UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, DC 20549


_____________________________________________________


Form 10-Q


____________________________________________________


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2019


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


For the transition period from  to


Commission file number: 814-00924


_____________________________________________________


Sierra Income Corporation


(Exact Name of Registrant as Specified in its Charter)


_____________________________________________________


Maryland45-2544432(State or Other Jurisdiction ofIncorporation or Organization)(I.R.S. EmployerIdentification No.)280 Park Avenue, 6th Floor East, New York, NY 10017(Address of Principal Executive Offices)


(212) 759-0777


(Registrant’s Telephone Number, Including Area Code)


___________________________________________________


(Former name, former address and former fiscal year, if changed since last report)


___________________________________________________





Securities registered pursuant to Section 12(b) of the Exchange Act: None





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 x No  ̈





Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:


Large accelerated fileroAccelerated fileroNon-accelerated filer (Do not check if a smaller reporting company)xSmaller reporting companyoEmerging growth companyo


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No x





As of November 14, 2019 , the Registrant had 101,684,286 shares of common stock, $0.001 par value, outstanding.








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Table of Contents





TABLE OF CONTENTS





Part I. Financial InformationItem 1. Financial StatementsF-1Consolidated Statements of Assets and Liabilities as of September 30, 2019 (unaudited) and December 31, 2018F-1Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)F-2Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2019 and 2018 (unaudited)F-3Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)F-4Consolidated Schedule of Investments as of September 30, 2019 (unaudited)F-5Consolidated Schedule of Investments as of December 31, 2018F-13Notes to Consolidated Financial Statements (unaudited)F-22Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations1Item 3. Quantitative and Qualitative Disclosures About Market Risk3Item 4. Controls and Procedures4Part II. Other InformationItem 1. Legal Proceedings4Item 1A. Risk Factors6Item 2. Unregistered Sales of Equity Securities and Use of Proceeds8Item 3. Defaults Upon Senior Securities8Item 4. Mine Safety Disclosures8Item 5. Other Information8Item 6. Exhibits8SIGNATURES10





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Sierra Income Corporation


Consolidated Statements of Assets and Liabilities


September 30, 2019December 31, 2018ASSETS(unaudited)Investments at fair valueNon-controlled/non-affiliated investments (amortized cost of $690,478,114 and $819,032,531, respectively)$618,427,718$758,474,260Controlled/affiliated investments (amortized cost of $147,131,998 and $186,634,331, respectively)118,522,939165,006,502Investments at fair value736,950,657923,480,762Cash and cash equivalents192,205,85259,481,495Deferred transaction costs (Note 2)13,558,2597,052,691Interest receivable from non-controlled/non-affiliated investments9,132,4949,154,364Prepaid expenses and other assets273,262627,418Unsettled trades receivable810,9022,339,547Cash collateral on total return swap (Note 5)1,21627,000,000Receivable due on total return swap (Note 5)—113,252Interest receivable from controlled/affiliated investments—382,121Total assets$952,932,642$1,029,631,650LIABILITIESRevolving credit facilities payable (net of deferred financing costs of $2,660,252 and $3,460,986, respectively) (Note 6)$325,439,748$351,539,014Unsettled trades payable7,292,149—Base management fees payable (Note 7)4,180,3334,491,234Interest payable1,660,5991,834,739Accounts payable and accrued expenses1,437,0592,073,169Administrator fees payable (Note 7)998,134689,711Transaction costs payable871,031398,680Deferred tax liability442,842—Unrealized depreciation on total return swap (Note 5)—6,524,904Total liabilities$342,321,895$367,551,451Commitments (Note 11)NET ASSETSCommon shares, par value $0.001 per share, 250,000,000 common shares authorized, 101,330,757 and 98,502,907 common shares issued and outstanding, respectively$101,331$98,503Capital in excess of par value876,082,679858,699,757Total distributable earnings/(loss)(265,573,263)(196,718,061)Total net assets610,610,747662,080,199Total liabilities and net assets$952,932,642$1,029,631,650NET ASSET VALUE PER COMMON SHARE$6.03$6.72


See accompanying notes to consolidated financial statements.





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Sierra Income Corporation


Consolidated Statements of Operations Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2019201820192018INVESTMENT INCOME(unaudited)(unaudited)(unaudited)(unaudited)Interest and dividends from investmentsNon-controlled/non-affiliated investments:Cash$13,472,014$18,589,227$46,799,144$60,443,983Payment-in-kind1,054,823305,2842,678,228881,801Controlled/affiliated investments:Cash2,119,9023,462,5027,725,7847,744,476Payment-in-kind762,611617,6451,459,2851,485,027Total interest and dividend income17,409,35022,974,65858,662,44170,555,287Fee income (Note 12)339,6211,388,7943,269,5072,980,935Interest from cash and cash equivalents411,854113,6701,045,900191,823Total investment income18,160,82524,477,12262,977,84873,728,045EXPENSESInterest and financing expenses5,078,7815,453,36515,744,24815,845,574Base management fees (Note 7)4,180,3334,681,91512,957,96114,520,226General and administrative expenses1,556,5141,053,7994,076,5073,695,757Administrator expenses (Note 7)998,134527,7522,156,5572,009,465Professional fees407,094611,5711,412,5491,362,260Incentive Fees (Note 7)176,061446,703176,061446,703Offering costs6,322(655,352)42,158(184,366)Total expenses12,403,23912,119,75336,566,04137,695,619NET INVESTMENT INCOME5,757,58612,357,36926,411,80736,032,426REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTSNet realized gain/(loss) from non-controlled/non-affiliated investments99,549(19,352,081)(9,599,817)(50,623,333)Net realized gain/(loss) from controlled/affiliated investments (net of taxes of $2,828,611)(19,820,718)7,969(16,050,275)7,969Net realized gain/(loss) on total return swap (Note 5)—1,099,536(9,323,516)1,534,483Net change in unrealized appreciation/(depreciation) on non-controlled/non-affiliated investments(20,878,806)2,156,903(11,492,125)10,970,775Net change in unrealized appreciation/(depreciation) on controlled/affiliated investments16,472,843(2,329,948)(6,981,230)(13,035,855)Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)—735,8746,524,9043,370,529Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments(442,842)(381,726)(442,842)(303,448)Net realized and unrealized gain/(loss) on investments(24,569,974)(18,063,473)(47,364,901)(48,078,880)NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS$(18,812,388)$(5,706,104)$(20,953,094)$(12,046,454)WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE$(0.19)$(0.06)$(0.21)$(0.12)WEIGHTED AVERAGE - BASIC AND DILUTED NET INVESTMENT INCOME PER COMMON SHARE$0.06$0.13$0.26$0.37WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED (NOTE 10)101,035,42097,047,494100,116,49397,142,433DISTRIBUTIONS DECLARED PER COMMON SHARE$0.16$0.16$0.48$0.48


See accompanying notes to the consolidated financial statements.





