(493,117 |
) |
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES |
|
|
21,924,406 |
|
|
|
(197,423,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Issuance of shares of common stock |
|
|
|
|
|
|
108,750,000 |
|
Offering costs and sales load |
|
|
|
|
|
|
(8,068,750 |
) |
Borrowings on debt |
|
|
2,200,000 |
|
|
|
114,708,119 |
|
Paydowns on debt |
|
|
(20,000,000 |
) |
|
|
(14,500,000 |
) |
Credit facility financing cost |
|
|
|
|
|
|
(1,202,064 |
) |
Payments of cash dividends |
|
|
(3,233,640 |
) |
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES |
|
|
(21,033,640 |
) |
|
|
199,687,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
890,766 |
|
|
|
2,264,273 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
1,072,641 |
|
|
|
1,030 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
1,963,407 |
|
|
$ |
2,265,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information: |
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
543,362 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash information |
|
|
|
|
|
|
|
|
Issuance of common stock for acquisition of investments in GSC CDO III, LLC
and GSC Partners CDO GP III, L.P. |
|
$ |
|
|
|
$ |
15,619,761 |
|
Paid-in-kind interest income |
|
$ |
300,430 |
|
|
$ |
|
|
Net accretion of discount on investments |
|
$ |
292,704 |
|
|
$ |
376,683 |
|
Amortization of deferred credit facility financing costs |
|
$ |
44,447 |
|
|
$ |
30,452 |
|
See accompanying notes to consolidated financial statements.
9
GSC INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. The Company intends to file an election and to qualify to be treated for tax purposes as
a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as
amended (the Code) commencing with our first taxable year as a corporation. We 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.
As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.
On March 21, 2007, the Company was incorporated in 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 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 encompassing of these consolidated
subsidiaries, except as stated otherwise.
Interim consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles (GAAP) for interim financial information and pursuant to the requirements
for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures
accompanying annual consolidated financial statements prepared in accordance with GAAP are omitted.
In the opinion of management, all adjustments, consisting solely of normal recurring accruals,
necessary for the fair presentation of financial statements for the interim period have been
included. The current periods results of operations are not necessarily indicative of results that
ultimately may be achieved for the fiscal year ending February 28, 2009.
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 revenues 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.
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.
10
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
Statement of Financial Accounting Standards No. 107, Disclosure About Fair Value of Financial
Instruments, approximates the carrying amounts presented in the consolidated balance sheet.
Investments for which market quotations are readily available are 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 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, 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 |
|
|
|
|
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 such 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. 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 ultimately realize upon the
disposal of such investments.
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. At May 31, 2008, no
investments were being accounted for on a non-accrual basis.
Interest income on our investment in GSCIC CLO is recorded using the effective interest method in
accordance with the provision of 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-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.
11
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 investment 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.
Organizational Expenses
Organizational expenses consist principally of professional fees incurred in connection with the
organization of the Company and have been expensed as incurred.
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.
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 intends to file an election and qualify 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.
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 each quarter and is generally based upon the
earnings estimated by management. 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 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 February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (FAS 159), which provides companies
with an option to report selected financial assets and liabilities at fair value. The objective of
FAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. FAS 159 establishes
presentation and disclosure requirements designed to facilitate comparisons between companies that
choose different measurement attributes for similar types of assets and liabilities and to more
easily understand the effect of the companys choice to use fair value on its earnings. FAS 159
also requires entities to display the fair value of the selected assets and liabilities on the face
of the balance sheet. FAS 159 does not eliminate disclosure requirements of other accounting
standards, including fair value measurement disclosures in FAS 157. This statement is effective as
of the beginning of an entitys first fiscal year beginning after November 15, 2007. The Company
does not intend to elect fair value measurement for assets or liabilities other than portfolio
investments, which are already measured at fair value, therefore, the Company does not believe the
adoption of this statement will have a significant effect on the Companys financial position or
its results of operations.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities (FAS No. 161). The objective of FAS No. 161
is to improve financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on an entitys
financial position, financial performance, and cash flows. FAS No. 161
12
improves transparency about
the location and amounts of derivative instruments in an entitys financial statements; how
derivative instruments and related hedged items are accounted for under FAS No. 133; and how
derivative instruments and related hedged items affect its financial position, financial
performance, and cash flows. FAS No. 161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular format. It also
provides more information about an entitys liquidity by requiring disclosure of derivative
features that are credit risk related. Finally, it requires cross-referencing within footnotes to
enable financial statement users to locate important information about derivative instruments. FAS
No. 161 is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. We did not early adopt FAS No. 161.
Management is currently evaluating the enhanced disclosure requirements and the impact on our
consolidated financial statements of adopting FAS No. 161.
Note 3. Investments
The Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(FAS 157) as of March 1, 2008, which among other matters, requires enhanced disclosures about
investments that are measured and reported at fair value. As defined in FAS 157, 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. FAS No. 157 establishes a
hierarchal disclosure framework which prioritizes and ranks the level of market price observability
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 following information according to the fair value hierarchy. The fair value
hierarchy ranks the quality and reliability of the information used to determine fair values.
Investments carried at fair value will be 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 FAS 157 (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.
The following table presents fair value measurements of investments as of May 31, 2008 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Non-control/non-affiliate
investments |
|
$ |
127,163 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
127,163 |
|
Control investments |
|
|
29,195 |
|
|
|
|
|
|
|
|
|
|
|
29,195 |
|
Affiliate investments |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value |
|
$ |
156,374 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
156,374 |
|
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended May 31, 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 |
|
Balance as of February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
172,837 |
|
Net unrealized gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85 |
) |
Purchases and other adjustments to cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,848 |
|
Sales and redemptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,226 |
) |
Net transfers in and/or out |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of May 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
156,374 |
|
Purchases and other adjustments to cost include new investments at cost, effects of
refinancing/restructuring, accretion income from discount on debt securities, and PIK.
