UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2009

o		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)

Maryland		20-8700615
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

888 Seventh Ave
New York, New York 10019
(Address of principal executive offices)

(212) 884-6200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, par value $0.0001 per share		The New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
________________

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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 aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of August 29, 2008 was approximately $74.5 million based upon a closing price of $10.80 reported for such date by the New York Stock Exchange. Common shares held by each executive officer and director and by each person who owns 5% or more of the outstanding common shares have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     The number of outstanding common shares of the registrant as of May 18, 2009 was 8,291,384.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on July 8, 2009, are incorporated by reference into Part III of this Report

 

 

NOTE ABOUT REFERENCES TO GSC INVESTMENT CORP.

     In this Annual Report on Form 10-K (the “Annual Report”), the “Company,” “we,” “us” and “our” refer to GSC Investment Corp., its subsidiaries and related companies, unless the context otherwise requires.

NOTE ABOUT TRADEMARKS

     We have entered into a license agreement with GSC Group, pursuant to which GSC Group grants us a non-exclusive, royalty-free license to use the “GSC” name and logo.

NOTE ABOUT FORWARD-LOOKING STATEMENTS

     Some of the statements in this Annual Report constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.

     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 Annual Report involve risks and uncertainties, including statements as to:

	•		our future operating results;
	•		our business prospects and the prospects of our portfolio companies;
	•		the impact of investments that we expect to make;
	•		our contractual arrangements and relationships with third parties;
	•		the dependence of our future success on the general economy and its impact on the industries in which we invest;
	•		the ability of our portfolio companies to achieve their objectives;
	•		our expected financings and investments;
	•		our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;
	•		the adequacy of our cash resources and working capital;
	•		the timing of cash flows, if any, from the operations of our portfolio companies;
	•		the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments; and
	•		continued access to our Revolving Facility.

     For a discussion of factors that could cause our actual results to differ from forward-looking statements contained in this Annual Report, please see the discussion under Part I, Item 1A “Risk Factors”. You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Annual 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 Annual Report.

TABLE OF CONTENTS

		Page
PART I
Item 1. Business			4
Item 1A. Risk Factors			18
Item 1B. Unresolved Staff Comments			31
Item 2. Properties			31
Item 3. Legal Proceedings			31
Item 4. Submission of Matters to a Vote of Security Holders			31
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			32
Item 6. Selected Financial Data			34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			46
Item 8. Financial Statements and Supplementary Data			48
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			48
Item 9A. Controls and Procedures			48
Item 9B. Other Information			48
PART III
Item 10. Directors, Executive Officers and Corporate Governance			49
Item 11. Executive Compensation			49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			49
Item 13. Certain Relationships and Related Transactions, and Director Independence			49
Item 14. Principal Accountant Fees and Services			49
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules			50
Signatures			54
Consolidated Financial Statements			F-1
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

PART I

Item 1. Business

General

     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”). The Company is the successor by merger to GSC Investment, LLC (the “LLC”), a Maryland limited liability company that had elected to be regulated as a BDC, which was merged into the Company concurrently with the Company’s incorporation on March 21, 2007. As a result of the merger, each outstanding common share of the LLC was converted into an equivalent number of shares of the Company’s common stock. As of February 28, 2007, the Company (including its predecessors) had not commenced operations or investment activities.

     Our investment objectives are to generate current income and capital appreciation through debt and equity investments by primarily investing in middle market companies and select high yield bonds. We have elected and qualified to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We commenced operations on March 23, 2007 and completed our initial public offering (“IPO”) on March 28, 2007. We are externally managed and advised by our investment adviser, GSCP (NJ), L.P. (together with certain of its affiliates, “GSC Group”).

     We used the net proceeds of our IPO to purchase approximately $100.7 million in aggregate principal amount of debt investments from GSC Partners CDO Fund III, Limited (“CDO Fund III”), a collateralized loan obligation (“CLO”) fund managed by our investment adviser. We used borrowings under our Facilities (as defined below) to purchase approximately $115.1 million in aggregate principal amount of debt investments in April and May 2007 from CDO Fund III and GSC Partners CDO Fund Limited (“CDO Fund I”), a collateralized debt obligation fund managed by our investment adviser. As of February 28, 2009, our portfolio consisted of $118.9 million of investments in 35 portfolio companies and one CLO.

     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 seek 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. Due to unfavorable conditions in the credit market, the majority of our trading activity over the last year has been in the secondary market. 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 Moody’s Investors Service (“Moody’s”) and/or Standard & Poor’s 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.” As part of our long-term strategy, 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 Annual Report, we generally use the term “middle market” to refer to companies with annual EBITDA of between $5 million and $50 million. EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization. Investments in middle market companies are generally less liquid than equivalent investments in companies with larger capitalizations.

     While our primary focus is to generate current income and capital appreciation through investments in debt and equity securities of middle market companies and high yield bonds, we intend to invest up to 30% of our assets in opportunistic investments. Opportunistic investments may include investments in distressed debt, debt and equity securities of public companies, credit default swaps, emerging market debt, and structured finance vehicles, including CLOs. 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 adviser’s expertise that we believe offer attractive yields and/or the potential for capital appreciation. As of February 28, 2009, our investment in the subordinated notes of GSC Investment Corp. CLO 2007, Ltd. (“GSCIC CLO”), a CLO we manage, constituted 17.1% of our total assets. We do not expect to manage and purchase all of the equity in another CLO transaction in the near future. We may, however, invest in CLO securities issued by other investment managers.

     As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities

exchange (i.e., New York Stock Exchange, American Stock Exchange and The NASDAQ Global Market), U.S. operating companies with listed securities that have market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions.

Investments

     As of February 28, 2009, our portfolio consisted of $118.9 million in investments. We seek to create a diversified portfolio that includes leveraged loans, mezzanine debt and high yield bonds by investing up to 5% of our total investments in each portfolio company, although the investment sizes may be more or less than the targeted range. As of February 28, 2009, we invested in excess of 5% of our total investments in 4 of the 35 portfolio companies and the GSCIC CLO, but in each case less than 18.8% of our total investments, and our five largest portfolio company exposures represented approximately 43.6% of our total investments. As part of our long-term strategy, we also anticipate purchasing mezzanine debt and making equity investments in middle market companies.

     Leveraged loans

     Our leveraged loan portfolio is comprised primarily of first lien and second lien term loans. First lien term loans are secured by a first priority perfected security interest on all or substantially all of the assets of the borrower and typically include a first priority pledge of the capital stock of the borrower. First lien term loans hold a first priority with regard to right of payment. Generally, first lien term loans offer floating rate interest payments, have a stated maturity of five to seven years, and have a fixed amortization schedule. First lien term loans generally have restrictive financial and negative covenants. Second lien term loans are secured by a second priority perfected security interest on all or substantially all of the assets of the borrower and typically include a second priority pledge of the capital stock of the borrower. Second lien term loans hold a second priority with regard to right of payment. Second lien term loans offer either floating rate or fixed rate interest payments, generally have a stated maturity of five to eight years, and may or may not have a fixed amortization schedule. Second lien term loans that do not have fixed amortization schedules require payment of the principal amount of the loan upon the maturity date of the loan. Second lien term loans have less restrictive financial and negative covenants than those that govern first lien term loans.

     High yield bonds

     High yield bonds are generally either senior secured or unsecured. Senior secured bonds are secured by a perfected security interest on all or substantially all of the assets of the borrower (which, however, may be contractually subordinated to liens on certain assets of the borrower). In addition, senior secured bonds may have a pledge of the capital stock of the borrower. Senior secured bonds offer either floating rate or fixed rate interest payments and generally have a stated maturity of five to eight years and do not have fixed amortization schedules. Senior secured bonds generally have less restrictive financial and negative covenants than those that govern first lien and second lien term loans.

     Unsecured bonds are not secured by the underlying assets or collateral of the issuer and may be subordinate in priority of payment to senior debt of the issuer. In the event of the borrower’s liquidation, dissolution, reorganization, bankruptcy or other similar proceeding, the bondholders only have the right to share pari passu in the issuer’s unsecured assets with other equally-ranking creditors of the issuer. Unsecured bonds typically have fixed rate interest payments and a stated maturity of five to ten years and do not have fixed amortization schedules.

     Mezzanine debt

     Mezzanine debt usually ranks subordinate in priority of payment to senior debt and is often unsecured. However, mezzanine debt ranks senior to common and preferred equity in a borrowers’ capital structure. Mezzanine debt typically has fixed rate interest payments and a stated maturity of six to eight years and does not have fixed amortization schedules.

     In some cases our debt investments may provide for a portion of the interest payable to be paid-in-kind interest. 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.

     Equity investments

     Equity investments may consist of preferred equity that is expected to pay dividends on a current basis or preferred equity that does not pay current dividends. Preferred equity generally has a preference over common equity as to distributions on liquidation and

dividends. In some cases, we may acquire common equity. In general, our equity investments are not control-oriented investments and we expect that in many cases we will acquire equity securities as part of a group of private equity investors in which we are not the lead investor.

     Opportunistic Investments

     Opportunistic investments may include investments in distressed debt, debt and equity securities of public companies, credit default swaps, emerging market debt, structured finance vehicles, including CLOs, and debt of middle market companies located outside the United States. In January 2008, we purchased for $30 million all of the outstanding subordinated notes of GSCIC CLO, a $400 million CLO managed by us that invests primarily in leveraged loans. As of February 28, 2009, the GSCIC CLO portfolio consisted of $416.0 million in aggregate principal amount of investments in 152 obligors with an average obligor exposure of $2.7 million and $9.4 million in uninvested cash. The weighted average maturity of the portfolio is 4.7 years. We do not expect to manage and purchase all of the equity in another CLO transaction in the near future. We may, however, invest in CLO securities issued by other investment managers.

     Prospective portfolio company characteristics

     Our investment adviser, GSC Group, utilizes the investment philosophy of its corporate credit and distressed investment group in identifying and selecting portfolio company investments. Our portfolio companies generally have one or more of the following characteristics:

	•		a history of generating stable earnings and strong free cash flow;
	•		well constructed balance sheets, including an established tangible liquidation value;
	•		reasonable debt-to-cash flow multiples;
	•		industry leadership with competitive advantages and sustainable market shares in attractive sectors; and
	•		capital structures that provide appropriate terms and reasonable covenants.

     Investment selection

     In managing us, GSC Group employs the same investment philosophy and portfolio management methodologies used by its corporate credit and distressed investment group. Through this investment selection process, based on quantitative and qualitative analysis, GSC Group seeks to identify issuers with superior fundamental risk-reward profiles and strong, defensible business franchises with the goal of minimizing principal losses while maximizing risk-adjusted returns. Our adviser’s investment process emphasizes the following:

	•		bottoms-up, company-specific research and analysis;
	•		capital preservation, low volatility and minimization of downside risk; and
	•		investing with experienced management teams that hold meaningful equity ownership in their businesses.

Our adviser’s investment process generally includes the following steps:

•

Initial screening. A brief analysis identifies the investment opportunity and reviews the merits of the transaction. The initial screening memorandum provides a brief description of the company, its industry, competitive position, capital structure, financials, equity sponsor and deal economics. If the deal is determined to be attractive by the senior members of the deal team, the opportunity is more fully analyzed.

•

Full analysis. A full analysis includes:

	•		Business and Industry analysis — a review of the company’s business position, competitive dynamics within its industry, cost and growth drivers and technological and geographic factors. Business and industry research often includes meetings with industry experts, consultants, other investors, customers and competitors.
	•		Company analysis — a review of the company’s historical financial performance, future projections, cash flow characteristics, balance sheet strength, liquidation value, legal, financial and accounting risks, contingent liabilities, market share analysis and growth prospects.
	•		Structural/security analysis — a thorough legal document analysis including but not limited to an assessment of financial and negative covenants, events of default, enforceability of liens and voting rights.

	•		Approval of the group head. After an investment has been identified and diligence has been completed, a report is prepared. This report is reviewed by the senior investment professional in charge of the potential investment. If such senior investment professional is in favor of the potential investment, it is presented for the approval of the group head. Additional due diligence with respect to any investment may be conducted by attorneys and independent accountants prior to the closing of the investment, as well as by other outside advisers, as appropriate.
	•		Approval of the investment committee. After the approval of the group head, the investment is presented to the investment committee for approval. Sale recommendations made by the investment staff must also be approved by the investment committee. Purchase and sale recommendations over $10 million per issuer require unanimous and majority approval of the investment committee, respectively. Each of our Chief Executive Officer, Seth M. Katzenstein, and Chairman, Richard M. Hayden has discretionary authority to make purchases or sales below $10 million per issuer, subject to certain aggregate limits.

     Investment structure

     In general, our investment adviser intends to select investments with financial covenants and terms that reduce leverage over time, thereby enhancing credit quality. These methods include:

	•		maintenance leverage covenants requiring a decreasing ratio of debt to cash flow;
	•		maintenance cash flow covenants requiring an increasing ratio of cash flow to the sum of interest expense and capital expenditures; and
	•		debt incurrence prohibitions, limiting a company’s ability to re-lever.

In addition, limitations on asset sales and capital expenditures should prevent a company from changing the nature of its business or capitalization without consent.

     Our investment adviser seeks, where appropriate, to limit the downside potential of our investments by:

	•		requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;
	•		requiring companies to use a portion of their excess cash flow to repay debt;
	•		selecting investments with covenants that incorporate call protection as part of the investment structure; and
	•		selecting investments with affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights.

There may be certain restrictions on our investment adviser’s ability to negotiate and structure the terms of our investments when we co-invest with other GSC Group-managed investment vehicles. See “— Co-investment” below.

     Valuation process

     Investments for which market quotations are readily available are recorded in our financial statements at such market quotations 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 quarterly at fair value as determined in good faith by our Board of Directors based on input from our investment adviser, 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 company’s ability to make payments, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly traded companies, discounted cash flow and other relevant factors.

     Our investment in the subordinated notes of 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 subordinated notes or equity, when available.

     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 independently values at least one quarter of our investments each quarter so that the valuation of each investment for which market quotes are not readily available is independently valued by an 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 discusses the valuations and determines 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.

     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.

     Ongoing relationships with and monitoring of portfolio companies

     Our investment adviser will closely monitor each investment the Company makes and, when appropriate, will conduct a regular dialogue with both the management team and other debtholders and seek specifically tailored financial reporting. In addition, in certain circumstances, senior investment professionals of GSC Group may take board seats or board observation seats.

Leverage

     In addition to funds available from the issuance of our common stock, we use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our shareholders by reducing our overall cost of capital. 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. As of February 28, 2009, our asset coverage ratio, as defined in the 1940 Act, was 215%.