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Sierra Income Corporation


Consolidated Statements of Changes in Net Assets Common StockPaid in CapitalDistributableTotalSharesPar Amountin Excess of ParEarningsNet AssetsBalance at June 30, 2019100,462,586100,463$870,982,780$(230,646,698)$640,436,545Net increase/(decrease) in net assets resulting from operations:Net investment income———5,757,5865,757,586Net realized gain/(loss) on investments———(19,721,169)(19,721,169)Net realized gain/(loss) on total return swap (Note 5)—————Net change in unrealized appreciation/(depreciation) on investments———(4,405,963)(4,405,963)Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)—————Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments———(442,842)(442,842)Shareholder distributions:Issuance of common shares pursuant to distribution reinvestment plan1,012,5271,0126,019,307—6,020,319Repurchase of common shares(144,356)(144)(919,408)—(919,552)Distributions from earnings———(16,114,177)(16,114,177)Total increase/(decrease) for the three months ended September 30, 2019868,1718685,099,899(34,926,565)(29,825,798)Balance at September 30, 2019101,330,757101,331$876,082,679$(265,573,263)$610,610,747Balance at December 31, 201898,502,90798,503$858,699,757$(196,718,061)$662,080,199Net increase/(decrease) in net assets resulting from operations:Net investment income———26,411,80726,411,807Net realized gain/(loss) on investments———(25,650,092)(25,650,092)Net realized gain/(loss) on total return swap (Note 5)———(9,323,516)(9,323,516)Net change in unrealized appreciation/(depreciation) on investments———(18,473,355)(18,473,355)Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)———6,524,9046,524,904Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments———(442,842)(442,842)Shareholder distributions:Issuance of common shares pursuant to distribution reinvestment plan2,972,2062,97218,302,330—18,305,302Repurchase of common shares(144,356)(144)(919,408)—(919,552)Distributions from earnings———(47,902,108)(47,902,108)Total increase/(decrease) for the nine months ended September 30, 20192,827,8502,82817,382,922(68,855,202)(51,469,452)Balance at September 30, 2019101,330,757101,331$876,082,679$(265,573,263)$610,610,747Balance at June 30, 201896,784,85796,785$844,995,420$(141,119,029)$703,973,176Net increase/(decrease) in net assets resulting from operations:Net investment income———12,357,36912,357,369Net realized gain/(loss) on investments———(19,344,112)(19,344,112)Net realized gain/(loss) on total return swap (Note 5)———1,099,5361,099,536Net change in unrealized appreciation/(depreciation) on investments———(173,045)(173,045)Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)———735,874735,874Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments———(381,726)(381,726)Shareholder distributions:Issuance of common shares, net of underwriting costs153—1,158—1,158Issuance of common shares pursuant to distribution reinvestment plan930,4359306,373,674—6,374,604Repurchase of common shares(168,845)(169)(1,264,478)—(1,264,647)Distributions from earnings———(15,515,973)(15,515,973)Total increase/(decrease) for the three months ended September 30, 2018761,7437615,110,354(21,222,077)(16,110,962)Balance at September 30, 201897,546,60097,546$850,105,774$(162,341,106)$687,862,214Balance at December 31, 201796,620,231$96,620$843,592,066$(103,702,117)$739,986,569Net increase/(decrease) in net assets resulting from operations:Net investment income———36,032,42636,032,426Net realized gain/(loss) on investments———(50,615,364)(50,615,364)Net realized gain/(loss) on total return swap (Note 5)———1,534,4831,534,483Net change in unrealized appreciation/(depreciation) on investments———(2,065,080)(2,065,080)Net change in unrealized appreciation/(depreciation) on total return swap (Note 5)———3,370,5293,370,529Change in provision for deferred taxes on unrealized appreciation/(depreciation) on investments———(303,448)(303,448)Shareholder distributions:Issuance of common shares, net of underwriting costs323,7403242,479,279—2,479,603Issuance of common shares pursuant to distribution reinvestment plan2,651,4502,65119,546,324—19,548,975Repurchase of common shares(2,048,821)(2,049)(15,511,895)—(15,513,944)Distributions from earnings———(46,592,535)(46,592,535)Total increase/(decrease) for the nine months ended September 30, 2018926,3699266,513,708(58,638,989)(52,124,355)Balance at September 30, 201897,546,600$97,546$850,105,774$(162,341,106)$687,862,214


See accompanying notes to consolidated financial statements.





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Consolidated Statements of Cash Flows Nine Months Ended September 30,20192018(unaudited)(unaudited)Cash flows from operating activitiesNET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:$(20,953,094)$(12,046,454)ADJUSTMENT TO RECONCILE NET INCREASE/(DECREASE) IN NET ASSETSFROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES:Payment-in-kind interest income(4,137,513)(2,366,828)Net amortization of premium on investments(1,260,667)(1,380,312)Amortization of deferred financing costs1,447,2711,421,683Net realized (gain)/loss on investments25,650,09650,615,364Net change in unrealized (appreciation)/depreciation on investments18,473,3552,065,080Net change in unrealized (appreciation)/depreciation on total return swap (Note 5)(6,524,904)(3,370,529)Purchases and originations(191,474,286)(184,162,170)Proceeds from sale of investments and principal repayments339,279,120231,634,105(Increase)/decrease in operating assets:Unsettled trades receivable1,528,645(820,514)Interest receivable from non-controlled/non-affiliated investments21,870(339,588)Interest receivable from controlled/affiliated investments382,121(97,924)Receivable for Company shares sold—234,700Receivable due on total return swap (Note 5)113,252458,828Deferred transaction costs(6,505,568)(4,974,094)Prepaid expenses and other assets354,156(787,646)Increase/(decrease) in operating liabilities:Unsettled trades payable7,292,149(308,233)Taxes Payable442,842—Management fee payable(310,901)(515,082)Transaction costs payable472,3512,492,529Accounts payable and accrued expenses(636,110)131,025Incentive fees payable—(2,380,669)Administrator fees payable308,423(168,024)Interest payable(174,140)(163,624)Deferred tax liability—303,449NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES163,788,46875,475,072Cash flows from financing activities:Borrowings under revolving credit facility—48,000,000Repayments of revolving credit facility(26,900,000)(113,000,000)Proceeds from issuance of common stock, net of underwriting costs—2,479,603Payment of cash distributions(29,596,806)(27,043,560)Financing costs paid(646,537)(56,249)Repurchase of common shares(919,552)(15,513,944)NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES(58,062,895)(105,134,150)TOTAL INCREASE/(DECREASE) IN CASH105,725,573(29,659,078)CASH, CASH EQUIVALENTS AND CASH COLLATERAL ON TOTAL RETURN SWAP AT BEGINNING OF PERIOD86,481,495112,909,759CASH, CASH EQUIVALENTS AND CASH COLLATERAL ON TOTAL RETURN SWAP AT END OF PERIOD(1)$192,207,068$83,250,681Supplemental Information:Cash paid during the period for interest$14,471,117$14,587,515Supplemental non-cash information:Non-cash purchase of investments$20,819,610$27,616,168Non-cash sale of investments20,819,61027,616,168Payment-in-kind interest income4,137,5132,366,828Amortization of deferred financing costs1,447,2711,421,683Net amortization of premium on investments1,260,6671,380,312Issuance of common shares in connection with distribution reinvestment plan$18,305,302$19,548,975


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|(1) | Includes cash and cash equivalents of$192,205,852and $38,250,000 and cash collateral on total return swap of$1,216and $45,000,000 as ofSeptember 30, 2019and2018, respectively.