Sale and redemptions represent net proceeds received and realized gains and losses from investments
sold during the period.
Net transfers in and/or out represent existing investments that were either previously categorized
as a higher level and the inputs to the model became unobservable or investments that were
previously classified as the lowest significant input became observable during the period. These
investments are recorded at their end of period fair values.
The composition of our investments as of May 31, 2008, at cost and fair value was as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Investments at |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Total Portfolio |
|
First lien term loans |
|
$ |
31,145 |
|
|
$ |
27,898 |
|
|
|
17.84 |
% |
Second lien term loans |
|
|
55,609 |
|
|
|
48,607 |
|
|
|
31.08 |
|
Senior secured notes |
|
|
34,068 |
|
|
|
28,626 |
|
|
|
18.31 |
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Investments at |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Total Portfolio |
|
Unsecured notes |
|
|
25,688 |
|
|
|
21,781 |
|
|
|
13.93 |
|
Structured Finance Securities |
|
|
30,000 |
|
|
|
29,035 |
|
|
|
18.57 |
|
Equity/limited partnership interest |
|
|
|
|
|
|
427 |
|
|
|
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
176,510 |
|
|
$ |
156,374 |
|
|
|
100.0 |
% |
As of May 31, 2008, $104.1 million or 67% of the total value of our investments were fair valued by
our board of directors in accordance with our valuation policy described in Note 2.
The composition of our investments as of February 29, 2008, at cost and fair value was as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Investments at |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Total Portfolio |
|
First lien term loans |
|
$ |
29,660 |
|
|
$ |
26,362 |
|
|
|
15.25 |
% |
Second lien term loans |
|
|
70,819 |
|
|
|
62,446 |
|
|
|
36.13 |
|
Senior secured notes |
|
|
35,024 |
|
|
|
31,657 |
|
|
|
18.32 |
|
Unsecured notes |
|
|
27,386 |
|
|
|
23,281 |
|
|
|
13.47 |
|
Structured Finance Securities |
|
|
30,000 |
|
|
|
28,915 |
|
|
|
16.73 |
|
Equity/limited partnership interest |
|
|
|
|
|
|
176 |
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
192,889 |
|
|
$ |
172,837 |
|
|
|
100.0 |
% |
As of February 29, 2008, $135.3 million or 78% of the total value of our investments were fair
valued by our board of directors in accordance with our valuation policy described in Note 2. All
of our investments are in below investment grade securities and loans.
Note 4. 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 months ended
May 31, 2008, we accrued $0.5 million in management fees and $0.6 million in interest income. We
did not accrue any amounts related to the incentive management fee as the 12% hurdle rate has not
yet been achieved.
Note 5. 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.
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.
14
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.
For the three months ended May 31, 2008, we incurred $0.7 million in base management fees and $0.3
million in incentive fees related to pre-incentive fee net investment income. For the three months
ended May 31, 2008, we incurred no incentive management fees related to net realized capital gains.
As of May 31, 2008, $0.7 million of base management fees and $0.3 million of incentive fees were
unpaid and included in management and incentive fees payable in the accompanying consolidated
balance sheet.
For the three months ended May 31, 2007, we incurred $0.4 million in base management fees, $0.2
million in incentive fees related to pre-incentive fee net investment income and $0.2 million
incentive fees related to net realized capital gains.
As of May 31, 2008, the end of the first quarter of fiscal year 2009, 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 second fiscal quarter of fiscal year 2008. Accordingly, the payment of the
incentive fee for the quarter ended May 31, 2008 will be deferred. Additionally, $0.6 million of
prior incentive fees were paid to our investment advisor but should also have been deferred. These
fees have been subsequently returned with interest and will not be paid until such time as the
deferral payment requirements described above have been satisfied.
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 months ended May 31, 2008, we accrued $0.2 million of administrator expenses
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. 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 months ended May 31, 2008, we have recorded $0.2 million in expense waver and reimbursement under the Administration Agreement in the accompanying consolidated
statement of operations.
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 months period thereafter unless otherwise agreed by the Manager
and the Company. For the three months ended May 31, 2008, we have recorded $49,715 in expense waver and reimbursement under the Expense Reimbursement Agreement in the accompanying consolidated
statement of operations. 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 6. 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. We also pay an unused commitment fee equal to 0.225% payable monthly. As of
May 31, 2008, there was $60.7 million outstanding under the Revolving Facility and the Company
continues to be in compliance with all of the limitations and requirements of the Revolving
Facility. For the three months ended May 31, 2008, we recorded $0.8 million of interest expense and
$44,447 of amortization of deferred financing costs related to the Revolving Facility and the
interest rates on the outstanding borrowings ranged from 3.52% to 4.22%. As of May 31, 2007, there
was $74.5 million outstanding under the Revolving Facility. For the three months ended May 31,
2007, we recorded $0.6 million of interest expense and $23,419 of amortization of deferred
financing costs related to the Revolving Facility and the interest rates on the outstanding
borrowings ranged from 5.32% to 5.32%.
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. As of May 31, 2007, there was $25.7 million outstanding under the Term Facility.
For the three months ended May 31, 2007, we recorded $0.1 million of interest expense and $7,033 of
amortization of deferred financing costs related to the Term Facility.
15
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.