     On April 11, 2007, we entered into a $100 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the

“Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. Effective January 14, 2009, we terminated the revolving period of the Revolving Facility and commenced a two-year amortization period during which all principal proceeds from the collateral will be used to repay outstanding borrowings. At the end of the two year amortization period, all advances will be due and payable. In March 2009 we amended the Revolving Credit Facility to decrease the minimum required collateralization and increase the portion of the portfolio that can be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization.

     As of February 28, 2009, we had borrowed an aggregate of $59.0 million under the Revolving Facility. Interest is payable on funds drawn under the Revolving Facility at the prevailing commercial paper rates or, if the commercial paper market is at any time unavailable, the prevailing LIBOR rates, plus 0.70%, payable monthly. The interest margin will increase from and after the March 2009 amendment to 4.00% until March 2010 (6.00% if the commercial paper market is unavailable) and 5.00% thereafter (6.00% if the commercial paper market is unavailable).

     A significant percentage of our total investments have been pledged to secure our obligations under the Revolving Facility.

     In the interests of diversifying our sources of debt funding, we may in the future borrow from and issue senior debt securities to banks and other lenders and/or securitize certain of our portfolio investments, subject to our ability to satisfy the 1940 Act restrictions on BDCs.

Dividend

     We intend to make quarterly distributions to our stockholders out of assets legally available for distribution. Our quarterly distributions, if any, will be determined by our Board of Directors. Any such distributions will be taxable to our stockholders, including to those stockholders who receive additional shares of our common stock pursuant to a dividend reinvestment plan.

     In order to maintain our qualification as a RIC, we must for each fiscal year distribute an amount equal to at least 90% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses. In addition, we will be subject to federal excise taxes to the extent we do not distribute during the calendar year at least (1) 98% of our ordinary income for the calendar year, (2) 98% of our capital gains in excess of capital losses for the one year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years. To provide stability in our dividend distributions (which might otherwise be adversely affected by timing mismatches between the receipt of payments on our investments and the payment of dividends) we did not distribute all of our ordinary income earned during the 2008 calendar year and incurred federal excise taxes as a result. There were no capital gains in excess of capital losses realized during the one year period ended October 31, 2008. We expect to declare dividends payable from 2008 calendar year earnings prior to November 15, 2009 and to distribute such dividends prior to February 28, 2010. We may similarly withhold from distribution a portion of our ordinary income for the 2009 calendar year and/or portion of the capital gains in excess of capital losses realized during the one year period ending October 31, 2009, if any, and, if we do so, we would expect to incur federal excise taxes again as a result.

     We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.

     We have distributed $2.58 per share of dividends to stockholders since we commenced operations in March 2007. Please see Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for additional details. We are prohibited from making distributions that cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or that violate our debt covenants.

     Subject to certain conditions, for taxable years ending on or before December 31, 2009, we are permitted to make distributions to our stockholders in the form of shares of our common stock in lieu of cash distributions. The decision to make such distributions will be made by our Board of Directors.

About GSC Group

     GSC Group was founded in 1999 by Alfred C. Eckert III, its Chairman and Chief Executive Officer. GSC Group specializes in complex credit-based alternative investment strategies. GSC Group is privately owned, has approximately 85 employees, and has

offices in New Jersey, New York and London. GSC Group conducts its investment advisory business through GSCP (NJ), L.P., an investment adviser registered with the U.S. Securities and Exchange Commission (the “SEC”) with approximately $8.2 billion of assets under management⁽¹⁾ as of December 31, 2008.

     GSC Group operates in two main business lines: (i) the corporate credit and distressed investments group, which provides investment advisory and management services to the Company, which is comprised of 19 investment professionals who manage approximately $7.4 billion of assets⁽¹⁾ in various collateralized loan and debt obligation funds, credit funds, control distressed debt funds and sponsors, provides administrative services to, and acts as officers and directors of, a special acquisition company and (ii) the European Mezzanine Lending group, which is comprised of 8 investment professionals who manage approximately $0.8 billion of assets⁽¹⁾ in various mezzanine lending funds.

Our investment adviser

     Our Chairman, Richard M. Hayden, and Chief Executive Officer, Seth M. Katzenstein, are senior managers of our investment adviser. Mr. Hayden is Vice Chairman of GSC Group, head of GSC Group’s European mezzanine lending group and serves on both the European CDO and European mezzanine lending group credit committees. Mr. Katzenstein is a Senior Managing Director of GSC Group, a member of the European mezzanine lending group and serves on both the GSC Investment Corp. and U.S. CDO credit committees. Mr. Hayden and Mr. Katzenstein have over 35 years and 13 years experience in the financial services industry, respectively. Mr. Hayden and Mr. Katzenstein are supported by the 19 investment professionals within GSC Group’s corporate credit and distressed investments group.

     Our investment adviser is responsible for administering our business activities and day-to-day operations. Our investment adviser is able to leverage GSC Group’s current investment platform, resources and existing relationships with financial institutions, financial sponsors and investment firms to provide us with attractive investment opportunities. In addition to deal flow, the GSC Group investment platform assists our investment adviser in analyzing and monitoring investments. In particular, these resources provide us with a wide variety of investment opportunities and information that assists us in making investment decisions across our targeted asset classes, which we believe provide us with a competitive advantage. GSC Group has been investing in corporate debt since its founding in 1999. In addition to having access to GSC Group’s investment professionals, we also have access to GSC Group’s administrative professionals who provide assistance in accounting, legal, compliance and investor relations.

Our relationship with our investment adviser and GSC Group

     We currently have no employees, and each of our executive officers is also an employee of GSC Group. As of May 4, 2009, GSC Group and its affiliates owned 995,869 shares (12%) of our common stock and senior employees of GSC Group (managing director and above) owned an additional 382,425 shares (4.6%) of our common stock. Some, but not all, of these persons are required to file statements of beneficial ownership pursuant to Section 16 of the Exchange Act.

     Our investment advisory and management agreement with our investment adviser has been renewed through March 21, 2010. Pursuant to the investment advisory and 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, performing all of our day-to-day functions, determining investment criteria, sourcing, analyzing and executing investments, asset sales, financings and performing asset management duties. Under our investment advisory and management agreement, we have agreed to pay our investment adviser an annual base management fee based on our total assets, as defined under the 1940 Act (other than cash and cash equivalents but including assets purchased with borrowed funds), and an incentive fee based on our performance. The investment advisory and management agreement renews automatically for additional one-year terms at the end of each year subject to certain approvals by our Board of Directors and/or our stockholders.

     Pursuant to our investment advisory and management agreement, our investment adviser has formed an investment committee to advise and consult with our investment adviser’s senior management team with respect to our investment policies, investment

portfolio holdings, financing and leveraging strategies and investment guidelines. We believe that the cumulative experience of the investment committee members across a variety of fixed income asset classes benefits us. Along with GSC Group’s U.S. corporate credit and distressed investments group’s investment staff, the investment committee monitors investments in our portfolio.

     In April 2009, our investment adviser withheld a scheduled principal amortization payment under its credit facility, resulting in a default thereunder. Our investment adviser has initiated discussions with its secured lenders regarding a consensual restructuring of its obligations under such credit facility. While we are not directly affected by our investment adviser’s default, if it is unable to restructure its credit facility, or an acceleration of the outstanding principal balance by the lenders occurs, the ability of the investment adviser to retain key individuals and perform its investment advisory duties for us could be significantly impaired. A material adverse change in the business, condition (financial or otherwise), operations or performance of our investment adviser could constitute a default under our Revolving Facility.

Competitive advantages

     We believe that through our relationship with GSC Group we enjoy several competitive advantages over other capital providers to private middle market companies.

     GSC Group’s investment platform

     GSC Group has a long history of strong performance across a broad range of asset classes and sectors. The senior investment professionals of GSC Group have extensive experience investing in leveraged loans, high-yield bonds, mezzanine debt and private equity. GSC Group’s corporate credit and distressed investments group has drawn from its extensive middle market investment experience to develop a rigorous investment process that emphasizes detailed business and financial analysis to minimize principal loss while maximizing risk adjusted returns.

     Experience sourcing and managing middle market loans

     GSC Group’s U.S. corporate credit and distressed investments group has historically focused on investments in private middle market companies and we expect to benefit from this experience. Our investment adviser uses GSC Group’s extensive network of relationships with intermediaries focused on private middle market companies to attract well-positioned prospective portfolio company investments. Since 2003, GSC Group’s U.S. corporate credit and distressed investments group has reviewed over 1,200 new middle market loan opportunities, including over 400 second lien loans. Of the loans reviewed, approximately 350 were purchased by the group for the clients it advises, including approximately 60 second lien loans.

     Experienced management and investment committee

     Seth M. Katzenstein, our Chief Executive Officer and a Senior Managing Director of GSC Group, has over 13 years of financial services experience, having managed leveraged loan, high-yield bond, mezzanine debt, distressed debt and private equity portfolios. In addition to Mr. Katzenstein, our investment committee consists of Robert F. Cummings, Jr., a Director of the Company and a Senior Managing Director of GSC Group, who has over 35 years experience in corporate finance, Michael R. Lynch, a Senior Managing Director, Chief Administrative Officer and Chief Financial Officer of GSC Group, who has over 30 years corporate finance experience and Alexander B. Wright, a Managing Director of GSC Group, who has over 15 years corporate finance experience.

     Access to GSC Group’s infrastructure

     We have access to GSC Group’s finance and administration infrastructure, which addresses information technology, risk management, legal and compliance, and operational matters, and promulgates and administers comprehensive policies and procedures regarding important investment adviser matters, including portfolio management, trade allocation and execution and securities valuation. We believe that the finance and administrative infrastructure established by GSC Group is an important component of a complex investment vehicle such as a BDC. These systems support, and are integrated with, our portfolio management functions.

     We also have the benefit of the experience of GSC Group’s senior professionals, many of whom have served on public and private company boards and/or served in other senior management roles.

Compliance policies

     GSC Group has designed a compliance program to monitor its conflict-resolution policies and procedures and regularly evaluates the reasonableness of such policies and procedures. GSC Group’s compliance program monitors the implementation of and tests adherence to compliance-related policies and procedures that address GSC Group’s Code of Ethics and other compliance matters including investment allocation, trade aggregation, best execution, cross trades and proxy voting and related matters. The program is governed in part by the requirements of the 1940 Act and is headed by GSC Group’s Chief Compliance Officer.

Managerial assistance

     As a BDC we offer, and must provide upon request, managerial assistance to our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Pursuant to a separate administration agreement, our investment adviser (to the extent permitted under the 1940 Act) will provide such managerial assistance on our behalf to portfolio companies that request this assistance, recognizing that our involvement with each investment will vary based on factors including the size of the company, the nature of our investment, the company’s overall stage of development and our relative position in the capital structure. We may receive fees for these services.

Competition

     Our primary competitors in providing financing to private middle market companies include public and private investment funds, commercial and investment banks and commercial financing companies. Many of our competitors are substantially larger and have considerably greater financial and marketing resources than us. For example, some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which may allow them to consider a wider variety of investments. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. We expect to use GSC Group’s knowledge and resources to learn about, and compete effectively for, financing opportunities with attractive private middle market companies in the industries in which we seek to invest. For additional information concerning the competitive risks we face, please see Part I, Item 1A “Risk Factors — Risks related to our business — We operate in a highly competitive market for investment opportunities.”

Staffing

     We do not currently have any employees and do not expect to have any employees in the future. Services necessary for our business will be provided by individuals who are employees of GSC Group, pursuant to the terms of the investment advisory and management agreement and the administration agreement. We reimburse GSC Group for our allocable portion of expenses incurred by it in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our officers and their respective staffs, subject to certain limitations. The amount payable to GSC Group 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 term of the administration agreement and the current renewal term (expiring March 2010), GSC Group has agreed to waive our reimbursement obligation under the administration agreement until our total assets exceed $500 million. 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.

Regulation

     We have elected and qualified to be treated as a BDC under the 1940 Act. As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters, and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC, unless approved by a majority of our outstanding voting securities. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (i) 67% or more of such company’s stock present at a meeting if more than 50% of the outstanding stock of such company is present and represented by proxy or (ii) more than 50% of the outstanding stock of such company.

     Under the 1940 Act, we may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed a “principal underwriter” as that term is defined in the Securities Act of 1933, as amended (the “Securities Act”).

     Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investment. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances.

     We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of investment companies in general. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of these policies are fundamental and may be changed without stockholder approval.

     Qualifying assets

     Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our proposed business are the following:

(1)

Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

	(a)		is organized under the laws of, and has its principal place of business in, the United States;
	(b)		is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
	(c)		satisfies either of the following:

	(i)		does not have any class of securities listed on a national securities exchange; or
	(ii)		has a class of securities listed on a national securities exchange but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million.

	(2)		Securities of any eligible portfolio company which we control.
	(3)		Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
	(4)		Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own at least 60% of the outstanding equity of the eligible portfolio company.
	(5)		Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of options, warrants or rights relating to such securities.
	(6)		Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.

     Managerial assistance to portfolio companies

     In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above under “—Qualifying assets.” However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

     Temporary investments

     As a BDC, pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the asset diversification requirements in order to qualify as a RIC for U.S. federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

     Indebtedness and senior securities

     As a BDC, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any indebtedness and senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or stock unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, please see Part 1, Item 1A “Risk factors — Risks related to our operation as a BDC — Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.”

     Code of ethics

     As a BDC, we and our investment adviser have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

     Proxy voting policies and procedures

     SEC registered investment advisers that have the authority to vote (client) proxies (which authority may be implied from a general grant of investment discretion) are required to adopt policies and procedures reasonably designed to ensure that the adviser votes proxies in the best interests of its clients. Registered investment advisers also must maintain certain records on proxy voting. In most cases, we will invest in securities that do not generally entitle us to voting rights in its portfolio companies. When we do have voting rights, we will delegate the exercise of such rights to our investment adviser.

     Our investment adviser has particular proxy voting policies and procedures in place. In determining how to vote, officers of our investment adviser will consult with each other and other investment professionals of GSC Group, taking into account our interests

and the interests of our investors, as well as any potential conflicts of interest. Where appropriate, our investment adviser will consult with legal counsel to identify potential conflicts of interest. Where a potential conflict of interest exists, our investment adviser may, if it so elects, resolve it by following the recommendation of a disinterested third party, by seeking the direction of our independent directors or, in extreme cases, by abstaining from voting. While our investment adviser may retain an outside service to provide voting recommendations and to assist in analyzing votes, our investment adviser will not delegate its voting authority to any third party.

Privacy principles

     We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

     Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as permitted by law, or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).

     We restrict access to non-public personal information about our stockholders to employees of our investment adviser and its affiliates with a legitimate business need for the information. We maintain appropriate physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.

Other

     As a BDC, we may be periodically examined by the SEC for compliance with the 1940 Act. Our manager is a registered investment adviser and is also subject to examination by the SEC.

     We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

     We and our investment adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer to be responsible for administering the policies and procedures.