See accompanying notes to consolidated financial statements.





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Sierra Income Corporation


Consolidated Schedule of Investments


As of September 30, 2019


(unaudited)


Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Non-controlled/non-affiliated investments – 101.3%$610,610,747AAAHI Acquisition CorporationTransportation: ConsumerSenior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(4)(5)(6)12/10/2023$6,984,666$6,984,666$6,833,8051.1%6,984,6666,984,6666,833,805Alpine SG, LLCHigh Tech IndustriesSenior Secured First Lien Delayed Draw Term Loan LIBOR + 5.500%, 1.000% Floor(5)(7)11/16/20226,617,6306,617,6306,563,3661.1%Senior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(5)(6)(7)11/16/202213,398,75013,398,75013,288,8802.2%20,016,38020,016,38019,852,246American Dental Partners, Inc.Healthcare & PharmaceuticalsSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)9/25/20234,893,7504,893,7504,767,9810.8%4,893,7504,893,7504,767,981Amerijet Holdings, Inc.Transportation: CargoSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(5)(7)7/15/202110,895,95510,895,95510,863,2671.8%10,895,95510,895,95510,863,267AMMC CLO 22, Limited Series 2018-22AMulti-Sector HoldingsSubordinated Notes 11.866% effective yield(8)(9)(10)4/25/20317,222,0005,850,5575,602,6040.9%7,222,0005,850,5575,602,604Answers Finance, LLCHigh Tech IndustriesCommon Stock- 389,533 shares(11)—5,076,376802,4380.1%—5,076,376802,438Apidos CLO XXIV, Series 2016-24AMulti-Sector HoldingsSubordinated Notes 11.341% effective yield(5)(8)(9)(10)7/20/202718,357,64711,785,12511,143,0921.8%18,357,64711,785,12511,143,092Avantor, Inc.WholesaleCommon Stock  - 1,867,356 shares(11)—32,678,73027,450,1334.5%—32,678,73027,450,133Aviation Technical Services, Inc.Aerospace & DefenseSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)(13)3/31/202225,000,00025,000,00024,830,0004.1%25,000,00025,000,00024,830,000Barry's Bootcamp Holdings, LLCServices: ConsumerSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(6)7/14/20229,975,0009,975,0009,975,0001.6%Revolving Credit FacilityLIBOR + 6.000%, 1.000% Floor(4)(5)(6)7/14/20225,600,0005,600,0005,600,0000.9%15,575,00015,575,00015,575,000Black Angus Steakhouses, LLCHotel, Gaming & LeisureSenior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(4)(5)(6)(13)4/24/202018,225,44718,225,44718,131,3413.0%Revolving Credit Facility LIBOR + 9.000%, 1.000% Floor(4)(5)(6)(13)4/24/20202,232,1432,232,1432,227,0090.4%20,457,59020,457,59020,358,350BRG Sports, Inc.Consumer Goods: DurableSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(7)6/15/20236,230,0006,230,0006,154,6171.0%6,230,0006,230,0006,154,617Brook & Whittle Holding Corp.Containers, Packaging & GlassSenior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(4)(5)10/17/20242,937,0582,937,0582,890,0650.5%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 5.500%, 1.000% Floor(4)(5)10/17/2024690,757690,757682,6060.1%3,627,8153,627,8153,572,671





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Capstone Nutrition Development, LLCHealthcare & PharmaceuticalsUnits  - 10,374 units(11)—1,037,4901,037,4900.2%—1,037,4901,037,490Centauri Group Holdings, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 5.250%(4)(5)2/12/20247,222,0047,203,9497,203,9491.2%7,222,0047,203,9497,203,949CPI International, Inc.Aerospace & DefenseSenior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(5)(7)7/28/20259,900,7529,875,1629,662,1441.6%9,900,7529,875,1629,662,144CT Technologies Intermediate Holdings, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 4.250%, 1.000% Floor(5)(7)12/1/2021974,555853,576889,2810.1%974,555853,576889,281DataOnline Corp.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)(6)7/31/20259,900,0009,900,0009,742,6701.6%9,900,0009,900,0009,742,670Dermatologists of Southwestern Ohio, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(7)4/20/20222,450,5512,450,5512,430,2120.4%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 6.500%, 1.000% Floor(5)(7)4/20/2022929,771929,771922,0540.2%3,380,3223,380,3223,352,266DirectBuy Home Improvement, Inc.RetailSubordinated notes LIBOR + 6.500%, 1.000% Floor(14)6/20/2022260,919253,833260,7100.0%Common Stock - 191,678 shares(11)—75,34061,3370.0%260,919329,173322,047Dryden 38 Senior Loan Fund, Series 2015-38AMulti-Sector HoldingsSubordinated Notes 13.757% effective yield(8)(9)(10)7/15/20277,000,0004,715,2904,442,4310.7%7,000,0004,715,2904,442,431Dryden 43 Senior Loan Fund, Series 2016-43AMulti-Sector HoldingsSubordinated Notes 8.589% effective yield(5)(8)(9)(10)7/20/20293,620,0002,823,4822,126,7830.3%3,620,0002,823,4822,126,783Dryden 49 Senior Loan Fund, Series 2017-49AMulti-Sector HoldingsSubordinated Notes 9.431% effective yield(5)(9)(10)7/18/203017,233,28813,905,37511,498,0501.9%17,233,28813,905,37511,498,050First Boston Construction Holdings, LLCBanking, Finance, Insurance & Real EstateSenior secured first lien notes 12.000%(5)2/23/20239,965,0009,965,0009,965,0001.6%Preferred Equity - 2,491,250 units(5)(11)—2,491,2502,491,2500.4%9,965,00012,456,25012,456,250FKI Security Group, LLCCapital EquipmentSenior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(5)(7)3/30/202010,906,25010,906,25010,680,4911.7%10,906,25010,906,25010,680,491Friedrich Holdings, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(5)(7)2/7/202310,553,55010,553,55010,473,3431.7%10,553,55010,553,55010,473,343GK Holdings, Inc.Services: BusinessSenior Secured Second Lien Term Loan LIBOR + 10.250%, 1.000% Floor(4)1/20/202210,000,00010,000,0008,301,0001.4%10,000,00010,000,0008,301,000Golden West Packaging Group LLCForest Products & PaperSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(5)(7)6/20/20231,450,6911,450,6911,442,1320.2%1,450,6911,450,6911,442,132Holland Acquisition Corp.Energy: Oil & GasSenior Secured First Lien Term Loan LIBOR + 9.000%,(14)5/29/20204,400,6964,259,2611,377,4180.2%