Note 7. 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 8. Earnings Per Share
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 three months ended May 31, 2008, and May
31, 2007 (dollars in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
May 31, 2008 |
|
May 31, 2007 |
Net increase in net assets from operations |
|
$ |
2,811 |
|
|
$ |
3,680 |
|
Weighted average common shares outstanding |
|
|
8,291,384 |
|
|
|
6,218,763 |
|
Earnings per common share-basic and diluted |
|
$ |
0.34 |
|
|
$ |
0.59 |
|
Note 9. Dividend
The following table summarizes dividends declared during the three months ended May 31, 2008 and
May 31, 2007 (dollars in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Declared |
|
Record Date |
|
Payment Date |
|
Amount Per Share * |
|
Total Amount |
May 22, 2008 |
|
May 30, 2008 |
|
June 13, 2008 |
|
$ |
0.39 |
|
|
$ |
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends declared |
|
|
|
|
|
|
|
|
|
$ |
0.39 |
|
|
$ |
3,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Declared |
|
Record Date |
|
Payment Date |
|
Amount Per Share * |
|
Total Amount |
May 21, 2007 |
|
May 29, 2007 |
|
June 6, 2007 |
|
$ |
0.24 |
|
|
$ |
1,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends declared |
|
|
|
|
|
|
|
|
|
$ |
0.24 |
|
|
$ |
1,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount per share is calculated based on the number of shares outstanding at the date of
declaration. |
Note 10. Financial Highlights
The following is a schedule of financial highlights for the three months ended May 31, 2008 and May
31, 2007 and for the year ended February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2008 |
|
May 31, 2007 |
|
February 29, 2008 |
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offering cost at IPO, March 23, 2007 |
|
$ |
|
|
|
$ |
15.00 |
|
|
$ |
15.00 |
|
Sales load |
|
|
|
|
|
|
(0.85 |
) |
|
|
(0.85 |
) |
Offering cost |
|
|
|
|
|
|
(0.12 |
) |
|
|
(0.12 |
) |
|
|
|
Net asset value at beginning of period/IPO |
|
|
11.80 |
|
|
|
14.03 |
|
|
|
14.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (1) |
|
|
0.39 |
|
|
|
0.24 |
|
|
|
1.30 |
|
Net realized gains (losses) on investments and derivatives |
|
|
(0.04 |
) |
|
|
0.12 |
|
|
|
0.47 |
|
Net unrealized appreciation (depreciation) on investments and derivatives |
|
|
(0.01 |
) |
|
|
0.06 |
* |
|
|
(2.45 |
)* |
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2008 |
|
May 31, 2007 |
|
February 29, 2008 |
|
|
|
Net increase (decrease) in stockholders equity |
|
|
0.34 |
|
|
|
0.42 |
|
|
|
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared from net investment income |
|
|
(0.39 |
) |
|
|
(0.24 |
) |
|
|
(1.37 |
) |
Distributions declared from net realized capital gains |
|
|
|
|
|
|
|
|
|
|
(0.18 |
) |
|
|
|
Total distributions to stockholders |
|
|
(0.39 |
) |
|
|
(0.24 |
) |
|
|
(1.55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
11.75 |
|
|
$ |
14.21 |
|
|
$ |
11.80 |
|
|
|
|
Net assets at end of period |
|
$ |
97,446,648 |
|
|
$ |
117,861,664 |
|
|
$ |
97,869,040 |
|
Shares outstanding at end of period |
|
|
8,291,384 |
|
|
|
8,291,384 |
|
|
|
8,291,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share market value at end of period |
|
$ |
10.43 |
|
|
$ |
13.76 |
|
|
$ |
11.04 |
|
Total return based on market value (2) |
|
|
(1.99 |
)% |
|
|
(6.67 |
)% |
|
|
(16.07 |
)% |
Total return based on net asset value (3) |
|
|
2.88 |
% |
|
|
(3.14 |
)% |
|
|
(11.00 |
)% |
|
|
|
* |
|
Net unrealized depreciation on investments and derivatives per share amount includes the net
loss incurred prior to the IPO. |
Ratio/Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net investment income to average net assets (5) |
|
|
11.77 |
% |
|
|
8.13 |
% |
|
|
8.11 |
% |
Ratio of operating expenses to average net assets (4) (5) |
|
|
6.68 |
% |
|
|
6.39 |
% |
|
|
5.91 |
% |
Ratio of incentive management fees to average net assets (5) |
|
|
1.38 |
% |
|
|
1.73 |
% |
|
|
0.64 |
% |
Ratio of credit facility related expenses to average net assets (5) |
|
|
3.38 |
% |
|
|
3.46 |
% |
|
|
4.51 |
% |
Ratio of total expenses to average net assets (4) (5) |
|
|
11.45 |
% |
|
|
11.58 |
% |
|
|
11.05 |
% |
|
|
|
(1) |
|
Net investment income excluding expense waver and reimbursement equals $0.35 and $0.20 per share for
the three months ended May 31, 2008 and May 31, 2007, respectively. |
|
(2) |
|
For the three months ended May 31, 2008, the total return based on market value equals the
decrease in market value at May 31, 2008, of $0.61 per share over the price per share at
February 29, 2008, of $11.04, plus the declared dividend of $0.39 per share for stockholders
of record on May 30, 2008, divided by the February 29, 2008 price per share. For the three
months ended May 31, 2007, the total return based on market value equals the decrease in
market value at May 31, 2007 of $13.76 per share over the IPO offering price per share at
March 23, 2007 of $15.00, plus the declared dividend of $0.24 per share for stockholders of
record on May 29, 2007, divided by the IPO offering price per share. Total return based on
market value is not annualized. |
|
(3) |
|
For the three months ended May 31, 2008, the total return based on net asset value equals the
change in net asset value during the period plus the declared dividend of $0.39 per share for
stockholders of record on May 30, 2008, divided by the beginning net asset value during the
period. For the three months ended May 31, 2007, the total return based on net asset value
equals the change in net asset value during the period plus the declared dividend of $0.24 per
share for stockholders of record on May 29, 2007, divided by the beginning net asset value
during the period. The calculation was adjusted for shares issued during the period. Total
return based on net asset value is not annualized. |
|
(4) |
|
For the three months ended May 31, 2008, incorporating the expense waver and reimbursement arrangement,
the ratio of net investment income, operating expenses, total expenses to average net assets
is 12.98%, 5.47%, and 10.24%, respectively. For the three months ended May 31, 2007,
incorporating the expense waver and reimbursement arrangement, the ratio of net investment income,
operating expenses, total expenses to average net assets is 9.40%, 5.11%, and 10.30%. |
|
(5) |
|
Annualized. |
Note 11. Related Party Transactions
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. For the year ended February 29, 2008 we
received $0.4 million of management fee income from CDO III and received distributions of $16.1
million from our partnership interests resulting in a realized gain of $0.5 million. As of May 31,
2008, the fair value of the general partnership interest and limited partnership interest is $0.2
million.