Co-investment

     As a BDC, we are prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our independent directors, or in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits “joint” transactions with an affiliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we are prohibited from buying or selling any security from or to such person, or entering into joint transactions with such person, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. As a result, we will be limited in our ability to negotiate the term of any investment (except with respect to price) in instances where we are participating in such investments with other funds managed by GSC Group. Generally, we are prohibited from knowingly purchasing securities in a primary offering from a portfolio company the securities of which are already held by GSC Group or any other fund managed by GSC Group. However, if a portfolio company offers additional securities and existing securities are held by us and GSC Group or other funds managed by GSC Group, then we may participate in a follow-on investment in such securities on a pro-rata basis. We may also purchase securities in the secondary market of a company, the securities of which are already held by GSC Group or another fund managed by GSC Group.

     The Company and GSC Group may in the future submit an exemptive application to the SEC to permit greater flexibility to negotiate the terms of co-investments because we believe that it will be advantageous for the Company to co-invest with funds managed by GSC Group where such investment is consistent with the investment objectives, investment positions, investment

policies, investment strategies, investment restrictions, regulatory requirements and other pertinent factors applicable to the Company. We believe that co-investment by the Company and funds managed by GSC Group may afford the Company additional investment opportunities and the ability to achieve greater diversification. Accordingly, any application would seek an exemptive order permitting the Company to negotiate more than price terms when investing with funds managed by GSC Group in the same portfolio companies. It is expected that any exemptive relief permitting co-investments on those terms would be granted, if at all, only upon the conditions, among others, that before such a co-investment transaction is effected, our investment adviser will make a written investment presentation regarding the proposed co-investment to the independent directors of the Company and the independent directors of the Company will review our investment adviser’s recommendation.

     Moreover, it is expected that prior to committing to such a co-investment, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the independent directors of the Company would conclude that (i) the terms of the proposed transaction are reasonable and fair to the Company and its stockholders and do not involve overreaching of the Company and its stockholders on the part of any person concerned; (ii) the transaction is consistent with the interests of the stockholders of the Company and is consistent with the investment objectives and policies of the Company; and (iii) the co-investment by any GSC Group fund would not disadvantage the Company in making its investment, maintaining its investment position, or disposing of such investment and that participation by the Company would not be on a basis different from or less advantageous than that of the affiliated co-investor. There is no assurance that the application for exemptive relief will be granted by the SEC or that, if granted, it will be on the terms set forth above.

Resolution of potential conflicts of interest; equitable allocation of investment opportunities

     Subject to the 1940 Act restrictions on co-investments with affiliates, GSC Group will offer us the right to participate in all investment opportunities that it determines are appropriate for us in view of our investment objectives, policies and strategies and other relevant factors, subject to the exception that, in accordance with GSC Group’s conflict of interest and allocation policies, we might not participate in each individual opportunity but are, on an overall basis, entitled to equitably participate with GSC Group’s other funds or other clients.

     We are GSC Group’s principal investment vehicle for non-distressed second lien loans and mezzanine debt of U.S. middle market entities. Although existing and future investment vehicles managed or to be managed by GSC Group invest or may invest in mezzanine loans and second lien loans, none of these investment vehicles target non-distressed domestic second lien and mezzanine loans as the core of their portfolios. For example, while distressed debt funds managed by GSC Group’s corporate credit and distressed investments group may purchase second lien loans and mezzanine debt of private middle market companies, these funds will typically be interested in these assets in distressed situations, whereas we generally will seek to hold performing debt. Likewise, due to the high amounts of leverage deployed by various CLO funds managed by GSC Group, these funds tend to target first lien loans, while second lien and mezzanine loans are a secondary part of the strategy.

     To the extent that we do compete with any of GSC Group’s clients for a particular investment opportunity, our investment adviser will allocate the investment opportunity across the funds for which the investment is appropriate based on its internal conflict of interest and allocation policies consistent with the requirements of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), subject further to the 1940 Act restrictions on co-investments with affiliates and also giving effect to priorities that may be enjoyed from to time to time by one or more funds based on their investment mandate or guidelines, or any right of first review agreed to from time to time by GSC Group. Currently GSC European Mezzanine Fund II, L.P. has a priority on investments in mezzanine securities of issuers located primarily in Europe.

     Subject to the foregoing, GSC Group’s allocation policies are intended to ensure that we may generally share equitably with other GSC Group-managed investment vehicles in investment opportunities, particularly those involving a security with limited supply or involving differing classes of securities of the same issuer, which may be suitable for us and such other investment vehicles.

     GSC Group has historically managed investment vehicles with similar or overlapping investment strategies and has a conflict resolution policy in place that will also address the co-investment restrictions under the 1940 Act. The policy is intended to ensure that we comply with the 1940 Act restrictions on transactions with affiliates. These restrictions will significantly impact our ability to co-invest with other GSC Group’s funds. While the 1940 Act generally prohibits all “joint transactions” between entities that share a common investment adviser, the staff of the SEC has granted no-action relief to an investment adviser permitting purchases of a single class of privately-placed securities, provided that the investment adviser negotiates no term other than price and certain other conditions are satisfied. Neither our investment adviser nor any participant in a co-investment will have both a material pecuniary incentive and ability to cause us to participate with it in a co-investment. As a result, we only expect to co-invest on a concurrent basis with GSC Group’s funds when each fund will own the same securities of the issuer. If opportunities arise that would otherwise be appropriate for us and for one or more of GSC Group’s other funds to invest in different securities of the same issuer, our investment adviser will need to decide whether we or the other funds will proceed with the investment.

     GSC Group’s allocation procedures are designed to allocate investment opportunities among the investment vehicles of GSC Group in a manner consistent with its obligations under the Advisers Act. If two or more investment vehicles with similar investment strategies are still in their investment periods, an available investment opportunity will be allocated as described below, subject to any provisions governing allocations of investment opportunities in the relevant organizational documents. As an initial step, our investment adviser will determine whether a particular investment opportunity is an appropriate investment for us and its other clients and typically will determine the amount that would be appropriate for each client by considering, among other things, the following criteria:

	(1)		the investment guidelines and/or restrictions set forth in the applicable organizational documents;
	(2)		the risk and return profile of the client entity;
	(3)		the suitability/priority of a particular investment for the client entity;
	(4)		if applicable, the target position size of the investment for the client entity;
	(5)		the level of available cash for investment with respect to the particular client entity;
	(6)		the total amount of funds committed to the client; and
	(7)		the age of the fund and the remaining term of a fund’s investment period, if any.

     If there is an insufficient amount of an opportunity to satisfy the needs of all participants, the investment opportunity will generally be allocated pro-rata based on the initial investment amounts. Please see Part I, Item 1A “Risk Factors — There are conflicts of interest in our relationship with our investment adviser and/or GSC Group, which could result in decisions that are not in the best interests of our stockholders.” Subject to applicable law, GSC Group may modify its allocation procedures from time to time at its discretion.

Compliance with the Sarbanes-Oxley Act and the New York Stock Exchange corporate governance regulations

     The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of new regulatory requirements on publicly-held companies and their insiders. The Sarbanes-Oxley Act requires us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith. We are not required to include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting in this Annual Report pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this Annual Report.

     In addition, the New York Stock Exchange adopted corporate governance changes to its listing standards in 2003. We believe we are in compliance with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

Available Information

     We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Securities Exchange of 1934, as amended (the “Exchange Act”). You may inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at http://www.sec.gov. Our Internet address is http://www.gscinvestmentcorp.com. We make available free of charge on our Internet website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors

     Investing in our common stock involves a high degree of risk. The risks set forth below are not the only risks we face. If any of the following risks occur, our business and financial condition could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline.

Risks related to current economic and market conditions

Economic recessions, including the current global recession, could impair our portfolio companies and harm our operating results.

     The U.S. economy is in the midst of a severe recession that is expected to continue until late 2009 or 2010. Many of the companies in which we have made or will make investments are susceptible to economic slowdowns or recessions. An economic recession, including the current and any future recessions or economic slowdowns, may affect the ability of a company to repay our loans or engage in a liquidity event such as a sale, recapitalization, or initial public offering. Our nonperforming assets are likely to increase and the value of our portfolio is likely to decrease during these periods. Current adverse economic conditions also have decreased the value of any collateral securing our loans, if any, and a prolonged recession or depression may further decrease such value. A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. These conditions are contributing to, and if prolonged could lead to further, losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth.

Declining asset values and illiquidity in the corporate debt markets have adversely affected, and may continue to adversely affect, the fair value of our portfolio investments, reducing the value of our assets.

     As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair market value as determined in good faith by the Board of Directors. Decreases in the values of our investments are recorded as unrealized depreciation. The continuing unprecedented declines in asset values and liquidity in the corporate debt markets have resulted in significant net unrealized depreciation in our portfolio. As of February 28, 2009, conditions in the debt markets had continued to deteriorate and pricing levels continued to decline. As a result, we have incurred and, depending on market conditions, we may continue to incur, significant unrealized depreciation in our portfolio, which could have a material adverse impact on our business, financial condition and results of operations.

Ratings downgrades in our portfolio could require us to liquidate assets or face a default under the Revolving Facility.

     The amount that may be outstanding under our Revolving Facility at any time (our “Borrowing Base”) is based on, among other things, the value of the pledged collateral. (See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources” in this Annual Report for details). If securities deemed to have a rating of Caa2 or below by Moody’s comprise in excess of 30% of the value of the collateral, such excess Caa2 rated securities are deemed to have a value of zero when calculating the Borrowing Base. The economic recession and resultant stress on our portfolio companies has resulted in a large number of our portfolio companies being downgraded by one or more rating agencies, and continued economic stress may result in additional downgrades in the future. As of February 28, 2009, approximately 23.4% of the collateral was deemed to be rated Caa2 or below by Moody’s and a further 29.5% of the collateral was deemed to be rated Caa1. In some cases, we feel that these ratings do not reflect the underlying strength of the investment; in other cases, we feel that current market conditions preclude obtaining a fair sale price for the investment.

     Once the 30% threshold is reached, any additional Caa2 downgrades would cause our Borrowing Base to decrease, and may result in the Borrowing Base being less than our outstanding borrowings. In such circumstances, we would be required to repay the excess borrowing within a prescribed time limit or increase our Borrowing Base by pledging more collateral. Failure to cure a Borrowing Base violation within the prescribed time limit constitutes a default under the Revolving Facility and may result in an acceleration of all outstanding loans. If we are unable to promptly repay the accelerated loans, our lenders could liquidate the collateral.

The current severe capital markets disruption has limited our ability to obtain new equity capital and alternative sources of leverage.

     The U.S. capital markets have been experiencing extreme volatility and disruption for more than 12 months, as evidenced by a lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of risk in the credit markets and the failure of major financial institutions. This prolonged period of financial market illiquidity has had, and will continue to have, an adverse effect on our business, financial condition, and results of operations. We have been unable to find new or alternative sources of leverage to supplement or replace our Revolving Facility, which entered into its amortization period in January 2009. The current bear market in equities has made equity capital difficult or impossible to raise, as our stock has been trading below net asset value, and, under the 1940 Act, we are generally unable to issue and sell our common stock at a price below net asset value per share. If our lender is unable to fund our existing debt in the commercial paper market, the cost of our Revolving Facility may also increase. These events have, and will continue to have, negative repercussions on our operating results and on our ability to grow.

Our common stock could be delisted from the New York Stock Exchange if our average market capitalization over 30 consecutive trading days is below $15 million.

     In order to maintain our listing on the New York Stock Exchange (“NYSE”), we must continue to meet the NYSE minimum average market capitalization requirement. At February 28, 2009, our minimum average market capitalization over the preceding 30 consecutive trading days was $19.5 million. If the average market capitalization over 30 consecutive trading days falls below $15.0 million, our common stock may be delisted, which could (i) reduce the liquidity and market price of our common stock; (ii) negatively impact our ability to raise equity financing and access the public capital markets; and (iii) materially adversely impact our results of operations and financial condition.

Risks related to our business

     We employ leverage.

     We currently use the Revolving Facility to leverage our portfolio and we expect in the future to borrow from and issue senior debt securities to banks and other lenders and may securitize certain of our portfolio investments.

     With certain limited exceptions, as a BDC we are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. The amount of leverage that we employ will depend on our investment adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing. There is no assurance that a leveraging strategy will be successful. Leverage involves risks and special considerations for stockholders, including:

	•		A likelihood of greater volatility in the net asset value and market price of our common stock.
	•		Diminished operating flexibility as a result of asset coverage or investment portfolio composition requirements that are more stringent than those imposed by the 1940 Act.
	•		The possibility that investments will have to be liquidated at less than full value or at inopportune times to comply with debt covenants or to pay interest or dividends on the leverage.
	•		Increased operating expenses due to the cost of leverage, including issuance and servicing costs.
	•		Subordination to lenders’ superior claims on our assets as a result of which lenders will be able to receive proceeds available in the case of our liquidation before any proceeds are distributed to our shareholders.

     For example, the amount we may borrow under our Revolving Facility is determined, in part, by the fair value of our investments. If the fair value of our investments declines, we may be forced to sell investments at a loss to maintain compliance with our borrowing limits. Other debt facilities we may enter into in the future may contain similar provisions. Any such forced sales would reduce our net asset value and also make it difficult for the net asset value to recover.

     Our investment adviser and our Board of Directors in their best judgment nevertheless may determine to use leverage if they expect that the benefits to our stockholders of maintaining the leveraged position will outweigh the risks.

We need to find alternative sources of leverage and/or access the equity markets to maintain and grow our business.

     Our Revolving Facility entered its amortization period effective January 14, 2009. During the amortization period, all principal proceeds of our pledged investments are used to reduce the outstanding borrowings under the Revolving Credit Facility. On the second anniversary of the amortization period, all remaining outstanding borrowings under the Revolving Credit Facility will become due and payable. As a result of these mandatory repayments, our investment portfolio will begin to de-leverage commencing with the payment of the first principal proceeds on our portfolio, and must be completely deleveraged in two years, unless we can obtain an alternative source of financing. Given the unfavorable conditions in the credit markets, there is no guarantee we will be able to secure new financing in the immediate future or, if we are able to obtain financing, that the terms of such financing will be commensurate with the terms of the Revolving Credit Facility. Because our ability to generate net investment income is based, in part, on the use of relatively inexpensive financing available under the Revolving Credit Facility to purchase portfolio assets, the amortization of the Revolving Credit Facility will negatively impact our ability to generate investment income (and pay dividends) in the future.

     Because the amount of leverage we can employ is limited by the 1940 Act, our ability to grow depends on raising additional equity capital notwithstanding the availability of additional leverage. An inability to successfully access the capital markets will limit our ability to grow our business and fully execute our business strategy.