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)4,400,6964,259,2611,377,418Hylan Datacom & Electrical LLCConstruction & BuildingSenior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(5)(7)7/25/202114,366,71814,366,71811,493,3741.9%Senior Secured First Lien Term Loan LIBOR + 2.7500%, 1.000% Floor(5)(7)10/4/2019439,993432,868439,9930.1%14,806,71114,799,58611,933,367IHS Intermediate, Inc.Services: BusinessSenior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(4)(14)7/20/202225,000,00025,000,00017,500,0002.9%25,000,00025,000,00017,500,000Impact Group, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)6/27/20235,811,8275,811,8275,544,4830.9%5,811,8275,811,8275,544,483Interflex Acquisition Company, LLCContainers, Packaging & GlassSenior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(5)(7)8/18/202212,817,20312,817,20312,216,0762.0%12,817,20312,817,20312,216,076Iqor US Inc.Services: BusinessSenior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(7)4/1/202119,867,61418,905,83717,483,5002.9%19,867,61418,905,83717,483,500Isagenix International, LLCWholesaleSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)6/16/20251,874,4661,866,3101,422,3450.2%1,874,4661,866,3101,422,345Isola USA Corp.High Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(4)(6)1/2/20239,962,0547,603,9276,994,3581.1%Common Units - 10,283,782 units(9)(11)———0.0%9,962,0547,603,9276,994,358JFL-WCS Partners, LLCEnvironmental IndustriesPreferred Units  - 618,876 6.000%, PIK(5)(9)—618,876618,8760.1%Common Units - 68,764 units(5)(9)(11)—68,7641,461,9230.2%—687,6402,080,799Keystone Acquisition Corp.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4)(5)5/1/20241,807,1811,742,4591,751,5200.3%Senior Secured Second Lien Term Loan LIBOR + 9.250%, 1.000% Floor(4)(5)5/1/20257,000,0006,900,3806,757,1001.1%8,807,1818,642,8398,508,620L&S Plumbing Partnership, Ltd.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)2/15/20228,909,5898,909,5898,909,5891.5%8,909,5898,909,5898,909,589Magnetite XIX, LimitedMulti-Sector HoldingsSubordinated Notes LIBOR + 7.610%(4)(8)(9)(10)7/17/20302,000,0001,874,9371,757,3680.3%Subordinated Notes 7.181% effective yield(5)(8)(9)(10)7/17/203013,730,20910,752,2368,857,7831.5%15,730,20912,627,17310,615,151Manna Pro Products, LLCConsumer Goods: Non-durableSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(5)(6)(7)12/8/20234,093,7504,093,7503,891,9280.6%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 6.000%, 1.000% Floor(5)(6)(7)12/8/2023831,250831,250790,2690.1%4,925,0004,925,0004,682,197Midwest Physician Administrative Services, LLCHealthcare & PharmaceuticalsSenior Secured Second Lien Term Loan LIBOR + 7.000%, 0.750% Floor(7)8/15/20251,950,0001,878,2191,896,3750.3%1,950,0001,878,2191,896,375





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Novetta Solutions, LLCHigh Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(7)10/16/202311,000,00010,935,39810,450,0001.7%11,000,00010,935,39810,450,000Offen Inc.Transportation: CargoSenior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(6)6/21/20262,930,7082,892,1552,890,7820.5%2,930,7082,892,1552,890,782Path Medical, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(5)(7)10/11/202117,090,58616,801,15716,772,2112.7%Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(5)(6)(7)10/11/2021459,200459,200458,9700.1%Warrants - 36,716 warrants(5)(11)1/9/2027—669,709—0.0%17,549,78617,930,06617,231,181PetroChoice Holdings, Inc.Chemicals, Plastics & RubberSenior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(4)(5)8/21/20239,000,0009,000,0008,585,1001.5%9,000,0009,000,0008,585,100Polymer Solutions Group Holdings, LLCChemicals, Plastics & RubberSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(7)6/30/20212,426,7022,426,7022,393,9420.4%2,426,7022,426,7022,393,942Project Silverback Holdings Corp.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 3.500%, 1.000% Floor(7)8/21/20244,900,0004,322,4884,267,4100.7%4,900,0004,322,4884,267,410Proppants Holdings, LLCEnergy:  Oil & GasCommon Units - 161,852 units(11)—874,363874,0010.1%Common Units - 161,852 units(11)—8,8328,0930.0%—883,195882,094PT Network, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)11/30/20237,928,5757,443,4707,412,4241.3%Membership Units - 1.441 units(11)———0.1%7,928,5757,443,4707,412,424Quantum Spatial, Inc.High Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4)(5)9/5/202415,000,00014,777,99215,000,0002.5%15,000,00014,777,99215,000,000RateGain Technologies, Inc.Hotel, Gaming & LeisureSubordinated Notes(5)(11)7/31/2020476,190476,190476,1900.1%Subordinated Notes(5)(11)7/31/2021476,190476,190476,1900.1%952,380952,380952,380Redwood Services Group, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(6)6/6/202319,919,10819,919,10819,729,8763.2%Revolving Credit Facility LIBOR + 6.000%, 1.000% Floor(4)(5)(6)6/6/20231,437,5001,437,5001,413,6370.2%21,356,60821,356,60821,143,513Resolute Investment Managers, Inc.Banking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loan LIBOR + 7.500%, 1.000% Floor(4)(5)4/30/20237,950,0007,912,0947,899,1201.3%7,950,0007,912,0947,899,120Rhombus Cinema Holdings, LPMedia: Diversified & ProductionPreferred Equity 10.000% - 7,449 shares(5)(9)—4,584,2074,067,1540.7%Common Units - 3,163 units(5)(8)(11)—3,162,793—0.0%—7,747,0004,067,154SavATree, LLCEnvironmental IndustriesSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4)(5)6/2/20224,344,6934,344,6934,344,6930.7%





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)4,344,6934,344,6934,344,693SFP Holding, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(5)(6)(11)9/1/20229,207,7249,207,7249,121,1721.5%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 6.250%, 1.000% Floor(5)(6)(11)9/1/2022850,000850,000850,6000.1%Equity - 0.94% of outstanding equity(5)(11)—657,115591,4030.1%10,057,72410,714,83910,563,175Shift4 Payments, LLCBanking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)11/28/20259,950,0009,872,8989,777,8651.6%9,950,0009,872,8989,777,865Ship Supply Acquisition CorporationServices: BusinessSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(4)(5)(14)7/31/202021,867,37821,495,414—0.0%21,867,37821,495,414—Simplified Logistics, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)(6)2/28/202218,527,99718,527,99718,527,9973.0%18,527,99718,527,99718,527,997SMART Financial Operations, LLCRetailPreferred Equity - 1,000,000 units(5)(9)(11)—1,000,000760,0000.1%—1,000,000760,000Smile Doctors, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)10/6/20228,271,1068,271,1068,031,2441.3%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)(6)10/6/20223,800,7113,800,7113,636,9950.6%12,071,81712,071,81711,668,239Sound Point CLO XX, Ltd.Multi-Sector HoldingsSubordinated Notes 14.123% effective yield(5)(8)(9)(10)7/26/20314,489,0003,966,4483,677,6540.6%4,489,0003,966,4483,677,654Southwest Dealer Services, Inc.AutomotiveSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)6/2/20224,567,4134,567,4134,485,6560.7%4,567,4134,567,4134,485,656Starfish Holdco, LLCHigh Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 9.000%, 1.000% Floor(5)(7)8/18/20254,000,0003,955,2583,954,0000.6%4,000,0003,955,2583,954,000Sungard AS New Holdings, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor, 2.500% PIK(7)2/3/20224,940,9114,940,9113,952,7290.6%Senior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(7)2/3/2022714,915696,199693,4680.1%Membership units - 73,135 units(11)—2,163,0762,163,0410.4%5,655,8267,800,1866,809,238Team Car Care, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(5)(7)2/23/202314,188,50714,188,50713,908,9932.3%14,188,50714,188,50713,908,993Techniplas, LLCAutomotiveSenior Secured First Lien Notes 10.000%(8)5/1/20206,000,0006,000,0005,130,0000.8%6,000,0006,000,0005,130,000Tensar CorporationCapital EquipmentSenior Secured First Lien Term Loan LIBOR + 4.750%, 1.000% Floor(4)7/9/20216,900,1876,761,0436,541,3771.1%6,900,1876,761,0436,541,377