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 29, 2008, GSC Group received 35,911 of additional shares under
the dividend reinvestment plan. As of May 31, 2008, 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.
17
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 29, 2008.
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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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; and |
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the ability of our investment adviser to locate suitable investments for us and to
monitor and administer our investments. |
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 both current income and capital appreciation through debt and
equity investments by primarily investing in middle market companies and select high yield bonds.
We intend to file an election to be treated as a regulated investment company (RIC) under
subchapter M of the Internal Revenue Code commencing with our first taxable year as a corporation.
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.
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 debt obligation (CDO) 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), another CDO managed by our investment adviser. As of May 31, 2008,
our portfolio consisted of 156.4 million of investments in 39 portfolio companies.
Our portfolio is comprised primarily of investments in leveraged loans (comprised of both
first and second lien term loans) issued by middle market companies and high yield bonds. We are
seeking 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 are 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 that we purchase 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 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. We also anticipate
purchasing mezzanine debt and making equity investments in middle market companies. Mezzanine debt
is typically unsecured and subordinated to senior debt of the portfolio company. 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.
18
While our primary focus is to generate both 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
collateralized loan obligations (CLO) funds. As part of this 30%, we may also invest in debt of
middle market companies located outside the United States. 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 will 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 May 31, 2008, our opportunistic
investment in the subordinated notes of GSC Investment Corp. CLO 2007, Ltd. (GSCIC CLO), a CLO we
manage, constitutes 16.66% of our total assets and 55.55% of the amount we may devote to
opportunistic investments.
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
private U.S. operating companies, public U.S. companies whose securities are not listed on a
national securities exchange registered under the Exchange Act (i.e., New York Stock Exchange,
American Stock Exchange and The NASDAQ Global Market) and effective July 21, 2008, U.S. companies
whose securities are listed on a securities exchange 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. The amount of our borrowing will depend on our investment
advisers assessment of market conditions and other factors.
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 in portfolio
companies. We expect our debt investments, whether in the form of first and second lien term loans,
mezzanine debt or high yield bonds, to have terms of up to ten years, and to bear interest at
either a fixed or floating rate. Interest on debt will be 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 and possibly consulting fees. Any such fees will be generated
in connection with our investments and recognized as earned. We may also invest in equity
securities, which may, in some cases, include preferred 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 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.
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 relating to:
19
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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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administration fees; fees payable to third parties, including agents, consultants or
other advisers, relating to, or associated with, evaluating and making investments;
transfer agent and custodial fees; |
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registration fees; listing fees; |
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taxes; |
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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 |
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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, during
the initial two year term of the administration agreement, GSC Group has agreed to waive 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 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.
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.
20
Portfolio and Investment Activity
During the three months ended May 31, 2008, we made 11 investments in an aggregate principal
amount of $19.3 million consisting of $16.2 million in new portfolio companies and $3.1 million to
existing portfolio companies. Also during the three months ended May 31, 2008, we had $34.5
million in aggregate principal amount of exits and repayments resulting in net exits and repayments
of $15.2 million in aggregate principal amount for the period. The most significant exit and
repayment during this period was the repayment at par of our $23 million
investment, in aggregate principal amount, in the SILLC Holdings, LLC (SILLC) Second Lien Term
Loan, which was our largest position (excluding the GSCIC CLO) at the time of repayment. We expect
to reinvest the proceeds of this repayment in a number of new investments during the second quarter
of fiscal year 2009. In the interim, the proceeds were used to pay down our Revolving Facility (as defined below).
For the equivalent period in 2007, which was our first quarter of operations and during which
we raised, leveraged and invested the proceeds of our IPO, we made 99 investments in an aggregate
principal amount of $243.1 million consisting of $112.9 million to new portfolio companies and
$130.2 million to existing portfolio companies. During such period, we also had $34.2 million in
aggregate principal amount of exits and repayments resulting in net investments of $208.9 million
in aggregate principal amount for the period.
At May 31, 2008, we had 47 investments in 39 portfolio companies with an average investment
size of $3.3 million and a weighted average maturity of 3.8 years compared to 46 investments in 38
portfolio companies with an average investment size of $3.8 million and a weighted average maturity
of 3.8 years at February 29, 2008. The average investment in each portfolio company at May 31, 2008
is $4.0 million versus $4.5 million at February 29, 2008. The decrease in the average size of our
investment was primarily due to the repayment of the SILLC Second Lien Term Loan.