Many of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors; such valuations are inherently uncertain and may be materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

     A large percentage of our portfolio is, and we expect will continue to be, comprised of investments that are not publicly traded. The value of investments that are not publicly traded may not be readily determinable. We value these investments quarterly at fair value as determined in good faith by our Board of Directors. Where appropriate, our Board of Directors may utilize the services of an independent valuation firm to aid it in determining fair value. The types of factors that may be considered in valuing our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly traded companies, discounted cash flow and other relevant factors. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these 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.

We may be obligated to pay our investment adviser incentive compensation even if we incur a net loss, regardless of the market value of our common stock.

     Our investment adviser is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation, net operating losses and certain other items) above a threshold return for that quarter. Our pre-incentive fee net investment income, for incentive compensation purposes, excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay our investment adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our Portfolio or we incur a net loss for that quarter.

     Under the investment advisory and management agreement, we will defer cash payment of any incentive fee otherwise earned by our investment adviser if, during the most recent four full quarterly periods ending on or prior to the date such payment is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) is less than 7.5% of our net assets at the beginning of such period. These calculations will be appropriately pro rated during the first three quarters of this fiscal year and will be adjusted for any share issuances or repurchases. Furthermore, the incentive fee that we pay is not tied to the market value of our common stock.

     If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. The investment adviser is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that resulted in the accrual of such income.

     Our investment adviser’s incentive compensation may cause it to pursue a high risk investment strategy.

     The incentive fee payable to the investment adviser may create an incentive for the investment adviser to make investments that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to the investment adviser is determined (20% of the pre-incentive fee net investment income that exceeds a hurdle rate of a 1.875% quarterly return on the value of net assets) may encourage the investment adviser to use leverage to increase the return to the Company’s investments. If the investment adviser acquires poorly-performing assets with such leverage, the loss to holders of the shares could be substantial. Moreover, if our leverage is increased, we will be exposed to increased risk of loss, bear the increased cost of issuing and servicing such senior indebtedness, and will be subject to any additional covenant restrictions imposed on us in an indenture or other instrument or by the applicable lender. Our Board of Directors will monitor the conflicts presented by this compensation structure by approving the amount of leverage that we may incur. In addition, the investment adviser receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, the investment adviser may have a tendency to invest more in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

     Our investment adviser’s base compensation may cause it to increase our leverage contrary to our interest.

     We pay the investment adviser a quarterly base management fee based on the value of our total assets (including any assets acquired with leverage). Accordingly, the investment adviser has an economic incentive to increase our leverage. Our Board of Directors monitors the conflicts presented by this compensation structure by approving the amount of leverage that we incur. If our leverage is increased, we will be exposed to increased risk of loss, bear the increase cost of issuing and servicing such senior indebtedness, and will be subject to any additional covenant restrictions imposed on us in an indenture or other instrument or by the applicable lender.

     We operate in a highly competitive market for investment opportunities.

     A number of entities compete with us to make the types of investments that we plan to make in private middle market companies. We compete with other BDCs, public and private funds, commercial and investment banks, commercial financing companies, insurance companies, high-yield investors, hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than us. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments that could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we cannot assure you that we will be able to identify and make investments that meet our investment objectives.

     We do not seek to compete primarily based on the interest rates we offer and we believe that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer.

     We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, we may make investments that are on better terms to our portfolio companies than we originally anticipated, which may impact our return on these investments.

     We are a non-diversified investment company within the meaning of the 1940 Act, and therefore are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. However, we intend to comply with the diversification requirements imposed by the Code for qualification as a RIC.

     Our financial condition and results of operation depend on our ability to manage future growth effectively.

     Our ability to achieve our investment objectives depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on our investment adviser’s ability to identify, invest in and monitor companies that meet our investment criteria.

     Accomplishing this result on a cost-effective basis is largely a function of our investment adviser’s structuring of the investment process and its ability to provide competent, attentive and efficient service to us. Our executive officers and the employees of our investment adviser have substantial responsibilities in connection with their roles at GSC Group and with the other GSC Group investment vehicles as well as responsibilities under the investment advisory and management agreement. They may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, our investment adviser may need to hire, train, supervise and manage new employees. However, we cannot assure you that any such employees will contribute to the work of the investment adviser. Any failure to manage our future growth effectively could have a material adverse effect on our business and financial condition.

There are conflicts of interest in our relationship with our investment adviser and/or GSC Group that could cause them to make decisions that are not in the best interests of our stockholders.

     Subject to the restrictions of the 1940 Act, we may co-invest in investments of portfolio companies on a concurrent basis with other investment vehicles managed by GSC Group. Similarly a GSC Group-managed investment vehicle may, in certain circumstances, invest in securities issued by a company in which we have made, or are making, an investment. Similarly, in certain circumstances, we may invest in securities issued by a company in which another GSC Group-managed investment vehicle has made an investment. Although certain such investments may present conflicts of interest, we nonetheless may pursue and consummate such transactions. These conflicts may include:

     Co-Investment. We are prohibited from co-investing with other investment vehicles managed now or in the future by GSC Group in certain investments of portfolio companies in instances where GSC Group negotiates terms other than price. In instances where we co-invest with a GSC Group-managed investment vehicle, while we will invest on the same terms and neither we nor the GSC Group-managed investment vehicle may negotiate terms of the transaction other than price, conflicts of interest may arise. For example, if an investee company in which both we and a GSC Group-managed investment vehicle have invested becomes distressed, and the size of our relative investments varies significantly, the decisions relating to actions to be taken could raise conflicts of interest.

     Conflicts in Different Parts of Capital Structure. If a portfolio company in which we and another GSC Group-managed investment vehicle hold different classes of securities encounters financial problems, decisions over the terms of any workout will raise conflicts of interest. For example, a debt holder may be better served by a liquidation of the issuer in which it will be paid in full, whereas an equity holder might prefer a reorganization that could create value for the equity holder.

     Potential Conflicting Positions. Given our investment objectives and the investment objectives of other GSC Group-managed investment vehicles, it is possible that we may hold a position that is contrary to a position held by another GSC Group-managed investment vehicle. For example, we could hold a longer term investment in a certain portfolio company and at the same time another GSC Group-managed investment vehicle could hold a short-term position in the same company. GSC Group makes each investment decision separately based upon the investment objective of each of its clients.

     Shared Legal Counsel. We and other GSC Group-managed investment vehicles generally engage common legal counsel in transactions in which both are participating or with respect to matters that may affect both. Although separate counsel may be engaged, the time and cost savings and other efficiencies and advantages of using common counsel will generally outweigh the disadvantages. In the event of a significant dispute or divergence of interests, typically in a work-out or other distressed situation, separate representation may become desirable, and in litigation and other circumstances, separate representation may be necessary.

     Allocation of Opportunities. Our investment adviser provides investment management, investment advice or other services in relation to a number of investment vehicles that focus on corporate credit, distressed debt, mezzanine investments and structured finance products and have investment objectives that are similar to or overlap with ours. Investment opportunities that may be of interest to us may also be of interest to GSC Group’s other investment vehicles, and GSC Group may buy or sell securities for us which differ from securities which they may cause to be bought or sold for other investment vehicles. GSC Group has greater

interests in other investment vehicles it manages, including greater capital commitments to, or larger fees earned from, such investment vehicles. These differing interests may create a conflict of interest for GSC Group in determining which investment vehicle should pursue a given investment opportunity.

     Material Nonpublic Information. GSC Group or its employees, officers, principals or affiliates may come into possession of material nonpublic information in connection with business activities unrelated to our operations. The possession of such information may limit our ability to buy or sell securities or otherwise participate in an investment opportunity or to take other action it might consider in our best interest.

     Cross-Trading. Subject to applicable law, we may engage in transactions directly with other investment vehicles managed by GSC Group, including the purchase or sale of all or a portion of a portfolio investment. Cross-trades can save us brokerage commissions and, in certain cases, related transaction costs. Cross-trades between affiliates may create conflicts of interest with respect to certain terms of the transaction, including price. The 1940 Act imposes substantial restrictions on cross-trades between us and investment vehicles managed by GSC Group. As a result, our Board of Directors has adopted cross-trading procedures designed to ensure compliance with the requirements of the 1940 Act and will regularly review the terms of any cross-trades.

We may compete with investment vehicles of GSC Group for access to GSC Group.

     Our investment adviser and its affiliates have sponsored and currently manage other investment vehicles with an investment focus that overlaps with our focus, and may in the future sponsor or manage additional investment vehicles with an overlapping focus to ours, which, in each case, could result in us competing for access to the benefits that we expect our relationship with GSC Group to provide to us.

We are dependent upon our investment adviser and its personnel.

     We depend on the diligence, skill and network of business contacts of GSC Group’s investment professionals and the information and deal flow generated by them in the course of their investment and portfolio management activities. The departure of a significant number of the investment professionals of GSC Group could have a material adverse effect on our ability to achieve our investment objectives. In addition, we cannot assure you that our investment adviser will remain our investment adviser or that we will continue to have access to GSC Group’s investment professionals or its information and deal flow. In April 2009, our investment adviser withheld a scheduled principal amortization payment under its credit facility, resulting in a default thereunder. Our investment adviser has initiated discussions with its secured lenders regarding a consensual restructuring of its obligations under such credit facility. While we are not directly affected by our investment adviser’s default, if it is unable to restructure its credit facility, or an acceleration of the outstanding principal balance by the lenders occurs, the ability of the investment adviser to retain key individuals and perform its investment advisory duties for us could be significantly impaired. A material adverse change in the business, condition (financial or otherwise), operations or performance of our investment adviser could constitute a default under our Revolving Facility.

We are exposed to risks associated with changes in interest rates.

     General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on investment objectives and our rate of return on invested capital. In addition, an increase in interest rates would make it more expensive to use debt to finance our investments. Decreases in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets. Trading prices for debt that pays a fixed rate of return tend to fall as interest rates rise. Trading prices tend to fluctuate more for fixed-rate securities that have longer maturities. Although we have no policy governing the maturities of our investments, under current market conditions we expect that we will invest in a portfolio of debt generally having maturities of up to ten years. This means that we will be subject to greater risk (other things being equal) than an entity investing solely in shorter-term securities. A decline in the prices of the debt we own could adversely affect the trading price of our common stock.

We may experience fluctuations in our quarterly results.

     We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the debt investments we make, the default rate on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Our investment adviser’s liability is limited under the investment advisory and management agreement and we will indemnify our investment adviser against certain liabilities, which may lead our investment adviser to act in a riskier manner on our behalf than it would when acting for its own account.

     Our investment adviser has not assumed any responsibility to us other than to render the services described in the investment advisory and management agreement. Pursuant to the investment advisory and management agreement, our investment adviser and its general partner, officers and employees are not liable to us for their acts, under the investment advisory and management agreement, absent willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. We have agreed to indemnify, defend and protect our investment adviser and its general partner, officers and employees with respect to all damages, liabilities, costs and expenses resulting from acts of our investment adviser not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the investment advisory and management agreement. These protections may lead our investment adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.

Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business.

     We and our portfolio companies are subject to regulation at the local, state and federal levels. These laws and regulations, as well as their interpretation, may be changed from time to time. Any change in these laws or regulations, or their interpretation, or any failure by us to comply with these laws or regulations may adversely affect our business.

     As discussed below, there is a risk that certain investments that we intend to treat as qualifying assets will be determined to not be eligible for such treatment. Any such determination would have a material adverse effect on our business.

     We have a limited operating history.

     We were incorporated in March 2007 and commenced our operations that same month. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we may not achieve our investment objectives and that the value of your investment could decline substantially.

Risks related to our operation as a BDC

     Our common stock may trade at a discount to our net asset value per share.

     Common stock of BDCs, as closed-end investment companies, frequently trade at a discount to net asset value. Our common stock has traded at a discount to our net asset value since shortly after our initial public offering. The risk that our common stock may continue to trade at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline.

Regulations governing our operation as a BDC will affect our ability to raise additional capital.

     We have incurred indebtedness under the Revolving Facility and we may issue debt securities or preferred stock, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a BDC, to incur indebtedness or issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. If the value of our assets declines, we may be unable to satisfy this test, which could prohibit us from paying dividends and prevent us from qualifying as a RIC. If we cannot satisfy this test, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

     We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less any commission or discount). If our common stock trades at a discount to net asset value, this restriction could adversely affect our ability to raise capital.

     To generate cash for funding new investments, we pledged a substantial portion of our portfolio investments under the Revolving Facility. Such assets are not available to secure other sources of funding or for securitization. Our ability to obtain additional secured or unsecured financing on attractive terms in the future is uncertain. Alternatively, we may in the future seek to securitize a portion of our loan portfolio. The loan and securitization markets are subject to changing market conditions, however, and we may not be able to access this market when we would otherwise deem appropriate. An inability to obtain additional leverage through secured or unsecured financing or securitization of our loan portfolio could limit our ability to grow our business, fully execute our business strategy and decrease our earnings, if any. We may also face a heightened risk of loss to the extent we hold a first loss position in a securitized loan portfolio. The 1940 Act may also impose restrictions on the structure of any securitization.

There is a risk that you may not receive distributions or that our distributions may not grow over time.

     As a BDC for 1940 Act purposes and a RIC for U.S. federal income tax purposes, we intend to make distributions out of assets legally available for distribution on a quarterly basis to our stockholders once such distributions are authorized by our Board of Directors and declared by us. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test that is applicable to us as a BDC, we may be limited in our ability to make distributions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.

     Our investment adviser has limited experience in managing a BDC.

     The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their total assets primarily in securities of private U.S. operating companies or public U.S. companies whose securities are not listed on a national securities exchange registered under the Exchange Act (i.e., NYSE, American Stock Exchange and The NASDAQ Global Market), cash, cash equivalents, U.S. government securities and high quality debt investments that mature in one year or less. Our investment adviser does not manage any BDCs other than the Company, and the Company has been in operation only since March 2007. Our investment adviser’s limited experience in managing a portfolio of assets under such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.

A failure on our part to maintain our qualification as a BDC would significantly reduce our operating flexibility.

     If we fail to qualify as a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would significantly decrease our operating flexibility.

     We will be subject to corporate-level income tax if we fail to qualify as a RIC.

     We will seek to qualify as a RIC under the Code, which requires us to qualify continuously as a BDC and meet certain source of income, distribution and asset diversification requirements.

     The source of income requirement is satisfied if we derive at least 90% of our annual gross income from interest, dividends, payments with respect to certain securities loans, gains from the sale or other disposition of securities or options thereon or foreign currencies, or other income derived with respect to our business of investing in such securities or currencies, and net income from interests in “qualified publicly traded partnerships,” as defined in the Code.

     The annual distribution requirement is satisfied if we distribute to our stockholders on an annual basis an amount equal to at least 90% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses. We are subject to certain asset coverage ratio requirements under the 1940 Act and covenants under the Facilities that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. In such case, if we are unable to obtain cash from other sources, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax.