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)The Imagine Group LLCMedia: Advertising, Printing & PublishingSenior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(5)(7)6/21/20238,950,0008,865,8525,116,7150.8%8,950,0008,865,8525,116,715The Octave Music Group, Inc.Media: Diversified & ProductionSenior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(5)(7)5/27/20226,532,2586,532,2586,457,1371.1%6,532,2586,532,2586,457,137True Religion Apparel, Inc.RetailSenior Secured First Lien Term Loan 10.000%(14)10/27/2022180,355134,423—0.0%Common Stock - 2,448 shares(11)———0.0%Warrants - 1,122 warrants(11)———0.0%180,355134,423—Velocity Pooling Vehicle, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 11.000%, 1.000% Floor(4)(5)4/28/2023768,324718,899678,6610.1%Common units - 4,676 units(5)(11)—259,93817,9560.0%Warrants - 5,591 warrants(5)(11)3/30/2028—310,80221,4690.0%768,3241,289,639718,086Vertafore, Inc.High Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(5)(7)7/2/20269,950,0009,813,3449,767,9151.6%9,950,0009,813,3449,767,915VOYA CLO 2016-2, LTD.Multi-Sector HoldingsSubordinated Notes 5.839% effective yield(5)(8)(9)(10)7/19/202810,735,6596,867,0576,026,4731.0%10,735,6596,867,0576,026,473VOYA CLO 2015-2, LTD.Multi-Sector HoldingsSubordinated Notes 16.113% effective yield(5)(8)(9)(10)7/23/202711,088,2908,311,5386,132,7111.0%11,088,2908,311,5386,132,711Walker Edison Furniture Company LLCConsumer Goods:  DurableSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)9/26/202414,718,75014,718,75014,718,7502.4%Common units - 2,000 units(5)(9)(11)—2,000,0003,410,2100.6%14,718,75016,718,75018,128,960Watermill-QMC Midco, Inc.AutomotiveEquity - 2.3% partnership interest(5)(9)(11)—902,277154,9250.0%—902,277154,925Total non-controlled/non-affiliated investments$690,478,114$618,427,718101.3%Controlled/affiliated investments - 19.4%(15)1888 Industrial Services, LLCEnergy: Oil & GasRevolving Credit Facility LIBOR + 5.000%, 1.000% Floor(4)(5)(6)9/30/20211,509,3511,509,3511,509,3510.2%Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(4)(5)9/30/20213,144,4813,144,4813,144,4810.5%Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor, PIK(4)(5)(14)9/30/20217,815,7516,862,8151,953,9380.3%Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(4)(5)6/30/2021401,814401,814401,8140.1%Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor (4)(5)9/18/202078,38478,38478,3840.0%Units - 7,546.76 units(5)(11)———0.0%12,949,78111,996,8457,087,968Access Media Holdings, LLCMedia: Broadcasting & SubscriptionSenior Secured First Lien Term Loan 10.000% PIK(5)(7)(14)7/22/20208,781,8107,458,3422,195,4530.4%Common Stock - 14 units(5)(9)(11)———0.0%Preferred Equity - 1,400,000 units(5)(9)(11)—1,400,000—0.0%





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Preferred Equity - 700,000 units(5)(9)(11)—700,000—0.0%Preferred Equity - 849,800 units(5)(6)(9)(11)—938,000—0.0%8,781,81010,496,3422,195,453Caddo Investors Holdings 1  LLCForest Products & PaperEquity - 12.250% LLC Interest(5)(9)(16)—5,027,4825,631,8000.9%—5,027,4825,631,800Charming Charlie LLCRetailSenior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(4)(6)(14)4/24/20233,409,0943,121,470—0.0%Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(4)(14)4/24/20234,186,8632,622,254(258,708)0.0%Senior Secured First Lien Term Loan 20.000%5/15/2019182,617182,617136,9630.0%Senior Secured First Lien Delayed Draw Term Loan LIBOR + 10.000%, 1.000% Floor(4)(6)(14)5/15/20201,034,8311,034,831730,4690.1%Common Stock - 34,923,249 shares(11)———0.0%8,813,4056,961,172608,724Dynamic Energy Services International LLCEnergy: Oil & GasRevolving Credit Facility 12.000%(5)(6)12/31/2019286,896286,896286,8960.0%Senior Secured First Lien Term Loan 13.500% PIK(5)(7)(14)12/31/20215,854,9344,449,025665,7060.1%Common Units - 6,500,000 units(5)(11)———0.0%6,141,8304,735,921952,602Kemmerer Operations, LLCMetals & MiningSenior Secured First Lien Term Loan 15.000% PIK6/21/20231,766,5111,694,9151,766,5110.3%Senior Secured First Lien Delayed Draw Term Loan 15.000% PIK(6)6/21/2023706,604706,604706,6040.1%Common Units - 6.7797 units(11)—962,717994,0000.2%2,473,1153,364,2363,467,115MCM 500 East Pratt Holdings, LLCBanking, Finance, Insurance & Real EstateEquity - 5,000,000 units(9)(11)—5,000,0007,100,0001.2%—5,000,0007,100,000MCM Capital Office Park Holdings LLCBanking, Finance, Insurance & Real EstateEquity - 7,500,000 units(9)(11)—7,500,00011,775,0001.9%—7,500,00011,775,000Sierra Senior Loan Strategy JV I LLCMulti-Sector HoldingsEquity - 87.5% ownership of SIC Senior Loan Strategy JV I LLC(6)(9)(16)92,050,00092,050,00073,409,35912.0%92,050,00092,050,00073,409,359TwentyEighty, Inc.Services: BusinessCommon Units - 58,098 units(11)——6,294,9181.0%——6,294,918Total controlled/affiliated investments$147,131,998$118,522,93919.4%Money Market Fund - 24.7%State Street Institutional Liquid Reserves FundMoney Market 2.060%(12)92,039,13492,039,13492,039,13415.1%Federated Institutional Prime Obligations FundMoney Market 2.030%(12)58,703,01958,703,01958,703,0199.6%Total money market fund$150,742,153$150,742,153$150,742,15324.7%





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Derivative instrument - long exposureNotional AmountUnrealized Appreciation/(Depreciation)Total return swap with Citibank, N.A. (Note 5)Total Return Swap——0.0%Total derivative instrument - long exposure$—$—0.0%





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the Company's investments are domiciled in the United States except for AMMC CLO 22, Limited Series 2018-22A, Apidos CLO XXIV, Series 2016-24A, Dryden 38 Senior Loan Fund, Series 2015-38A, Dryden 43 Senior Loan Fund, Series 2016-43A, Dryden 49 Senior Loan Fund, Series 2017-49A, Magnetite XIX, Limited, Sound Point CLO XX, Ltd.,VOYA CLO 2016-2, LTD and VOYA CLO 2015-2, LTD., which are all domiciled in the Cayman Islands. All foreign investments were denominated in US Dollars.

|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy.