Our portfolio composition at May 31, 2008 and February 29, 2008 was as follows:
Portfolio composition
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|
At May 31, 2008 |
|
At February 29, 2008 |
|
|
Percentage of |
|
Weighted Average |
|
Percentage of |
|
Weighted Average |
|
|
Total Portfolio |
|
Current Yield |
|
Total Portfolio |
|
Current Yield |
First lien term loans |
|
|
17.8 |
% |
|
|
7.7 |
% |
|
|
15.3 |
% |
|
|
8.1 |
% |
Second lien term loans |
|
|
31.1 |
|
|
|
10.1 |
|
|
|
36.1 |
|
|
|
10.8 |
|
Senior secured notes |
|
|
18.3 |
|
|
|
11.5 |
|
|
|
18.3 |
|
|
|
11.5 |
|
Unsecured notes |
|
|
13.9 |
|
|
|
12.2 |
|
|
|
13.5 |
|
|
|
12.2 |
|
GSCIC CLO subordinate notes |
|
|
18.6 |
|
|
|
8.4 |
|
|
|
16.7 |
|
|
|
8.4 |
|
Equity/limited partnership interests |
|
|
0.3 |
|
|
|
N/A |
|
|
|
0.1 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
10.0 |
% |
|
|
100.0 |
% |
|
|
10.3 |
% |
|
|
|
|
|
|
|
|
|
There were no non-performing or delinquent investments during the three months ended May 31,
2008 and at May 31, 2008, no investment in our portfolio was being accounted for on a non-accrual basis.
At February 29, 2008, no investment in our portfolio was non-performing or delinquent on any
payment obligations or was being accounted for on a non-accrual basis.
GSC Group normally grades all of our investments using an internally developed credit and
monitoring rating system (CMR). 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. |
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 CMR also consists of a corporate letter rating whereby each credit is assigned a letter
rating 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, (F) equals
restructured equity security.
The CMR distribution of our investments at May 31, 2008 and February 29, 2008 was as follows:
21
Portfolio CMR distribution
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2008 |
|
|
At February 29, 2008 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
Numerical Debt Score |
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
1.00 - 1.99 |
|
$ |
1,863 |
|
|
|
1.2 |
% |
|
$ |
11,863 |
|
|
|
6.9 |
% |
2.00 - 2.99 |
|
|
81,044 |
|
|
|
51.8 |
|
|
|
87,423 |
|
|
|
50.6 |
|
3.00 - 3.99 |
|
|
44,005 |
|
|
|
28.2 |
|
|
|
44,459 |
|
|
|
25.7 |
|
4.00 - 4.99 |
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
5.00 |
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
N/A |
|
|
29,462 |
(1) |
|
|
18.8 |
|
|
|
29,092 |
(2) |
|
|
16.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,374 |
|
|
|
100.0 |
% |
|
$ |
172,837 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2008 |
|
|
At February 29, 2008 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
Corporate Letter Rating |
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
A |
|
$ |
0 |
|
|
|
0.0 |
% |
|
$ |
0 |
|
|
|
0.0 |
% |
B |
|
|
98,166 |
|
|
|
62.8 |
|
|
|
112,019 |
|
|
|
64.8 |
|
C |
|
|
28,746 |
|
|
|
18.4 |
|
|
|
31,726 |
|
|
|
18.4 |
|
D |
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
E |
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
F |
|
|
0 |
|
|
|
0.0 |
|
|
|
0 |
|
|
|
0.0 |
|
N/A |
|
|
29,462 |
(1) |
|
|
18.8 |
|
|
|
29,092 |
(2) |
|
|
16.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,374 |
|
|
|
100.0 |
% |
|
$ |
172,837 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
$29.0 million constitutes our investment in the subordinated notes of GSCIC CLO. |
|
(2) |
|
$28.9 million constitutes our investment in the subordinated notes of GSCIC CLO. |
CMR ratings are intended for corporate issuers and are inapplicable to subordinated CLO
investments, which are subject to unique payment risks. (See Part I, Item 1A Risk Factors Risks
related to our investments Our 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 29, 2008).
GSCIC CLOs portfolio investments are individually graded, however, and over 90% have a numerical
debt score of less than 2.99 and a corporate letter rating of A or B.
At May 31, 2008, 33.6% or $52.5 million of our interest-bearing portfolio was in fixed rate
debt with a weighted average current coupon of 11.72% and 47.6% or $74.4 million of our
interest-bearing portfolio was in floating rate debt with a weighted average current spread of
LIBOR plus 6.14%. At February 29, 2008, 33.0% or $57.0 million of our interest-bearing portfolio
was in fixed rate debt with a weighted average current coupon of 11.6% and 50.2% or $86.8 million
of our interest-bearing portfolio was in floating rate debt with a weighted average current spread
of LIBOR plus 5.6%.