     To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in our having to (i) dispose of certain investments quickly or (ii) raise additional capital to prevent the loss of our RIC qualification. Because most of our investments will be in private companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we raise additional capital to satisfy the asset diversification requirements, it could take us time to invest such capital. During this period, we will invest the additional capital in temporary investments, such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving in respect of investments in first and second lien loans, mezzanine debt and high yield debt.

     If we fail to qualify as a RIC for any reason, all of our taxable income will be subject to U.S. federal income tax at regular corporate rates. The resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders.

As a BDC, we may have difficulty paying our required distributions if we recognize income before or without receiving cash in respect of such income.

     For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, or contracted paid-in-kind interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount, which could be significant relative to our overall investment activities, or increases in loan balances will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash, including, for example, non-cash income from paid-in-kind securities and deferred payment securities. In addition, we will consolidate GSCIC CLO for federal income tax purposes, and income earned thereon may differ from the distributions paid in respect of our investment in the GSCIC CLO subordinated notes because of the factors set forth above or because distributions on the subordinated notes are contractually required to be diverted for reinvestment or to pay down outstanding indebtedness.

     Since in certain cases we may recognize income before or without receiving cash in respect of such income, we may have difficulty meeting the requirement that we distribute an amount equal to at least 90% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses, to qualify as a RIC. Accordingly, we may have to sell some of our investments (or investments in the GSCIC CLO portfolio) at times we would not consider advantageous, raise additional debt or equity capital or reduce new investments to meet these distribution requirements. If we are not able to obtain cash from other sources, or are restricted from selling investments in the GSCIC CLO portfolio by the terms of the applicable indenture, we may fail to qualify as a RIC and thus be subject to corporate-level income tax.

If our primary investments are deemed not to be qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business plan.

     If we are to maintain our qualification as a BDC, we must not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that the leveraged loans and mezzanine investments that we propose to acquire constitute qualifying assets because, at the time of our investment, the privately held issuers will not have securities listed on a national securities exchange and the publicly traded issuers will have a market capitalization of less than $250 million.

The floating interest rate features of any indebtedness incurred by us could adversely affect us if interest rates rise.

     Any indebtedness incurred by us will likely bear interest at a floating rate based on an index. As a result, if that index increases, our costs under any indebtedness incurred would become more expensive, which could have a material adverse effect on our earnings.

Risks related to our investments

     Our investments may be risky, and you could lose all or part of your investment.

     Substantially all of the debt investments held in the portfolio hold, and will likely continue to hold, a non-investment grade rating by Moody’s and/or Standard & Poor’s or, where not rated by any rating agency, would be below investment grade, if rated. High yield bonds rated below investment grade are commonly referred to as “junk bonds.” A below investment grade rating means that, in the rating agency’s view, there is an increased risk that the obligor on such debt will be unable to pay interest and repay principal on its debt in full. We may also invest in debt that defers or pays paid-in-kind interest. To the extent interest payments associated with such debt are deferred, such debt will be subject to greater fluctuations in value based on changes in interest rates, such debt could produce taxable income without a corresponding cash payment to us, and since we generally do not receive any cash prior to maturity of the debt, the investment will be of greater risk.

     In addition, private middle market companies in which we expect to invest are exposed to a number of significant risks, including:

	•		limited financial resources and an inability to meet their obligations, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
	•		shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;
	•		dependence on the management talents and efforts of a small group of persons; the death, disability, resignation or termination of one or more of which could have a material adverse impact on the company and, in turn, on us;
	•		less predictable operating results and, possibly, substantial additional capital requirements to support their operations, finance expansion or maintain their competitive position.; and
	•		difficulty accessing the capital markets to meet future capital needs.

     In addition, our executive officers, directors and our investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.

     The lack of liquidity in our investments may adversely affect our business.

     We expect to make investments in private companies. A portion of these securities may be subject to legal and other restrictions on resale, transfer, pledge or other disposition or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a business entity to the extent that we or our investment adviser has or could be deemed to have material non-public information regarding such business entity.

     The debt securities in which we invest are subject to credit risk and prepayment risk.

     An issuer of debt security may be unable to make interest payments and repay principal. We could lose money if the issuer of a debt obligation is, or is perceived to be, unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The downgrade of a security by rating agencies may further decrease its value.

     Certain debt instruments may contain call or redemption provisions which would allow the issuer thereof to prepay principal prior to the debt instrument’s stated maturity. This is known as prepayment risk. Prepayment risk is greater during a falling interest rate environment as issuers can reduce their cost of capital by refinancing higher interest debt instruments with lower interest debt instruments. An issuer may also elect to refinance their debt instruments with lower interest debt instruments if the credit standing of the issuer improves. To the extent debt securities in our portfolio are called or redeemed, we may receive less than we paid for such security and we may be forced to reinvest in lower yielding securities or debt securities of issuers of lower credit quality.

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.

     At February 28, 2009, our investment in the subordinated notes of GSCIC CLO had a fair value of $22.3 million and constituted 18.8% of our portfolio. This investment constitutes a first loss position in a portfolio that, as of February 28, 2009, was composed of $416.0 million in aggregate principal amount of primarily senior secured first lien term loans and $9.4 million in uninvested cash. Interest payments generated from this portfolio will be used to pay the administrative expenses of GSCIC CLO and interest on the debt issued by GSCIC CLO before paying a return on the subordinated notes. Principal payments will be similarly applied to pay administrative expenses of GSCIC CLO and for reinvestment or repayment of GSCIC CLO debt before paying a return on, or repayment of, the subordinated notes. In addition, 80% of our fixed management fee and 100% our incentive management fee is subordinated to the payment of interest and principal on GSCIC CLO’s debt. Any losses on the portfolio will accordingly reduce the cash flow available to pay these management fees and provide a return on, or repayment of, our investment. Depending on the amount and timing of such losses we may experience smaller than expected returns and, potentially, the loss of our entire investment.

     As the manager of the portfolio, we will have some ability to direct the composition of the portfolio, but our discretion is limited by the terms of the debt issued by GSCIC CLO, which may limit our ability to make investments that we feel are in the best interests of the subordinated notes, and the availability of suitable investments. The performance of the portfolio is also subject to many of the same risks sets forth in this Annual Report with respect to portfolio investments in senior secured first lien term loans.

     Available information about privately held companies is limited.

     We invest primarily in privately-held companies. Generally, little public information exists about these companies, and we are required to rely on the ability of our investment adviser’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. These companies and their financial information are not subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments.

When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment.

     We anticipate making both debt and minority equity investments; therefore, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of such company may take risks or otherwise act in ways that do not serve our interests. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.

     Our portfolio companies usually will have, or may be permitted to incur, other debt, or issue other equity securities that rank equally with, or senior to, our investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which we are entitled to receive payments in respect of our investments. These debt instruments will usually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such holders, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debtor equity ranking equally with our investments, we would have to share on an equal basis any distributions with other holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

     If one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt holding and subordinate all or a portion of our claim to that of other creditors. In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we actually render significant managerial assistance.

     Investments in equity securities involve a substantial degree of risk.

     We may purchase common stock and other equity securities. Although equity securities have historically generated higher average total returns than fixed-income securities over the long-term, equity securities also have experienced significantly more volatility in those returns and in recent years have significantly under performed relative to fixed-income securities. The equity securities we acquire may fail to appreciate and may decline in value or become worthless and our ability to recover our investment will depend on our portfolio company’s success. Investments in equity securities involve a number of significant risks, including:

•

any equity investment we make in a portfolio company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;

	•		to the extent that the portfolio company requires additional capital and is unable to obtain it, we may not recover our investment in equity securities; and
	•		in some cases, equity securities in which we invest will not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of our portfolio companies. Even if the portfolio companies are successful, our ability to realize the value of our investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the portfolio company. It is likely to take a significant amount of time before a liquidity event occurs or we can sell our equity investments. In addition, the equity securities we receive or invest in may be subject to restrictions on resale during periods in which it could be advantageous to sell.

There are special risks associated with investing in preferred securities, including:

	•		preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income for tax purposes even though we have not received any cash payments in respect of such income;
	•		preferred securities are subordinated with respect to corporate income and liquidation payments, and are therefore subject to greater risk than debt;
	•		preferred securities may be substantially less liquid than many other securities, such as common securities or U.S. government securities; and
	•		preferred security holders generally have no voting rights with respect to the issuing company, subject to limited exceptions.

Our investments in foreign debt, including that of emerging market issuers, may involve significant risks in addition to the risks inherent in U.S. investments.

     Although there are limitations on our ability to invest in foreign debt, we may, from time to time, invest in debt of foreign companies, including the debt of emerging market issuers. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Investments in the debt of emerging market issuers may subject us to additional risks such as inflation, wage and price controls, and the imposition of trade barriers. Furthermore, economic conditions in emerging market countries are, to some extent, influenced by economic and securities market conditions in other emerging market countries. Although economic conditions are different in each country, investors’ reaction to developments in one country can have effects on the debt of issuers in other countries.

     Although most of our investments will be U.S. dollar-denominated, our investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we cannot assure you that we will fully hedge against these risks or that such strategies will be effective.

     We may expose ourselves to risks if we engage in hedging transactions.

     We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may expose us to counter-party credit risk. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is generally anticipated at an acceptable price.

Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

     Our Board of Directors has the authority to modify or waive our current operating policies and our strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, financial condition, and value of our common stock. However, the effects might be adverse, which could negatively impact our ability to pay dividends and cause you to lose all or part of your investment.

Risks related to an investment in our shares

     Investing in our common stock may involve an above average degree of risk.

     The investments we make in accordance with our investment objectives may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our common stock may not be suitable for someone with lower risk tolerance.

     The market price of our common stock may fluctuate significantly.

     The market price and liquidity of the market for our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

	•		significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;
	•		changes in regulatory policies or tax rules, particularly with respect to RICs or BDCs;
	•		loss of RIC qualification;
	•		changes in the value of our portfolio of investments;
	•		any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;
	•		departure of our investment adviser’s key personnel;
	•		operating performance of companies comparable to us;
	•		general economic trends and other external factors; and
	•		loss of a major funding source.

Provisions of our governing documents and the Maryland General Corporation Law could deter takeover attempts and have an adverse impact on the price of our common stock.

     We are governed by our charter and bylaws, which we refer to as our “governing documents.”

     Our governing documents and the Maryland General Corporation Law contain provisions that may have the effect of delaying, deferring or preventing a transaction or a change in control of us that might involve a premium price for our stockholders or otherwise be in their best interest.

     Our charter provides for the classification of our Board of Directors into three classes of directors, serving staggered three-year terms, which may render a change of control of us or removal of our incumbent management more difficult. Furthermore, any and all vacancies on our Board of Directors will be filled generally only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term until a successor is elected and qualifies.

     Our Board of Directors is authorized to create and issue new series of shares, to classify or reclassify any unissued shares of stock into one or more classes or series, including preferred stock and, without stockholder approval, to amend our charter to increase or decrease the number of shares of stock that we have authority to issue, which could have the effect of diluting a stockholder’s ownership interest. Prior to the issuance of shares of stock of each class or series, including any reclassified series, our Board of Directors is required by our governing documents to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of shares of stock.

     Our governing documents also provide that our Board of Directors has the exclusive power to adopt, alter or repeal any provision of our bylaws, and to make new bylaws. The Maryland General Corporation Law also contains certain provisions that may limit the ability of a third party to acquire control of us, such as:

	•		The Maryland Business Combination Act, which, subject to certain limitations, prohibits certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of the common stock or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special minimum price provisions and special stockholder voting requirements on these combinations; and
	•		The Maryland Control Share Acquisition Act, which provides that “control shares” of a Maryland corporation (defined as shares of common stock which, when aggregated with other shares of common stock controlled by the stockholder, entitles the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares of common stock.

     The provisions of the Maryland Business Combination Act will not apply, however, if our Board of Directors adopts a resolution that any business combination between us and any other person will be exempt from the provisions of the Maryland Business Combination Act. Although our Board of Directors has adopted such a resolution, there can be no assurance that this resolution will not be altered or repealed in whole or in part at any time. If the resolution is altered or repealed, the provisions of the Maryland Business Combination Act may discourage others from trying to acquire control of us.

     As permitted by Maryland law, our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our common stock. Although our bylaws include such a provision, such a provision may also be amended or eliminated by our Board of Directors at any time in the future.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     We do not own any real estate or physical properties materially important to our business. Our corporate office is located at 888 Seventh Avenue, New York, New York 10019. Our telephone number is (212) 884-6200. We believe that our office facilities are suitable and adequate for our business as currently conducted and as reasonably foreseeable.

Item 3. Legal Proceedings

     Neither we nor our investment adviser are currently subject to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of stockholders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended February 28, 2009.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price range of common stock

     Our common stock is quoted on the NYSE under the symbol “GNV” and started trading on March 23, 2007 at an initial public offering price of $15.00 per share. Prior to such date there was no public market for our common stock. Set forth below are the high and low sales prices for our common stock for each full quarterly period since our common stock began trading.

						Price Range
Fiscal 2008		NAV(1)				High				Low
First Quarter		$	14.21			$	15.00			$	12.57
Second Quarter		$	13.76			$	14.06			$	10.74
Third Quarter		$	13.51			$	12.75			$	10.92
Fourth Quarter		$	11.80			$	11.43			$	9.68

Fiscal 2009		NAV(1)				High				Low
First Quarter		$	11.75			$	10.67			$	9.30
Second Quarter		$	11.05			$	11.05			$	9.16
Third Quarter		$	10.14			$	10.86			$	1.10
Fourth Quarter		$	8.20			$	3.15			$	1.55

Holders

     As of May 4, 2009, there were 16 holders of record and approximately 3400 beneficial holders of our common stock.

Dividend Policy

     Set forth below are the cash dividends declared by the Company since March 23, 2007, the date on which we commenced operations:

						Amount
Date Declared		Record Date		Payment Date		per Share
May 21, 2007		May 29, 2007		June 6, 2007		$	0.24
August 14, 2007		August 24, 2007		August 31, 2007		$	0.36
November 15, 2007		November 30, 2007		December 3, 2007		$	0.38
December 28, 2007		January 18, 2008		January 28, 2008		$	0.18
February 20, 2008		February 29, 2008		March 10, 2008		$	0.39
Total Dividends Declared for Fiscal 2008						$	1.55
May 22, 2008		May 30, 2008		June 13, 2008		$	0.39
August 19, 2008		August 29, 2008		September 15, 2008		$	0.39
December 8, 2008		December 18, 2008		December 29, 2008		$	0.25
Total Dividends Declared for Fiscal 2009						$	1.03

     We intend to make quarterly distributions to our stockholders out of assets legally available for distribution. Our quarterly distributions, if any, will be determined by our Board of Directors. Any such distributions will be taxable to our stockholders, including to those stockholders who receive additional shares of our common stock pursuant to a dividend reinvestment plan. We are prohibited from making distributions that cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or that violate our debt covenants.