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|--- | ------------------------------------------------------------------------
|(3) | Percentage is based on net assets of$610,610,747as ofSeptember 30, 2019.

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|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The interest rate on these loans is subject to a base rate plus 3 Month "3M" LIBOR, which atSeptember 30, 2019was2.09%. The interest rate is subject to a minimum LIBOR floor.

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|--- | -----------------------------------------------------------------------------------------------------------------
|(5) | An affiliated fund that is managed by an affiliate of SIC Advisors LLC also holds an investment in this security.

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|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | The investment has an unfunded commitment as ofSeptember 30, 2019. For further details see Note 11. Fair value includes an analysis of the unfunded commitment.

|    |                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | The interest rate on these loans is subject to a base rate plus 1 Month "1M" LIBOR, which atSeptember 30, 2019was2.02%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $54,896,899 or 9.0% of net assets as ofSeptember 30, 2019and are considered restricted securities.

|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | The investment is not a qualifying asset under Section 55 of the Investment Company Act of 1940 (the "1940 Act"). Non-qualifying assets represent 26.9% of the Company's portfolio at fair value.

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | This investment is in the equity class of a collateralized loan obligation ("CLO"). The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions that have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.

|     |                                  
|---- | ---------------------------------
|(11) | Security is non-income producing.

|     |                                                                    
|---- | -------------------------------------------------------------------
|(12) | Represents securities in Level 1 in the ASC 820 table (see Note 4).

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|---- | --------------------------------------------------------------------------------------------------------------------------------------------
|(13) | A portion of this investment was sold via a participation agreement. The listed amount is the portion retained by Sierra Income Corporation.

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|---- | -----------------------------------------------------------------
|(14) | The investment was on non-accrual status as ofSeptember 30, 2019.

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(15) | Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns at least 5% but no more than 25% of the voting securities or we are under common control with such portfolio company. Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.

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|---- | ----------------------------------------------------------------------------------------------
|(16) | As a practical expedient, the Company uses NAV to determine the fair value of this investment.










See accompanying notes to consolidated financial statements.





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Sierra Income Corporation


Consolidated Schedule of Investments


As of December 31, 2018





Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Non-controlled/non-affiliated investments– 114.6%$662,080,199AAAHI Acquisition CorporationTransportation: ConsumerSenior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(4)(5)(12)12/10/2023$7,402,367$7,402,367$7,402,3671.1%7,402,3677,402,3677,402,367Alpine SG, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)11/16/20226,617,6306,617,6306,617,6301.0%Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(12)11/16/202213,398,75013,398,75013,398,7502.0%20,016,38020,016,38020,016,380American Dental Partners, Inc.Healthcare & PharmaceuticalsSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)9/25/20234,893,7504,893,7504,790,4920.7%4,893,7504,893,7504,790,492Amerijet Holdings, Inc.Transportation: CargoSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(5)(6)7/15/202111,514,70511,514,70511,514,7051.7%11,514,70511,514,70511,514,705AMMC CLO 22, Limited Series 2018-22AMulti-Sector HoldingsSubordinated Notes 11.435% effective yield(7)(8)(9)4/25/20317,222,0006,089,7335,927,8180.9%7,222,0006,089,7335,927,818Answers Finance, LLCHigh Tech IndustriesCommon Stock- 389,533 shares(10)—5,426,9551,188,0760.2%—5,426,9551,188,076Apidos CLO XXIV, Series 2016-24AMulti-Sector HoldingsSubordinated Notes 10.169% effective yield(5)(7)(8)(9)7/20/202718,357,64712,332,97411,146,7631.7%18,357,64712,332,97411,146,763Aviation Technical Services, Inc.Aerospace & DefenseSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)(11)3/31/202225,000,00025,000,00025,000,0003.8%25,000,00025,000,00025,000,000Barry's Bootcamp Holdings, LLCServices: ConsumerSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(12)7/14/20228,571,4298,571,4298,488,4291.3%Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(12)7/14/20223,360,0003,360,0003,312,9600.5%11,931,42911,931,42911,801,389Black Angus Steakhouses, LLCHotel, Gaming & LeisureSenior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(4)(5)(11)(12)4/24/202018,722,09818,722,09818,353,1832.8%18,722,09818,722,09818,353,183BRG Sports, Inc.Consumer Goods: DurableSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(6)6/15/20236,711,2506,711,2506,617,2931.0%6,711,2506,711,2506,617,293Brook & Whittle Holding Corp.Containers, Packaging & GlassSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4)(5)10/17/20243,719,5823,719,5823,719,5820.6%3,719,5823,719,5823,719,582Central States Dermatology Services, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(6)(12)4/20/20223,090,9913,090,9913,045,3600.5%3,090,9913,090,9913,045,360Covenant Surgical Partners, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 4.500%(4)(5)10/4/20246,935,1706,920,6086,865,8181.0%6,935,1706,920,6086,865,818CPI International, Inc.Aerospace & DefenseSenior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(5)(6)7/28/20259,900,7529,871,9709,776,9921.5%9,900,7529,871,9709,776,992