The following table shows the portfolio composition by industry grouping at fair value at May
31, 2008 and February 29, 2008:
Portfolio composition by industry grouping at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2008 |
|
|
At February 29, 2008 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
Structured Finance Securities |
|
$ |
29,034 |
(1) |
|
|
18.6 |
% |
|
$ |
28,915 |
(2) |
|
|
16.7 |
% |
Packaging |
|
|
13,850 |
|
|
|
8.9 |
|
|
|
16,370 |
|
|
|
9.5 |
|
Manufacturing |
|
|
13,371 |
|
|
|
8.6 |
|
|
|
15,030 |
|
|
|
8.7 |
|
Publishing |
|
|
11,440 |
|
|
|
7.3 |
|
|
|
9,289 |
|
|
|
5.4 |
|
Consumer Products |
|
|
9,236 |
|
|
|
5.9 |
|
|
|
10,021 |
|
|
|
5.8 |
|
Electronics |
|
|
7,975 |
|
|
|
5.1 |
|
|
|
6,377 |
|
|
|
3.7 |
|
Oil and Gas |
|
|
7,529 |
|
|
|
4.8 |
|
|
|
7,738 |
|
|
|
4.5 |
|
Natural Resources |
|
|
7,225 |
|
|
|
4.6 |
|
|
|
4,167 |
|
|
|
2.4 |
|
Healthcare Services |
|
|
7,134 |
|
|
|
4.6 |
|
|
|
6,040 |
|
|
|
3.5 |
|
Apparel |
|
|
6,905 |
|
|
|
4.4 |
|
|
|
8,004 |
|
|
|
4.6 |
|
Homebuilding |
|
|
6,199 |
|
|
|
4.0 |
|
|
|
5,912 |
|
|
|
3.4 |
|
Metals |
|
|
5,323 |
|
|
|
3.4 |
|
|
|
5,129 |
|
|
|
3.0 |
|
Environmental |
|
|
4,768 |
|
|
|
3.0 |
|
|
|
5,066 |
|
|
|
2.9 |
|
Agriculture |
|
|
4,585 |
|
|
|
2.9 |
|
|
|
3,850 |
|
|
|
2.2 |
|
Financial Services |
|
|
3,895 |
|
|
|
2.5 |
|
|
|
3,815 |
|
|
|
2.2 |
|
Aerospace and Defense |
|
|
3,600 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
Building Products |
|
|
2,747 |
|
|
|
1.7 |
|
|
|
2,964 |
|
|
|
1.7 |
|
Logistics |
|
|
2,571 |
|
|
|
1.6 |
|
|
|
2,688 |
|
|
|
1.6 |
|
Insurance |
|
|
1,863 |
|
|
|
1.2 |
|
|
|
1,700 |
|
|
|
1.0 |
|
Printing |
|
|
1,835 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
Food and Beverage |
|
|
1,813 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
Automotive |
|
|
1,215 |
|
|
|
0.8 |
|
|
|
22,158 |
|
|
|
12.8 |
|
Software |
|
|
960 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
Education |
|
|
943 |
|
|
|
0.6 |
|
|
|
1,546 |
|
|
|
0.9 |
|
Consumer Services |
|
|
358 |
|
|
|
0.2 |
|
|
|
1,290 |
|
|
|
0.7 |
|
Retail |
|
|
|
|
|
|
|
|
|
|
2,179 |
|
|
|
1.3 |
|
Gaming |
|
|
|
|
|
|
|
|
|
|
1,730 |
|
|
|
1.0 |
|
Restaurants |
|
|
|
|
|
|
|
|
|
|
859 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,374 |
|
|
|
100.0 |
|
|
$ |
172,837 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
$29.0 million constitutes our investment in the subordinated notes of GSCIC CLO. |
|
(2) |
|
$28.9 million constitutes our investment in the subordinated notes of GSCIC CLO. |
The following table shows the portfolio composition by geographic location at fair value at
May 31, 2008 and February 29, 2008. The geographic composition is determined by the location of the
corporate headquarters of the portfolio company:
22
Portfolio composition by geographic location at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2008 |
|
|
At February 29, 2008 |
|
|
|
Investments at |
|
|
Percentage of |
|
|
Investments at |
|
|
Percentage of |
|
|
|
Fair Value |
|
|
Total Portfolio |
|
|
Fair Value |
|
|
Total Portfolio |
|
|
|
($ in thousands) |
|
Midwest |
|
$ |
41,969 |
|
|
|
26.8 |
% |
|
$ |
40,109 |
|
|
|
23.2 |
% |
Southeast |
|
|
31,443 |
|
|
|
20.1 |
|
|
|
33,685 |
|
|
|
19.5 |
|
Other |
|
|
29,211 |
(1) |
|
|
18.7 |
|
|
|
29,092 |
(2) |
|
|
16.8 |
|
West |
|
|
25,862 |
|
|
|
16.5 |
|
|
|
24,450 |
|
|
|
14.2 |
|
International |
|
|
14,635 |
|
|
|
9.4 |
|
|
|
13,739 |
|
|
|
7.9 |
|
Northeast |
|
|
12,294 |
|
|
|
7.9 |
|
|
|
11,395 |
|
|
|
6.6 |
|
Mid-Atlantic |
|
|
960 |
|
|
|
0.6 |
|
|
|
20,367 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,374 |
|
|
|
100.0 |
% |
|
$ |
172,837 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
$29.0 million constitutes our investment in the subordinated notes of GSCIC CLO. |
|
(2) |
|
$28.9 million constitutes our investment in the subordinated notes of GSCIC CLO. |
At May 31, 2008, our investment in the subordinated notes of GSCIC CLO was $29.0 million and
constituted 18.6% of our portfolio compared to $28.9 million and 16.7%, respectively, at February
29, 2008. This investment represents a first loss position in a portfolio that, as of May 31,
2008, had assets of $414.3 million consisting of predominantly senior secured
first lien term loans. At May 31, 2008, no investment in the GSCIC CLO portfolio was in payment
default or delinquent on any payment obligations.
Results of Operations
Investment Income
For the three months ended May 31, 2008, total investment income increased $1.6 million, or
39.3%, from $4.1 million to $5.7 million, over the three months ended May 31, 2007. For the three
months ended May 31, 2008, total investment income consisted of approximately $5.1 million in
interest income from investments, $0.5 million in fees from managing GSCIC CLO and $0.1 million in
interest income from cash and cash equivalents and other income. We did not receive any management
fees from CDO Fund III during this period. Total PIK income for the period was $0.2 million. For
the equivalent period in 2007, total investment income consisted of approximately $3.7 million in
interest income from investments, less than $0.1 million in interest income from cash and cash
equivalents and other income, and $0.4 million in fees from managing CDO Fund III. There was no PIK
income for the period. GSCIC CLO was not organized at that time. The increase in investment
income between the periods is attributable to the greater weighted average portfolio size during
the first quarter of fiscal year 2009 versus the first quarter of fiscal year 2008, which resulted
from the Companys being fully operational in the current period versus commencing operations and
accumulating a portfolio during the earlier period.