     In order to maintain our qualification as a RIC, we must for each fiscal year distribute an amount equal to at least 90% of our ordinary net taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses. In addition, we will be subject to federal excise taxes to the extent we do not distribute during the calendar year at least (1) 98% of our ordinary income for the calendar year, (2) 98% of our capital gains in excess of capital losses for the one year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years. To provide stability in our dividend distributions (which might otherwise be adversely affected by timing mismatches between the receipt of payments on our investments and the payment of dividends) we did not distribute all of our ordinary income earned during the 2008 calendar year and incurred federal excise taxes as a result. There were no capital gains in excess of capital losses realized during the one year period ended October 31, 2008. We expect to declare dividends payable from 2008 calendar year earnings prior to November 15, 2009 and to distribute such dividends prior to February 28, 2010. We may similarly withhold from distribution a portion of our ordinary income for the 2009 calendar year and/or portion of the capital gains in excess of capital losses realized during the one year period ending October 31, 2009, if any, and, if we do so, we would expect to incur federal excise taxes again as a result.

     We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends. GSC Group, and the funds managed by it, do not currently participate in the dividend reinvestment plan with respect to their holdings of the company’s common stock.

     Subject to certain conditions, for taxable years ending on or before December 31, 2009, we are permitted to make distributions to our stockholders in the form of shares of our common stock in lieu of cash distributions. The decision to make such distributions will be made by our Board of Directors.

Performance Graph

     The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the NASDAQ Financial 100 index, for the period from March 23, 2007, the date our common stock began trading, through February 28, 2009. The graph assumes that, on March 23, 2007, a person invested $100 in each of our common stock, the Standard & Poor’s 500 Stock Index and the NASDAQ Financial 100 index. The graph measures total shareholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are reinvested in like securities.

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 December 2008, as part of our dividend reinvestment plan for our common stockholders, we purchased 126,855 shares of our common stock for $0.3 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 February 28, 2009.

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)

December 1, 2008 through December 31, 2008

127

(1)

2.23

—

—

Total

127

2.23

—

—

Item 6. Selected Financial Data

     As of February 28, 2007, the Company (including its predecessors) had not yet commenced operations. The following selected financial and other data for the years ended February 28, 2009 and February 29, 2008 are derived from our consolidated financial statements which have been audited by Ernst & Young LLP, an independent registered public accounting firm whose report thereon is included within this Annual Report. The data should be read in conjunction with our consolidated financial statements and notes thereto, which are included elsewhere in this Annual Report, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

GSC INVESTMENT CORP.
SELECTED FINANCIAL DATA
For the Years Ended February 28, 2009 and February 29, 2008

		Year Ended				Year Ended
		February 28, 2009				February 29, 2008
		($ in thousands, except share and per share numbers)
Income Statement Data:
Interest and related portfolio income:
Interest		$	21,142			$	20,744
Management fee and other income			2,245				642
Total interest and related portfolio income			23,387				21,386
Expenses:
Interest and credit facility financing expenses			2,605				5,031
Base management and incentive management fees(1)			4,432				3,650
Administrator expenses			961				892
Administrative and other			2,433				2,766
Expense reimbursement			(1,010	)			(1,789	)
Total operating expenses			9,421				10,550
Net investment income before income taxes			13,966				10,836
Income tax expenses, including excise tax			(140	)			(89	)
Net investment income			13,826				10,747
Realized and unrealized gain (loss) on investments and derivatives
Net realized gain (loss)			(7,143	)			3,908
Net change in unrealized loss			(27,998	)			(20,106	)
Total net loss			(35,141	)			(16,198	)
Net decrease in net assets resulting from operations		$	(21,315	)		$	(5,451	)

		Year Ended				Year Ended
		February 28, 2009				February 29, 2008
		($ in thousands, except share and per share numbers)
Per Share:
Earnings (loss) per common share — basic and diluted(2)		$	(2.57	)		$	(0.70	)
Net investment income per share — basic and diluted(2)		$	1.67			$	1.38
Net realized and unrealized gain (loss) per share — basic and diluted(2)		$	(4.24	)		$	(2.08	)
Dividends declared per common share(3)		$	1.03			$	1.55
Balance Sheet Data:
Investment assets at fair value		$	118,912			$	172,837
Total assets			130,662				192,842
Total debt outstanding			58,995				78,450
Stockholders’ equity			68,014				97,869
Net asset value per common share		$	8.20			$	11.80
Common shares outstanding at end of year			8,291,384				8,291,384
Other Data:
Investments funded			28,260				314,003
Principal collections related to investment repayments or sales			49,195				141,772
Number of portfolio investments at year end			45				46
Weighted average yield of income producing debt investments — Non-control/non-affiliate			9.7	%			10.7	%
Weighted average yield on income producing debt investments — Control			12.2	%			8.2	%

Quarterly Data

		2009																2008
		Qtr 4				Qtr 3				Qtr 2				Qtr 1				Qtr 4				Qtr 3				Qtr 2				Qtr 1
										($ in thousands, except per share numbers)
														(Unaudited)
Interest and related portfolio income		$	5,480			$	6,361			$	5,835			$	5,715			$	5,520			$	5,882			$	5,882			$	4,102
Net investment income			3,288				3,887				3,455				3,195				2,562				3,070				3,157				1,958
Net realized and unrealized gain (loss)			(17,296	)			(11,438	)			(6,023	)			(384	)			(11,972	)			(2,009	)			(3,939	)			1,722
Net increase (decrease) in net assets resulting from operations			(14,008	)			(7,551	)			(2,567	)			2,811				(9,410	)			1,061				(782	)			3,680
Net investment income per common share at end of each quarter		$	0.40			$	0.47			$	0.42			$	0.39			$	0.32			$	0.37			$	0.38			$	0.23
Net realized and unrealized gain (loss) per common share at end of each quarter		$	(2.09	)		$	(1.38	)		$	(0.73	)		$	(0.05	)		$	(1.46	)		$	(0.24	)		$	(0.47	)		$	0.21
Dividends declared per common share		$	—			$	0.25			$	0.39			$	0.39			$	0.57			$	0.38			$	0.36			$	0.24
Net asset value per common share		$	8.20			$	10.14			$	11.05			$	11.75			$	11.80			$	13.51			$	13.76			$	14.21

Item 7. Management’s 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 Annual Report. In addition to historical information, the following discussion and other parts of this Annual 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 under Part I, Item 1A “Risk Factors” and “Note about Forward-Looking Statements” appearing elsewhere herein.

Overview

     GSC Investment Corp. is a Maryland corporation that has elected to be treated as a BDC. Our investment objectives are to generate current income and capital appreciation through debt and equity investments by primarily investing in middle market companies and select high yield bonds. We have elected and qualified to be treated as a RIC under subchapter M of the Code. We commenced operations on March 23, 2007, and completed our 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 CDO Fund III, a CLO fund managed by our investment adviser. We used borrowings under our credit facilities to purchase approximately $115.1 million in aggregate principal amount of debt investments in April and May 2007 from CDO Fund III and CDO Fund I, a collateralized debt obligation fund managed by our investment adviser. As of February 28, 2009, our portfolio consisted of $118.9 million, principally invested in 35 portfolio companies and one CLO.

     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. 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 or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity securities that pay dividends on a current basis.

     Pursuant to an agreement with our investment adviser entered into on October 17, 2006, prior to becoming a BDC, we acquired the right to act as investment adviser to CDO Fund III and collect the management fees related thereto from March 20, 2007 until the liquidation of the CDO Fund III assets. We paid our investment adviser a fair market price of $0.1 million for the right to act as investment adviser 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 its collateral manager and receive a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC CLO’s assets, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO subordinated notes receive an internal rate of return equal to or greater than 12%.

     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 administrator’s 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:

•

organization;

	•		calculating our net asset value (including the cost and expenses of any independent valuation firm);
	•		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;
	•		interest payable on debt, if any, incurred to finance our investments;
	•		offerings of our common stock and other securities;
	•		investment advisory and management fees;
	•		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;
	•		registration fees;
	•		listing fees;
	•		taxes;
	•		independent directors’ fees and expenses;
	•		costs of preparing and filing reports or other documents of the SEC;
	•		the costs of any reports;
	•		proxy statements or other notices to stockholders, including printing costs;
	•		to the extent we are covered by any joint insurance policies, our allocable portion of the insurance premiums for such joint policies;
	•		direct costs and expenses of administration, including auditor and legal costs; and
	•		all other expenses incurred by us or our administrator in connection with administering our business.

     The amount payable to GSC Group as administrator under the administration agreement is capped to the effect that such amount, together with our other operating expenses, does not exceed an amount equal to 1.5% per annum of our net assets attributable to common stock. In addition, for the current one-year term of the administration agreement (expiring March 21, 2010), GSC Group has waived our reimbursement obligation under the administration agreement until our total assets exceed $500 million.

     Pursuant to the investment advisory and management agreement, we pay GSC Group as investment adviser a quarterly base management fee of 1.75% of the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter, and an incentive fee.

     The incentive fee has two parts:

•

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.
	•		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 or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007, and have continued to defer such payments through the current quarterly period; we have recorded a payable in respect of such deferred fees in the amount of $2.3 million as of February 28, 2009.

     To the extent that any of our leveraged loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

     From the commencement of operations until March 23, 2008, GSC Group reimbursed us for operating expenses to the extent that our total annual operating expenses (other than investment advisory and management fees and interest and credit facility expenses) exceeded an amount equal to 1.55% of our net assets attributable to common stock.

Portfolio and investment activity

Corporate Debt Portfolio Overview⁽¹⁾

		At February 28, 2009				At February 29, 2008
		($ in millions)
Number of investments			42				43
Number of portfolio companies			35				36
Average investment size		$	2.3			$	3.3
Weighted average maturity			3.3	years			3.8	years
Number of industries			22				23
Average investment per portfolio company		$	2.8			$	4.0
Non-Performing or delinquent investments		$	0.4			$	—
Fixed rate debt (% of interest bearing portfolio)		$	40.3 (41.8	%)		$	57.0 (39.6	%)
Weighted average current coupon			11.7	%			11.6	%
Floating rate debt (% of interest bearing portfolio)		$	56.2 (58.2	%)		$	86.8 (60.4	%)
Weighted average current spread over LIBOR			5.9	%			5.6	%

     During the fiscal year ended February 28, 2009, we made 17 investments in an aggregate amount of $23.1 million in new portfolio companies and $5.2 million in investments in existing portfolio companies. Also during the fiscal year ended February 28, 2009, we had $49.2 million in aggregate amount of exits and repayments resulting in net repayments of $20.9 million for the year.

     During the fiscal year ended February 29, 2008, we made 144 investments in an aggregate amount of $314.0 million. Also during the fiscal year ended February 29, 2008, we had $141.8 million in aggregate amount of exits and repayments, resulting in net investments of $172.2 million in aggregate amount for the year.

     Our portfolio composition at February 28, 2009 and February 29, 2008 was as follows:

Portfolio composition

		At February 28, 2009								At February 29, 2008
		Percentage of				Weighted Average				Percentage of				Weighted Average
		Total Portfolio				Current Yield				Total Portfolio				Current Yield
First lien term loans			14.4	%			6.8	%			15.3	%			8.1	%
Second lien term loans			34.5				9.0				36.1				10.8
Senior secured notes			21.7				11.6				18.3				11.5
Unsecured notes			10.4				12.3				13.5				12.2
GSCIC CLO subordinated notes			18.8				12.2				16.7				8.4
Equity/limited partnership interests			0.2				N/A				0.1				N/A
Total			100.0	%			10.2	%			100.0	%			10.3	%

     Our investment in the subordinated notes of GSCIC CLO represents a first loss position in a portfolio that, at February 28, 2009, was composed of $416.0 million in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. (See Part I, Item 1A “Risk 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”) and we do not consolidate the GSCIC CLO portfolio on our financial statements. Accordingly, the metrics below do not include the underlying GSCIC CLO portfolio investments. However, at February 28, 2009, two GSCIC CLO portfolio investments were in default and over 75.7% of the GSCIC CLO portfolio investments had a CMR (as defined below) numerical debt score of less than 2.99 and a corporate letter rating of A or B.

     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:

	•		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;
	•		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;
	•		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
	•		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 February 28, 2009 and February 29, 2008 was as follows:

Portfolio CMR distribution

		At February 28, 2009								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		$	8,941				7.5	%		$	11,863				6.9	%
2.00 - 2.99			33,831				28.5				87,423				50.6
3.00 - 3.99			49,076				41.2				44,459				25.7
4.00 - 4.99			4,614				3.9				—				—
5.00			—				—				—				—
N/A(1)			22,450				18.9				29,092				16.8
Total		$	118,912				100.0	%		$	172,837				100.0	%

		At February 28, 2009								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		$	4,602				3.9	%		$	—				—	%
B			36,818				30.9				112,019				64.8
C			42,700				35.9				31,726				18.4
D			11,668				9.8				—				—
E			674				0.6				—				—
F			—				—				—				—
N/A(1)			22,450				18.9				29,092				16.8
Total		$	118,912				100.0	%		$	172,837				100.0	%

     At February 28, 2009, 36.0% of our investments had a CMR debt score of 2.99 or below, a decline of 21.5% from February 29, 2008. The decline is mainly due to deterioration in leverage ratios and interest coverage ratios in our investments as of their latest quarterly financials and, in some cases, a decline in EBITDA as compared to a prior period. Additionally, at February 28, 2009, 41.3% of our investments were assigned a CMR letter rating of A or B, a decline of 23.5% from February 29, 2008. The migration of our investments from primarily B/C to primarily B/C/D is mainly attributable to deterioration in credit metrics as compared to the covenant tests in the applicable credit agreement or indenture.

     The following table shows the portfolio composition by industry grouping at fair value at February 28, 2009 and February 29, 2008.