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)DataOnline Corp.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)(12)7/31/20259,975,0009,975,0009,975,0001.5%9,975,0009,975,0009,975,000Drew Marine Partners, LPTransportation: CargoSenior Secured Second Lien Term Loan LIBOR + 7.000%, 1.000% Floor(6)5/19/202110,000,00010,035,6609,862,0001.5%10,000,00010,035,6609,862,000Dryden 38 Senior Loan Fund, Series 2015-38AMulti-Sector HoldingsSubordinated Notes 12.456% effective yield(7)(8)(9)7/15/20277,000,0004,877,3234,890,9000.7%7,000,0004,877,3234,890,900Dryden 43 Senior Loan Fund, Series 2016-43AMulti-Sector HoldingsSubordinated Notes 4.966% effective yield(5)(7)(8)(9)7/20/20293,620,0002,902,8692,330,9180.4%3,620,0002,902,8692,330,918Dryden 49 Senior Loan Fund, Series 2017-49AMulti-Sector HoldingsSubordinated Notes 6.812% effective yield(5)(8)(9)7/18/203017,233,28814,799,89612,414,8611.9%17,233,28814,799,89612,414,861Dynamic Energy Services International LLCEnergy: Oil & GasSenior Secured First Lien Term Loan 12.000%(5)(12)6/30/2019246,677246,677246,6770.0%Senior Secured First Lien Term Loan 8.500% PIK + LIBOR(4)(5)(13)5/6/201911,474,0689,828,8311,304,6020.2%11,720,74510,075,5081,551,279Elite Comfort Solutions LLCChemicals, Plastics & RubberSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(6)(12)1/15/20218,019,8028,019,8028,019,8021.2%8,019,8028,019,8028,019,802First Boston Construction Holdings, LLCBanking, Finance, Insurance & Real EstateSenior secured first lien notes 12.000%(5)2/23/20239,965,0009,965,0009,910,1931.5%Preferred Equity - 2,491,250 units(5)(10)—2,491,2502,491,2500.4%9,965,00012,456,25012,401,443FKI Security Group, LLCCapital EquipmentSenior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(5)(6)3/30/202011,187,50011,187,50011,187,5001.7%11,187,50011,187,50011,187,500Friedrich Holdings, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(5)(6)2/7/202314,853,55514,853,55514,853,5552.2%14,853,55514,853,55514,853,555Fusion Telecommunications International Inc.TelecommunicationsSenior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(4)5/4/2023894,729862,917836,8400.1%894,729862,917836,840GK Holdings, Inc.Services: BusinessSenior Secured Second Lien Term Loan LIBOR + 10.250%, 1.000% Floor(4)1/20/202210,000,00010,000,0008,763,0001.3%10,000,00010,000,0008,763,000Golden West Packaging Group LLCForest Products & PaperSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(5)(6)6/20/20232,503,1822,503,1822,503,1820.4%2,503,1822,503,1822,503,182Heligear Acquisition Co.Aerospace & DefenseSenior secured first lien notes 10.250%(5)(7)10/15/201915,000,00015,000,00014,451,0002.2%15,000,00015,000,00014,451,000High Ridge Brands Co.Consumer Goods: Non-DurableSenior secured first lien notes 8.875%(5)(7)(13)3/15/20252,000,0002,000,000876,6000.1%2,000,0002,000,000876,600Holland Acquisition Corp.Energy: Oil & GasSenior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(4)5/29/20204,400,6964,380,9883,134,6160.5%4,400,6964,380,9883,134,616Hylan Datacom & Electrical LLCConstruction & BuildingSenior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(5)(6)7/25/202114,316,71514,316,71514,183,5702.1%14,316,71514,316,71514,183,570





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)IHS Intermediate, Inc.Services: BusinessSenior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(4)7/20/202225,000,00025,000,00024,815,0003.7%25,000,00025,000,00024,815,000Impact Group, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)6/27/20236,158,3126,158,3126,158,3120.9%6,158,3126,158,3126,158,312Interflex Acquisition Company, LLCContainers, Packaging & GlassSenior Secured First Lien Term Loan LIBOR + 9.000%, 1.000% Floor(5)(6)8/18/202213,412,50013,412,50012,445,4591.9%13,412,50013,412,50012,445,459Invision Diversified, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(5)(6)(11)6/30/202022,631,33422,631,33422,631,3343.4%22,631,33422,631,33422,631,334Isagenix International, LLCWholesaleSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)6/16/20251,950,0001,940,0901,925,4300.3%1,950,0001,940,0901,925,430Isola USA Corp.High Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(4)(12)1/2/20239,541,6696,639,5116,699,2061.0%Common Units - 10,283,782 units(8)(10)———0.0%9,541,6696,639,5116,699,206JFL-WCS Partners, LLCEnvironmental IndustriesPreferred Units  - 618,876 6.000%, PIK(5)(8)—618,876618,8760.1%Common Units - 68,764 units(5)(8)(10)—68,764363,7620.1%—687,640982,638Keystone Acquisition Corp.Healthcare & PharmaceuticalsSenior Secured Second Lien Term Loan LIBOR + 9.250%, 1.000% Floor(4)(5)(14)5/1/20257,000,0006,887,4916,934,9001.0%7,000,0006,887,4916,934,900L&S Plumbing Partnership, Ltd.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 8.500%, 1.000% Floor(5)(6)2/15/202210,615,31910,615,31910,683,2571.6%10,615,31910,615,31910,683,257Livingston International Inc.Transportation: CargoSenior Secured Second Lien Term Loan LIBOR + 8.250%, 1.250% Floor(4)(8)4/17/20204,613,2874,528,6534,359,5560.7%4,613,2874,528,6534,359,556Magnetite XIX, LimitedMulti-Sector HoldingsSubordinated Notes LIBOR + 7.610%(4)(7)(8)(9)7/17/20302,000,0001,875,0001,797,8000.3%Subordinated Notes 4.790% effective yield(5)(7)(8)(9)7/17/203013,730,20911,634,2669,863,7821.5%15,730,20913,509,26611,661,582Manna Pro Products, LLCConsumer Goods: Non-durableSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(5)(6)(12)12/8/20234,633,3334,633,3334,513,8370.7%4,633,3334,633,3334,513,837Nathan's Famous, Inc.Beverage & FoodSenior secured first lien notes 6.625%(5)(7)(8)(15)11/1/20254,950,0004,965,3084,742,1000.7%4,950,0004,965,3084,742,100New Media Holdings II LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(5)(6)7/14/20227,447,6247,439,6987,410,3861.1%7,447,6247,439,6987,410,386Nine West Holdings, Inc.Consumer Goods:  Non-durableSenior Secured First Lien Term Loan 8.250%10/8/20192,212,6492,134,2232,132,5510.3%2,212,6492,134,2232,132,551Novetta Solutions, LLCHigh Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(6)10/16/202311,000,00010,926,4799,903,3001.5%11,000,00010,926,4799,903,300