Operating Expenses
For the three months ended May 31, 2008, total operating expenses before manager reimbursement
increased $0.4 million, or 16.9%, from $2.4 million to $2.8 million, over the three months ended
May 31, 2007. For the three months ended May 31, 2008, total operating expenses before manager
reimbursement consisted of $0.8 million in interest and credit facility expense, $0.7 million in
base management fees, $0.3 million in professional fees, $0.3 million in incentive management fees,
$0.2 million in administrator expenses, $0.2 million in insurance expenses, $0.1 million in
directors fees and $0.1 million in general and administrative expenses. For the equivalent period
in 2007, total operating expenses before manager reimbursement consisted of $0.7 million in
interest and credit facility expense, $0.4 million in base management fees, $0.5 million in
professional fees, $0.4 million in incentive management fees, $0.1 million in insurance expenses,
23
$0.1 million in directors fees, less than $0.1 million in general and administrative expenses and
$0.2 million in other expenses. The increase in total operating expenses before manager
reimbursement was primarily due to the increase in the weighted average size of the portfolio
between the two periods.
For the three months ended May 31, 2008, we recorded $0.3 million in expense waiver and
reimbursement from the administrator and Manager based upon our total estimated annual operating
expenses, as compared to $0.3 for the equivalent period in 2007. The termination of the expense
reimbursement as of March 23, 2008 will have a negative effect on our net investment income during
fiscal year 2009 versus the equivalent period for fiscal year 2008.
Net Realized Gains/Losses on Sales of Investments
For the three months ended May 31, 2008, the Company had approximately $0.3 million of net
realized losses, primarily attributable to $0.5 million of realized losses on the sale of Claires
Stores Inc. First Lien Term Loan and $0.1 million of realized losses on the sale of Jason
Incorporated Unsecured Notes, which were partially offset by a realized gain of $0.2 million on the
repayment of the SILLC Second Lien Term Loan at par. For the three months ended May 31, 2007, the
Company had approximately $1.0 million of net realized gains, primarily attributable to $1.0
million of realized gains on the repayment of the Strategic Finance Company Senior Notes.
Net Unrealized Appreciation/Depreciation on Investments
For the three months ended May 31, 2008, the Companys investments had a decrease in net
unrealized depreciation of approximately $0.1 million. The most significant decreases in
unrealized depreciation and increases in unrealized appreciation during the period were the
reversal of $2.6 million unrealized depreciation upon the repayment of the SILLC Second Lien Term
Loan at par, $0.7 million unrealized appreciation on the EuroFresh Inc., Unsecured Notes and the
reversal of $0.4 million unrealized depreciation upon the sale of Claires Stores, Inc. First Lien
Term Loan. The most significant increases in unrealized depreciation or decrease in unrealized
appreciation during the period were $2.2 million unrealized depreciation on the Terphane Holdings
Corp., Senior Secured Notes, $0.6 million unrealized depreciation on the M/C Communications First
Lien Term Loan and $0.6 million unrealized depreciation on the Network Communications Unsecured
Notes. For the equivalent period in 2007, the Companys investments had an increase in net
unrealized appreciation of approximately $0.8 million. The most significant changes in unrealized
appreciation and depreciation during that period were $0.2 million unrealized appreciation on the
Eurofresh, Inc., Unsecured Notes, $0.2 million unrealized appreciation on the Network
Communications, Inc. Unsecured Notes, $0.1 million unrealized appreciation on the GFSI, Inc. Senior
Secured Notes and a $0.1 million unrealized appreciation on the New World Restaurant Group Second
Lien Term Loan.
Net Unrealized Appreciation/Depreciation on Derivatives
For the three months ended May 31, 2008, the Company recorded unrealized depreciation on
derivatives of less than $0.1 million as a result of a decrease in value of the interest rate caps
purchased pursuant to our credit facilities. For the equivalent period in 2007, the Company recorded
unrealized depreciation on derivatives of $0.1 million as a result of a decrease in value of the
interest rate caps purchased pursuant to the credit facilities
Changes in Net Asset Value from Operations
For the three months ended May 31, 2008, we recorded a $2.8 million net increase in net assets
resulting from operations. Based on 8,291,384 weighted average common shares outstanding as of May
31, 2008, our net per share increase in net assets resulting from operations was $0.34. For the
equivalent period in 2007, we recorded a $3.7 million net increase in net assets resulting from
operations which, based on 6,218,763 weighted average common shares outstanding as of May 31, 2007,
resulted in a net per share increase in net assets resulting from operations of $0.59 for the
period.
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 defined below), 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) pursuant to 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.
At May 31, 2008, we had $60.7 million in borrowings under the Revolving Facility and $39.3
million of undrawn commitments remaining. Our asset coverage ratio, as defined in the 1940 Act,
was 261%. At February 29, 2008, we had $78.5 million in borrowings under the Revolving Facility and
$21.5 million of undrawn commitments remaining. Our asset coverage ratio, as defined in the 1940
Act, was 225%. The decline in our leverage between the periods is primarily attributable to the
use of the proceeds of SILLC Second Lien Term Loan
24
repayment to repay the Revolving Facility. We expect to draw on the Revolving Facility during the
second quarter of fiscal year 2009 to make additional investments.