Portfolio composition by industry grouping at fair value

		At February 28, 2009								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(1)		$	22,341				18.8	%		$	28,915				16.7	%
Manufacturing			14,480				12.2				15,030				8.7
Packaging			10,070				8.5				16,370				9.5
Consumer Products			7,843				6.6				10,021				5.8
Oil and Gas			7,359				6.2				7,738				4.5
Electronics			6,849				5.8				6,377				3.7
Apparel			6,616				5.5				8,004				4.6
Publishing			6,477				5.4				9,289				5.4
Healthcare Services			6,010				5.0				6,040				3.5
Metals			5,693				4.8				5,129				3.0
Natural Resources			4,470				3.8				4,167				2.4
Environmental			3,592				3.0				5,066				2.9
Homebuilding			3,490				2.9				5,912				3.4

		At February 28, 2009								At February 29, 2008
		Investments at				Percentage of				Investments at				Percentage of
		Fair Value				Total Portfolio				Fair Value				Total Portfolio
Financial Services		$	3,162				2.7	%		$	3,815				2.2	%
Logistics			2,134				1.8				2,688				1.6
Food and Beverage			1,707				1.4				—				—
Printing			1,638				1.4				—				—
Insurance			1,493				1.3				1,700				1.0
Building Products			1,426				1.2				2,964				1.7
Software			773				0.6				—				—
Education			674				0.6				1,546				0.9
Chemicals			371				0.3				—				—
Consumer Services			244				0.2				1,290				0.7
Agriculture			—				—				3,850				2.2
Automotive			—				—				22,158				12.8
Retail			—				—				2,179				1.3
Gaming			—				—				1,730				1.0
Restaurants			—				—				859				0.5
Total		$	118,912				100.0	%		$	172,837				100.0	%

     The following table shows the portfolio composition by geographic location at fair value at February 28, 2009 and February 29, 2008. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

Portfolio composition by geographic location at fair value

		At February 28, 2009								At February 29, 2008
		Investments at				Percentage of				Investments at				Percentage of
		Fair Value				Total Portfolio				Fair Value				Total Portfolio
		($ in thousands)
Midwest		$	31,716				26.7	%		$	40,109				23.2	%
Southeast			23,094				19.4				33,685				19.5
Other(1)			22,449				18.9				29,092				16.8
West			16,137				13.6				24,450				14.2
Northeast			12,578				10.6				11,395				6.6
International			12,165				10.2				13,739				7.9
Mid-Atlantic			773				0.6				20,367				11.8
Total		$	118,912				100.0	%		$	172,837				100.0	%

Results of operations

     Investment income

     Total investment income was $23.4 million for the fiscal year ended February 28, 2009 versus $21.4 million for the fiscal year ended February 29, 2008, an increase of $2.0 million, or 9.3%. The increase is predominantly attributable to the management fee earned from GSCIC CLO during the fiscal year ended February 28, 2009 and the Company’s being operational for only eleven months during the fiscal year ended February 29, 2008.

     The composition of our investment income in each period was as follows:

Investment Income

		Fiscal year ended
		February 28, 2009				February 29, 2008
		($ in thousands)
Interest from investments		$	20,967			$	20,378
Management of GSCIC CLO			2,050				599
Interest from cash and cash equivalents and other income			370				409
Total		$	23,387			$	21,386

     For the fiscal year ended February 28, 2009, total PIK income was $0.8 million. For the fiscal year ended February 29, 2008, total PIK income was $0.4 million.

     Operating expenses

     Total operating expenses before manager reimbursement were $10.4 million for the fiscal year ended February 28, 2009 versus $12.3 million for the fiscal year ended February 29, 2008, a decrease of $1.9 million, or 15.4%. The composition of our operating expenses in each period was as follows:

Operating Expenses

		Fiscal year ended
		February 28, 2009				February 29, 2008
		($ in thousands)
Interest and credit facility expense		$	2,605			$	5,031
Base management fees			2,680				2,939
Professional fees			1,166				1,410
Incentive management fees			1,752				711
Administrator expenses			961				892
Insurance expenses			682				587
Directors fees			295				314
General and administrative expenses			290				262
Other			—				193
Total		$	10,431			$	12,339

     The decrease in interest and credit facility expense for the fiscal year ended February 28, 2009 versus the fiscal year ended February 29, 2008 was due to decreased borrowing under the Revolving Facility (please see “––Financial Condition, Liquidity and Capital Resources” below for more information). The increase in incentive management fee for the fiscal year ended February 28, 2009 versus the fiscal year ended February 29, 2008 resulted from the combination of higher net investment income and lower operating expenses between the two periods, and was partially offset by a decrease in base management fees resulting from a decrease in the average value of our total net assets, and decreased professional fees.

     For the fiscal year ended February 28, 2009, we recorded $1.0 million in expense waiver and reimbursement from the administrator and Manager versus $1.8 million for the fiscal year ended February 29, 2008. The decline was due to the termination of the expense reimbursement agreement as of March 23, 2008, pursuant to which GSC Group had reimbursed the Company for operating expenses (other than investment advisory and management fees and interest and credit facility expenses) in excess of 1.55% of net assets attributable to common stock.

     Net realized gains/losses on sales of investments

     For the fiscal year ended February 28, 2009, the Company had $7.2 million of net realized losses versus $3.9 million of net realized gains for the fiscal year ended February 29, 2008. The most significant realized gains and losses for each period were the following:

Fiscal year ended February 28, 2009
														Net Realized
Issuer		Asset Type				Gross Proceeds				Cost				Gain/(Loss)
										($ in thousands)
Key Safety Systems		First Lien Term Loan				$	2,063			$	1,857			$	206
SILLC Holdings, LLC		Second Lien Term Loan					23,049				22,878				171
EuroFresh, Inc.		Unsecured Notes					2,880				6,900				(4,020	)
Atlantis Plastics Films, Inc.		First Lien Term Loan					3,073				6,053				(2,980	)
Claire’s Stores, Inc.		First Lien Term Loan					2,103				2,584				(481	)
Jason Incorporated		Unsecured Notes					1,581				1,700				(119	)

     The most significant losses for the period are attributable to the bankruptcy of Atlantis Plastics Films, Inc. and the sale of EuroFresh Inc. Due to deteriorating performance and increased leverage, we liquidated our investment in EuroFresh, Inc. during our third quarter. Atlantis Plastics Films, Inc. filed for bankruptcy during our second quarter and was auctioned in two separate asset sales transactions during our third quarter.

Fiscal year ended February 29, 2008
														Net Realized
Issuer		Asset Type				Gross Proceeds				Cost				Gain/(Loss)
										($ in thousands)
Sportcraft, LTD		Second Lien Term Loan				$	9,000			$	7,302			$	1,698
SILLC Holdings, LLC		Senior Secured Notes					22,821				21,838				983
McMillin Companies, LLC		Senior Secured Notes					3,300				3,066				234

     The most significant gains for the period are attributable to the repayment at par of the Sportcraft, Ltd. second lien term loan and the McMillin Companies, LLC senior secured notes and the exchange of SILLC Holdings, LLC senior secured notes for a second lien term loan.

     Net unrealized appreciation/depreciation on investments

     For the fiscal year ended February 28, 2009, the Company’s investments had an increase in net unrealized depreciation of $28.0 million versus an increase in net unrealized depreciation of $20.1 million for the fiscal year ended February 29, 2008. The most significant cumulative changes in unrealized depreciation for each period were the following:

Fiscal year ended February 28, 2009
														Total Unrealized				YTD Change in
Issuer		Asset Type				Cost				Fair Value				Depreciation				Unrealized Depreciation
														($ in thousands)
GSCIC CLO		Other/Structured Finance Securities				$	29,905			$	22,341			$	(7,564	)		$	(6,480	)
Jason Incorporated		Unsecured Notes					13,700				9,878				(3,822	)			(3,453	)
Grant U.S. Holdings LLP		Second Lien Term Loan					6,140				2,388				(3,752	)			(2,553	)
McMillin Companies, LLC		Unsecured Notes					7,295				3,490				(3,805	)			(2,522	)
Penton Media, Inc.		First Lien Term Loan					3,724				2,008				(1,716	)			(1,906	)
Network Communications		Unsecured Notes					5,082				2,503				(2,579	)			(1,884	)
Terphane Holdings Corp.		Senior Secured Notes					10,431				7,694				(2,737	)			(1,863	)

     The $6.5 million net unrealized depreciation in our investment in the GSCIC CLO subordinated notes was due to an increase in the assumed portfolio default rate and present value discount rate in our discounted cash flow model. These changes were made to reflect the current market environment for CLO equity investments and not as a result of any change in the underlying GSCIC CLO portfolio. The reasons for changes in the fair value of other portfolio investments must be considered on a case-by-case basis. However, two factors that we believe have had a significant impact on our portfolio overall are the market wide increase in interest yield as a result of risk re-pricing and the profusion of forced liquidations as loan buyers are forced to raise capital. For example, from the fiscal year ended February 29, 2008 to the fiscal year ended February 28, 2009, the Credit Suisse High Yield Index increased from an average

yield of 10.33% to 17.85% and the Credit Suisse Leveraged Loan Index decreased from an average price of 88.33% to 65.13%. While we believe that these indices effectively illustrate the adverse general market conditions, we believe that market-wide movements are not necessarily indicative of any changes in the condition or prospects of the affected portfolio investments. Nonetheless, our valuation process requires us to take into account such conditions in determining the fair value of our portfolio.

Fiscal year ended February 29, 2008
														Total Unrealized				YTD Change in
Issuer		Asset Type				Cost				Fair Value				Depreciation				Unrealized Depreciation
														($ in thousands)
Eurofresh, Inc.		Unsecured Notes				$	6,891			$	3,850			$	(3,041	)		$	(3,041	)
SILLC Holdings, LLC		Second Lien Term Loan					22,865				20,283				(2,582	)			(2,582	)
Atlantis Plastics Films, Inc.		First Lien Term Loan					6,492				4,298				(2,194	)			(2,194	)
Bankruptcy Management		Second Lien Term Loan					4,902				3,555				(1,347	)			(1,347	)
McMillin Companies LLC		Unsecured Notes					7,195				5,912				(1,283	)			(1,283	)
Grant U.S. Holdings LLP		Second Lien Term Loan					5,365				4,167				(1,198	)			(1,198	)

     The net unrealized depreciation in Eurofresh, Inc. unsecured notes and Atlantis Plastics Films, Inc. second lien term loan were converted into realized losses upon their sale in the fiscal year ended February 28, 2009. The net unrealized depreciation in SILLC Holdings, LLC second lien term loan was reversed when the loan was repaid at par in the fiscal year ended February 28, 2009.

     Net realized gains/losses on derivatives

     For the fiscal year ended February 28, 2009, the Company recorded a net realized gain on derivatives of $30,454 relating to our investment in the GSCIC CLO warehouse facility. For the fiscal year ended February 29, 2008, the Company recorded a net realized gain on derivatives of $0.7 million from the same warehouse facility (see “— Off-balance sheet arrangements” below).

     Net unrealized appreciation/depreciation on derivatives

     For the fiscal year ended February 28, 2009, changes in the value of the interest rate caps purchased pursuant to the credit facilities resulted in an unrealized depreciation of $37,221 versus an unrealized depreciation of $54,266 for the fiscal year ended February 29, 2008.

     Changes in net asset value from operations

     For the fiscal year ended February 28, 2009, we recorded a net decrease in net assets resulting from operations of $21.3 million versus a net decrease in net assets resulting from operations of $5.5 million for the fiscal year ended February 29, 2008. The difference is attributable to the $7.9 million increase in net unrealized depreciation on investments, the decrease of $0.7 million in net realized gains on derivatives and the increase in net realized losses on investments of $10.3 million from the earlier to the latter period, which offset the $2.0 million gain in investment income and reduction of $1.9 million in operating expenses before manager expense waiver and reimbursement. Based on 8,291,384 weighted average common shares outstanding as of February 28, 2009, our per share net decrease in net assets resulting from operations was $2.57 for the fiscal year ended February 28, 2009 versus a per share net decrease in net assets resulting from operations of $0.70 for the fiscal year ended February 29, 2008 (based on 7,761,965 weighted average common shares outstanding for the fiscal year ended February 29, 2008).

Financial condition, liquidity and capital resources

     The Company’s liquidity and capital resources have been generated primarily from the net proceeds of its IPO, advances from the Revolving Facility and the Term Facility, as well as cash flows from operations. On March 28, 2007, we completed our IPO and issued 7,250,000 common shares and received net proceeds of $100.7 million.

     On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which has negatively affect the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral will be used to repay outstanding borrowings. At the end of the two year amortization period, all advances will be due and payable. In March 2009 we amended the

Revolving Credit Facility to decrease the minimum required collateralization and increase the portion of the portfolio that can be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expect to have additional cushion under our Borrowing Base (as defined below). If we are not able to obtain new sources of financing, however, we expect our portfolio will gradually de-lever as principal payments are received, which may negatively impact our net investment income and ability to pay dividends. Please see Part I, Item 1A “Risk Factors–Risks Related to Our Business–We need to find alternative sources of leverage and/or access the equity markets to maintain and grow our business” for more information.

     As of February 28, 2009, we had borrowed an aggregate of $59.0 million under the Revolving Facility. Interest is payable on funds drawn under the Revolving Facility at the prevailing commercial paper rates or, if the commercial paper market is at any time unavailable, the prevailing LIBOR rates, plus 0.70%, payable monthly. The interest margin will increase from and after the March 2009 amendment to 4.00% until March 2010 (6.00% if the commercial paper market is unavailable) and 5.00% thereafter (6.00% if the commercial paper market is unavailable).

     A significant percentage of our total investments have been pledged to secure our obligations under the Revolving Facility.

     The actual amount that may be outstanding on the Revolving Facility at any given time (the “Borrowing Base”) is dependent upon the amount and quality of the collateral securing the Revolving Facility. Our Borrowing Base was $59.9 million at February 28, 2009 versus $83.6 million at February 29, 2008. The decline in our Borrowing Base during this period is mainly attributable to the decline in the value of the pledged collateral and the downgrade of certain public ratings or private credit estimates of the pledged collateral. Pro forma for the March 2009 amendment, our Borrowing Base at February 28, 2009 would have been $72.4 million as a result of the decrease in minimum required collateralization and increase in the permissible amount of “CCC” rated investments in the collateral.

     For purposes of determining the Borrowing Base, most assets are assigned the values set forth in our most recent quarterly report filed with the SEC. Accordingly, the February 28, 2009 Borrowing Base relies upon the valuations set forth in the quarterly report for the quarter ended November 30, 2008. The valuations presented in this Annual Report will not be incorporated into the Borrowing Base until after this report is filed with the SEC. Pro forma for the March 2009 amendment and using the February 28, 2009 values, the collateral balance at February 28, 2009 would have been $62.0 million. At February 28, 2009, the Company had $6.4 million of unrestricted cash and cash equivalents that could be pledged under the Revolving Facility to increase the Borrowing Base or to repay outstanding borrowings.

     A Borrowing Base violation will occur if our outstanding borrowings exceed the Borrowing Base at any time. We can cure a Borrowing Base violation by reducing our borrowing below the Borrowing Base (by, e.g., selling collateral and repaying borrowings) or pledging additional collateral to increase the Borrowing Base. If we fail to cure a Borrowing Base violation within the specified time, a default under the Revolving Facility shall occur. Please see Part I, Item 1A. “Risk Factors–Risks Related to Current Economic and Market Conditions–Ratings downgrades in our portfolio could require us to liquidate assets or face a default under the Revolving Facility” for more information.

     Following the end of the fiscal year ended February 28, 2009, AbitibiBowater Inc. and certain of its subsidiaries, which includes Abitibi-Consolidated Company of Canada (“Abitibi”), filed voluntary petitions on April 16, 2009 in the United States under Chapter 11 of the United States Bankruptcy Code and sought creditor protection under the Companies’ Creditors Arrangement Act in Canada. At April 30, 2009, after giving effect to this filing, our pro forma Borrowing Base (pro forma for our February 28, 2009 asset values) was $57.4 million, our outstanding borrowings were $57.8 million and our pro forma unrestricted cash and cash equivalents (pro forma for payments under our Revolving Facility as of April 30, which were received in May) was $9.9 million. Two other portfolio investments have experienced adverse events that, if not cured, will result in additional decreases in our Borrowing Base of $1.3 million at the end of May and $7.8 million at the end of June. Further decreases in our Borrowing Base could result in a Borrowing Base violation that we may not be able to cure with our remaining unrestricted cash and cash equivalents.

     In April 2009, our investment adviser withheld a scheduled principal amortization payment under its credit facility, resulting in a default thereunder. Our investment adviser has initiated discussions with its secured lenders regarding a consensual restructuring of its obligations under such credit facility. While we are not directly affected by our investment adviser’s default, a material adverse change in the business, condition (financial or otherwise), operations or performance of our investment adviser could constitute a default under our Revolving Facility.

     Our asset coverage ratio, as defined in the 1940 Act, was 215% at February 28, 2009 versus 225% at February 29, 2008.

     At February 28, 2009 and February 29, 2008, the fair value of investments, cash and cash equivalents and cash and cash equivalents, securitization accounts were as follows:

		At February 28, 2009								At February 29, 2008
		Fair				Percent				Fair				Percent
		Value				of Total				Value				of Total
						($ in thousands)
Cash and cash equivalents		$	6,356				5.0	%		$	1,073				0.6	%
Cash and cash equivalents, securitization accounts			1,178				0.9				14,581				7.7
First lien term loans			17,118				13.5				26,362				14.0
Second lien term loans			41,043				32.5				62,446				33.1
Senior secured notes			25,832				20.4				31,657				16.8
Unsecured notes			12,381				9.8				23,280				12.4
Other/structured finance securities			22,341				17.7				28,915				15.3
Equity/limited partnership interests			198				0.2				176				0.1
Total		$	126,447				100.0	%		$	188,490				100.0	%

     A dividend of $0.25 per share was paid on December 29, 2008, to common stockholders of record on December 18, 2008. In order to better manage the Company’s capital in light of continuing volatility in the credit markets, the Board determined that, beginning with the fourth quarter of fiscal year 2009, it would determine the amount and timing of dividends, if any, upon review of the financial results of the quarter. Accordingly, the Board will consider payment of a dividend for the fourth quarter of fiscal year 2009 at its regularly scheduled May 2009 meeting. The timing and amount of dividends remains within the Board’s discretion. Subject to certain conditions, for taxable years ending on or before December 31, 2009, we are permitted to make distributions to our stockholders in the form of shares of our common stock in lieu of cash distributions. The decision to make such distributions will be made by our Board of Directors.

     Contractual obligations

     The following table shows our payment obligations for repayment of debt and other contractual obligations at February 28, 2009:

Payment Due by Period

Less Than 1

1-3

3-5

More Than 5

Total

Year

Years

Years

Years

($ in thousands)

Long-Term Debt Obligations

$

58,995

$

58,995

Off-balance sheet arrangements

     At February 28, 2009 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.

Recent Developments

     In March 2009 we amended the Revolving Credit Facility to decrease the minimum required collateralization and increase the portion of the portfolio that can be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, we expect to have additional cushion under our Borrowing Base. If we are not able to obtain new sources of financing, however, we expect our portfolio will gradually de-lever as principal payments are received, which may negatively impact our net investment income and ability to pay dividends. Please see Part I, Item 1A “Risk Factors–Risks Related to Our Business–We need to find alternative sources of leverage and/or access the equity markets to maintain and grow our business” for more information. As a result of the amendment, the interest margin on the Revolving Facility will increase from 0.70% over the prevailing commercial paper rate (Or LIBOR, if the commercial paper market is unavailable) to 4.00% until March 2010 (6.00% if the commercial paper market is unavailable) and 5.00% thereafter (6.00% if the commercial paper market is unavailable).

Item 7A.  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. A large portion of our portfolio is, and we expect will continue to be, comprised of floating rate investments that utilize LIBOR. Our interest expense is affected by fluctuations in the commercial paper rate or, if the commercial paper market is unavailable, LIBOR. At February 28, 2009, we had $59.0 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 $34.0 million (increased to $40.0 million in May 2007) and $60.9 million. These agreements provide for a payment to the Company in the event LIBOR exceeds 8%, mitigating our exposure to increases in LIBOR. At February 28, 2009, the aggregate interest rate cap agreement notional amount was $66.4 million.

     We have analyzed the potential impact of changes in interest rates on interest income from investments net of interest expense on the Revolving Facility. Assuming that our investments as of February 28, 2009 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1% in interest rates would cause a corresponding change of approximately $0.2 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 historically moved in tandem but, in times of unusual credit dislocations, have experienced periods of divergence. Accordingly no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.

     Portfolio Valuation

     We carry our investments at fair value, as determined in good faith by our Board of Directors. Investments for which market quotations are readily available are fair valued at such market quotations. We value investments for which market quotations are not readily available at fair value as determined in good faith by our Board under our valuation policy and a consistently applied valuation process. For investments that are thinly traded, we review the depth and quality of the available quotations to determine if market quotations are readily available. If the available quotations are indicative only, we may determine that market quotations are not readily available. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments, and the differences could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations that are assigned.

     The types of factors that we may take into account in fair value pricing of our investments include, as relevant, the nature and realizable value of any collateral, third party valuations, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly-traded securities, recent sales of or offers to buy comparable companies, and other relevant factors. The fair value of our investment in the subordinated notes of GSCIC CLO is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions 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 made by our Board of Directors in determining the fair value of our investments at February 28, 2009:

						Percent of Total
		Fair Value				Investments
		($ in thousands)
Market yield trend analysis and enterprise valuation		$	53,629				45.1	%
Third party independent valuation firm			36,048				30.3
Discounted cash flow model			22,341				18.8
Readily available market maker, broker quotes			6,786				5.7
Other			108				0.1
Total fair valued investments		$	118,912				100.0	%

Item 8.  Financial Statements and Supplementary Data

     Our financial statements are annexed to this Annual Report beginning on page F-1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None

Item 9A.  Controls and Procedures

     Evaluation of disclosure controls and procedures

     Our CEO and our 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 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 report.

     Management’s annual report on internal control over financial reporting

     The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) and for the assessment of the effectiveness of internal control over financial reporting. Under the supervision and with the participation of management, including the CEO and CFO, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s evaluation under the framework in Internal Control-Integrated Framework, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of February 28, 2009.

     This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this Annual Report.

     Changes in internal controls over financial reporting.

     There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 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 Company’s internal control over financial reporting.

Item 9B.  Other Information

     None.

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

     The information required by this item will be contained in the Company’s definitive Proxy Statement for its 2009 Annual Stockholder Meeting and is incorporated herein by reference.

Item 11.  Executive Compensation

     The information required by this item will be contained in the Company’s definitive Proxy Statement for its 2009 Annual Stockholder Meeting and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information required by this item will be contained in the Company’s definitive Proxy Statement for its 2009 Annual Stockholder Meeting and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

     The information required by this item will be contained in the Company’s definitive Proxy Statement for its 2009 Annual Stockholder Meeting and is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services

     The information required by this item will be contained in the Company’s definitive Proxy Statement for its 2009 Annual Stockholder Meeting and is incorporated herein by reference.

PART IV

Item 15.  Exhibits and Consolidated Financial Statement Schedules

Consolidated Financial Statements

The following financial statements of the Company are filed herewith:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of February 28, 2009 and February 29, 2008

Consolidated Statements of Operations for the years ended February 28, 2009 and February 29, 2008 and for the period from May 12, 2006 (date of inception) to February 28, 2007

Consolidated Schedule of Investments as of February 28, 2009 and February 29, 2008

Consolidated Statements of Changes in Net Assets for the years ended February 28, 2009 and February 29, 2008 and for the period from May 12, 2006 (date of inception) to February 28, 2007

Consolidated Statements of Cash Flows for the years ended February 28, 2009 and February 29, 2008 and for the period from May 12, 2006 (date of inception) to February 28, 2007

Notes to Consolidated Financial Statements

Exhibits

EXHIBIT INDEX

Exhibit
Number		Description
3.1		Articles of Incorporation of GSC Investment Corp.(8)
3.2		Amended and Restated Bylaws of GSC Investment Corp.(9)
4.1		Specimen certificate of GSC Investment Corp.’s common stock, par value $0.0001 per share.(4)
4.2		Registration Rights Agreement dated March 27, 2007 between GSC Investment Corp., GSC CDO III L.L.C., GSCP (NJ) L.P. and the other investors party thereto.(8)
4.3		Form of Dividend Reinvestment Plan.(1)
10.1		Amended and Restated Limited Partnership Agreement of GSC Partners CDO Investors III, L.P. dated August 27, 2001.(2)
10.2		Amended and Restated Limited Partnership Agreement of GSC Partners CDO GP III, L.P. dated October 16, 2001.(2)
10.3		Collateral Management Agreement dated November 5, 2001 among GSC Partners CDO Fund III, Limited and GSCP (NJ), L.P.(2)
10.4		Contribution and Exchange Agreement dated October 17, 2006 among GSC Investment LLC, GSC CDO III, L.L.C., GSCP (NJ), L.P., and the other investors party thereto.(1)
10.5		Amendment to the Contribution and Exchange Agreement dated as of March 20, 2007 among GSC Investment LLC, GSC CDO III, L.L.C., GSCP (NJ), L.P., and the other investors party thereto.(11)
10.6		Form of Regulations of American Stock Transfer and Trust Company.(3)
10.7		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Peter K. Barker, as director of GSC Investment LLC.(8)
10.8		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Robert F. Cummings, Jr., as director of GSC Investment LLC.(8)
10.9		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Richard M. Hayden, as director of GSC Investment LLC.(8)
10.10		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Thomas V. Inglesby, as director of GSC Investment LLC.(8)
10.11		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Steven M. Looney, as director of GSC Investment LLC.(8)
10.12		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Charles S. Whitman III, as director of GSC Investment LLC.(8)
10.13		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and G. Cabell Williams, as director of GSC Investment LLC.(8)
10.14		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Richard T. Allorto, Jr., as Chief Financial Officer of GSC Investment LLC.(8)
10.15		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and David L. Goret, as Vice President and Secretary of GSC Investment LLC.(8)
10.16		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Michael J. Monticciolo, as Chief Compliance Officer of GSC Investment LLC.(8)
10.17		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Daniel I. Castro, Jr., as member of the investment committee of GSCP (NJ), LP.(8)
10.18		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Robert F. Cummings, Jr., as member of the investment committee of GSCP (NJ), LP.(8)
10.19		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Richard M. Hayden, as member of the investment committee of GSCP (NJ), LP.(8)
10.20		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Thomas V. Inglesby, as member of the investment committee of GSCP (NJ), LP.(8)
10.21		Indemnification Agreement dated March 20, 2007 between GSC Investment LLC and Thomas J. Libassi, as member of the investment committee of GSCP (NJ), LP.(8)
10.22		Assignment and Assumption Agreement dated March 20, 2007 among GSCP (NJ), L.P. and GSC Investment LLC.(8)
10.23		Investment Advisory and Management Agreement dated March 21, 2007 between GSC Investment LLC and GSCP (NJ) L.P.(8)

Exhibit
Number		Description
10.24		Custodian Agreement dated March 21, 2007 between GSC Investment LLC and U.S. Bank National Association.(8)
10.25		Administration Agreement dated March 21, 2007 between GSC Investment Corp. and GSCP (NJ) L.P.(8)
10.26		Trademark License Agreement dated March 21, 2007 between GSC Investment Corp. and GSCP (NJ) L.P.(8)
10.27		Notification of Fee Reimbursement dated March 21, 2007.(8)
10.28		Portfolio Acquisition Agreement dated March 23, 2007 between GSC Investment Corp. and GSC Partners CDO Fund III, Limited.(8)
10.29		Credit Agreement dated as of April 11, 2007 among GSC Investment Funding LLC, GSC Investment Corp., GSC (NJ), L.P., the financial institutions from time to time party thereto, the commercial paper lenders from time to time party thereto and Deutsche Bank AG, New York Branch.(5)
10.30		Purchase and Sale Agreement between GSC Investment Corp. and GSC Investment Funding LLC dated as of April 11, 2007.(5)
10.31		Amendment No. 1 to Credit Agreement, dated as of May 1, 2007 among GSC Investment Funding LLC, Deutsche Bank AG, New York Branch, GSC Investment Corp., and GSCP (NJ), L.P.(6)
10.32		Credit Agreement dated as of May 1, 2007 among GSC Investment Funding II LLC, GSC Investment Corp., GSC (NJ), L.P., the financial institutions from time to time party thereto, the commercial paper lenders from time to time party thereto and Deutsche Bank AG, New York Branch.(6)
10.33		Purchase Sale Agreement dated as of May 1, 2007 between GSC Investment Funding II LLC and GSC Investment Corp.(6)
10.34		Purchase and Sale Agreement dated as of May 1, 2007 between GSC Investment Corp. and GSC Partners CDO Fund Limited.(6)
10.35		Amendment to Investment Advisory and Management Agreement dated May 23, 2007 between GSC Investment Corp. and GSCP (NJ), L.P.(7)
10.36		Indemnification Agreement dated October 9, 2007 between GSC Investment Corp. and David Goret, as member of the disclosure committee of GSC Investment Corp.(11)
10.37		Indemnification Agreement dated October 9, 2007 between GSC Investment Corp. and David Rice, as member of the disclosure committee of GSC Investment Corp.(11)
10.38		Agreement Terminating Fee Reimbursement dated as of April 15, 2008 between GSCP (NJ), L.P. and GSC Investment Corp.(10)
10.39		Amendment No. 3 to Credit Agreement, dated as of August 8, 2008 among GSC Investment Funding LLC and Deutsche Bank AG, New York Branch(12)
10.40		Indemnification Agreement dated October 15, 2008 between GSC Investment Corp. and Seth M, Katzenstein, as director of GSC Investment Corp.(13)
10.41		Indemnification Agreement dated October 15, 2008 between GSC Investment Corp. and Seth M. Katzenstein as Chief Executive Officer and President of GSC Investment Corp.(13)
14.1		Code of Ethics of the Company adopted under Rule 17j-1.(3)
21.1		List of Subsidiaries.(11)
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.