As of May 31, 2008 and February 29, 2008, the fair value of cash and cash
equivalents, cash and cash equivalents, securitization accounts, and investments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2008 |
|
|
At February 29, 2008 |
|
|
|
Fair |
|
|
Percent |
|
|
Fair |
|
|
Percent |
|
|
|
Value |
|
|
of Total |
|
|
Value |
|
|
of Total |
|
|
|
|
|
|
|
($ in thousands) |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,963 |
|
|
|
1.2 |
% |
|
$ |
1,073 |
|
|
|
0.6 |
% |
Cash and cash equivalents, securitization accounts |
|
|
10,120 |
|
|
|
6.0 |
|
|
|
14,581 |
|
|
|
7.7 |
|
First lien term loans |
|
|
27,898 |
|
|
|
16.6 |
|
|
|
26,362 |
|
|
|
14.0 |
|
Second lien term loans |
|
|
48,607 |
|
|
|
28.8 |
|
|
|
62,446 |
|
|
|
33.1 |
|
Senior secured notes |
|
|
28,626 |
|
|
|
17.0 |
|
|
|
31,657 |
|
|
|
16.8 |
|
Unsecured notes |
|
|
21,781 |
|
|
|
12.9 |
|
|
|
23,280 |
|
|
|
12.4 |
|
Other/structured finance securities |
|
|
29,035 |
|
|
|
17.2 |
|
|
|
28,915 |
|
|
|
15.3 |
|
Equity/limited partnership interests |
|
|
427 |
|
|
|
0.3 |
|
|
|
176 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
168,457 |
|
|
|
100.0 |
% |
|
$ |
188,490 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 22, 2008, our Board of Directors declared a dividend of $0.39 per share payable on June
13, 2008, to common stockholders of record on May 30, 2008.
Off-Balance Sheet Arrangements
At May 31, 2008 and February 29, 2008, 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
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. We expect that a large portion of our future portfolio will be comprised of
floating rate investments that utilize LIBOR. Our interest expense is affected by fluctuations in
the commercial paper rate or, if the commercial paper market is unavailable, LIBOR. As of May 31,
2008, we had $60.7 million of borrowings outstanding at a floating rate tied to the prevailing
commercial paper rate plus a margin of 0.70%.
In April and May 2007, pursuant to the Revolving Facility, the Company entered into two
interest rate cap agreements with notional amounts of $34 million (increased to $40 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 May 31, 2008, the aggregate interest
rate cap agreement notional amount was $86.6 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 as of
May 31, 2008 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 $0.2 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
25
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 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. 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 and discounted cash flow, the
markets in which the portfolio company does business, 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 based
on 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 considerations used by the board of directors in
determining the fair value of our investments as of May 31, 2008 for which market quotations are
not readily available:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
of Total |
|
|
|
Fair Value |
|
|
Investments |
|
|
|
($ in thousands) |
|
Third party independent valuation firm |
|
$ |
20,783 |
|
|
|
13.3 |
% |
Market maker, broker quotes |
|
|
26,445 |
|
|
|
16.9 |
|
Discounted cash flows model |
|
|
29,034 |
|
|
|
18.6 |
|
Interest rate yield trend analysis |
|
|
27,663 |
|
|
|
17.7 |
|
Other |
|
|
176 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Total fair valued investments |
|
$ |
104,101 |
|
|
|
66.6 |
% |
|
|
|
|
|
|
|
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.
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 29, 2008.
26
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
In March 2008, as part of our dividend reinvestment plan for our common stockholders, we
purchased 57,941 shares of our common stock for $0.6 million in the open market in order to satisfy
the reinvestment portion of our dividends. The following chart outlines repurchases of our common
stock during the quarter ended May 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
|
Shares that May |
|
|
|
Total Number |
|
|
Average |
|
|
Announced |
|
|
Yet be Purchased |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Plans or |
|
|
Under the Plans or |
|
Period |
|
Purchased |
|
|
per Share |
|
|
Program |
|
|
Programs |
|
|
|
(In thousands, except per share numbers) |
|
March 1, 2008 through March 31, 2008 |
|
|
58 |
(1) |
|
$ |
10.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
58 |
|
|
$ |
10.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Pursuant to our dividend reinvestment plan, we directed our
plan administrator to purchase the indicated quantity of
shares in the open market in order to satisfy our
obligations to deliver share of common stock to our
stockholders with respect to our dividend for the quarter
ending February 29, 2008. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits
|
|
|
|
|
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. |
27
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: July 15, 2008 |
By |
/s/ Thomas V. Inglesby
|
|
|
|
Thomas V. Inglesby |
|
|
|
Director and Chief Executive Officer, GSC Investment Corp. |
|
|
|
|
|
|
By |
/s/ richard t. allorto, jr.
|
|
|
|
Richard T. Allorto, Jr. |
|
|
|
Chief Financial Officer, GSC Investment Corp. |
|
28
EX-31.1
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Thomas V. Inglesby, 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: July 15, 2008
|
|
|
|
|
|
|
|
|
/s/ Thomas V. Inglesby
|
|
|
Thomas V. Inglesby |
|
|
Chief Executive Officer |
|
EX-31.2
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: July 15, 2008
|
|
|
|
|
|
|
|
|
/s/ Richard T. Allorto, Jr.
|
|
|
Name: |
Richard T. Allorto, Jr. |
|
|
Chief Financial Officer |
|
EX-32.1
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.
Thomas V. Inglesby, the Chief Executive Officer and Richard T. Allorto, Jr., the Chief
Financial Officer of GSC Investment Corp., each certifies that, to the best of his knowledge:
|
1. |
|
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and |
|
|
2. |
|
the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of GSC Investment Corp. |
Date: July 15, 2008
|
|
|
|
|
|
|
|
|
/s/ Thomas V. Inglesby
|
|
|
Name: |
Thomas V. Inglesby |
|
|
Chief Executive Officer |
|
|
|
|
|
|
/s/ Richard T. Allorto, Jr.
|
|
|
Name: |
Richard T. Allorto, Jr. |
|
|
Chief Financial Officer |
|
|