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Oxford Mining Company, LLCMetals & MiningSenior Secured First Lien Term Loan LIBOR + 10.500%, 0.750% Floor, 3.000% PIK(4)(5)(13)12/31/201813,424,51111,680,0994,093,1330.6%Senior Secured First Lien Term Loan LIBOR + 10.500%, 0.750% Floor, 3.000% PIK(4)(5)(13)12/31/20189,289,8738,063,1612,832,4820.4%22,714,38419,743,2606,925,615Path Medical, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 9.500%, 1.000% Floor, PIK(4)(5)10/11/202115,601,66315,231,47714,779,4562.2%Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(4)(5)(12)10/11/2021918,400918,400918,4000.1%Warrants - 36,716 warrants(5)(10)1/9/2027—669,709—0.0%16,520,06316,819,58615,697,856PetroChoice Holdings, Inc.Chemicals, Plastics & RubberSenior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(4)(5)8/19/20222,904,1732,875,7862,877,4540.4%Senior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(4)(5)(11)8/21/20239,000,0009,000,0008,902,8001.3%11,904,17311,875,78611,780,254Polymer Solutions Group Holdings, LLCChemicals, Plastics & RubberSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(5)(6)6/30/20212,445,1802,445,1802,445,1800.4%2,445,1802,445,1802,445,180Press Ganey Holdings, IncHealthcare & PharmaceuticalsSenior Secured Second Lien Term Loan LIBOR + 6.500%, 1.000% Floor(6)10/21/20245,842,7245,927,3275,769,1060.9%5,842,7245,927,3275,769,106PT Network, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(4)(5)(12)11/30/20217,921,0947,921,0947,665,2721.2%7,921,0947,921,0947,665,272RateGain Technologies, Inc.Hotel, Gaming & LeisureSubordinated Notes(5)(10)7/31/2020476,190476,190476,1900.1%Subordinated Notes(5)(10)7/31/2021476,190476,190476,1900.1%952,380952,380952,380Redwood Services Group, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)6/6/202320,069,76520,069,76519,806,8513.0%Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(12)6/6/20231,150,0001,150,0001,150,0000.2%21,219,76521,219,76520,956,851Resolute Investment Managers, Inc.Banking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loan LIBOR + 7.500%, 1.000% Floor(4)(5)4/30/20237,950,0007,904,5617,868,1151.2%7,950,0007,904,5617,868,115Rhombus Cinema Holdings, LPMedia: Diversified & ProductionPreferred Equity 10.000% - 7,449 shares(5)(8)—4,584,2075,647,8610.9%Common Units - 3,163 units(5)(8)(10)—3,162,7931,198,2880.2%—7,747,0006,846,149RMS Holding Company, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)11/16/202218,277,09018,277,09018,277,0902.8%Senior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)(12)11/16/20222,870,6812,870,6812,805,1570.4%21,147,77121,147,77121,082,247SavATree, LLCEnvironmental IndustriesSenior Secured First Lien Term Loan LIBOR + 5.250%, 1.000% Floor(4)(5)(12)6/2/20224,219,0814,219,0814,181,4300.6%4,219,0814,219,0814,181,430





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)SFP Holding, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(4)(5)9/1/20226,678,9216,678,9216,678,9211.0%Senior Secured First Lien Term Loan LIBOR + 6.250%, 1.000% Floor(4)(5)(12)9/1/20222,726,2412,726,2412,726,2410.4%Equity - 0.94% of outstanding equity(5)(10)—491,270491,2700.1%9,405,1629,896,4329,896,432Shift4 Payments, LLCBanking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loan LIBOR + 8.500%, 1.000% Floor(4)(5)11/28/20259,950,0009,863,6859,820,6501.5%9,950,0009,863,6859,820,650Ship Supply Acquisition CorporationServices: BusinessSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(4)(5)(13)7/31/202021,562,50021,190,53610,332,7501.6%21,562,50021,190,53610,332,750Simplified Logistics, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)(12)2/28/202218,668,28918,668,28918,363,9962.8%18,668,28918,668,28918,363,996Sizzling Platter, LLCHotel, Gaming & LeisureSenior Secured First Lien Term Loan LIBOR + 7.500%, 1.000% Floor(16)4/29/202015,000,00015,000,00015,000,0002.3%15,000,00015,000,00015,000,000SMART Financial Operations, LLCRetailPreferred Equity - 1,000,000 units(5)(8)(10)1,000,0001,000,0001,000,0000.2%1,000,0001,000,0001,000,000Smile Doctors, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)10/6/20228,333,9258,333,9258,177,2471.2%Senior Secured First Lien Term Loan LIBOR + 5.750%, 1.000% Floor(4)(5)(12)10/6/20221,357,9031,357,9031,251,4280.2%9,691,8289,691,8289,428,675Sound Point CLO XX, Ltd.Multi-Sector HoldingsSubordinated Notes 13.366% effective yield(5)(7)(8)(9)7/26/20314,489,0004,072,6234,063,8920.6%4,489,0004,072,6234,063,892Southwest Dealer Services, Inc.AutomotiveSenior Secured First Lien Term Loan LIBOR + 6.000%, 1.000% Floor(4)(5)6/2/20224,658,1564,658,1564,574,7750.7%4,658,1564,658,1564,574,775SRS Software, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 7.000%, 1.000% Floor, 0.500% unused fee(4)(5)(12)2/17/202219,158,75019,158,75019,158,7502.9%19,158,75019,158,75019,158,750Starfish Holdco, LLCHigh Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 9.000%, 1.000% Floor(5)(6)8/18/20254,000,0003,949,7033,905,2000.5%4,000,0003,949,7033,905,200Team Car Care, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(5)(6)2/23/202314,480,06914,480,07014,271,5562.2%14,480,06914,480,07014,271,556Techniplas, LLCAutomotiveSenior Secured First Lien Notes 10.000%(7)5/1/20206,000,0006,000,0005,515,2000.8%6,000,0006,000,0005,515,200The Imagine Group LLCMedia: Advertising, Printing & PublishingSenior Secured Second Lien Term Loan LIBOR + 8.750%, 1.000% Floor(5)(6)(14)6/21/20238,950,0008,849,1177,888,5301.2%8,950,0008,849,1177,888,530The Octave Music Group, Inc.Media: Diversified & ProductionSenior Secured Second Lien Term Loan LIBOR + 8.250%, 1.000% Floor(5)(6)5/27/20227,500,0007,500,0007,475,2501.1%7,500,0007,500,0007,475,250





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)True Religion Apparel, Inc.RetailSenior Secured First Lien Term Loan 10.000%10/27/2022181,731139,86164,5870.0%Common Stock - 2,448 shares(10)———0.0%Warrants - 1,122 warrants(10)———0.0%181,731139,86164,587U.S. Auto Sales Inc.Banking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loan LIBOR + 10.500%, 1.000% Floor(5)(6)(11)6/8/20205,500,0005,500,0005,490,6500.8%5,500,0005,500,0005,490,650U.S. Well Services, LLCEnergy: Oil & GasWarrants - 2.04% of outstanding equity(10)2/21/2019—173—0.0%—173—Vail Holdco CorpWholesalePreferred Equity 12.500% - PIK 20,330 shares(5)—21,457,64321,648,4603.3%Preferred Equity - 15,250 shares(5)(10)—15,250,00018,112,4252.7%Warrants - 14,007 warrants(5)(10)—860,3571,172,8060.2%—37,568,00040,933,691Valence Surface Technologies, Inc.Aerospace & DefenseSenior Secured First Lien Term Loan LIBOR + 5.500%, 1.000% Floor(4)(5)6/13/20215,949,3115,947,5865,949,3110.9%5,949,3115,947,5865,949,311Velocity Pooling Vehicle, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 11.000%, 1.000% Floor(4)(5)4/28/2023694,375635,495609,0360.1%Common units - 4,676 units(5)(10)—259,938259,9380.0%Warrants - 5,591 warrants(5)(10)3/30/2028—310,802310,8030.0%694,3751,206,2351,179,777Vertafore, Inc.High Tech IndustriesSenior Secured Second Lien Term Loan LIBOR + 7.250%, 1.000% Floor(5)(6)7/2/20262,000,0001,981,0641,898,8000.3%2,000,0001,981,0641,898,800VOYA CLO 2016-2, LTD.Multi-Sector HoldingsSubordinated Notes 1.683% effective yield(5)(7)(8)(9)7/19/202822,842,66118,392,99812,798,7431.9%22,842,66118,392,99812,798,743Walker Edison Furniture Company LLCConsumer Goods:  DurableSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor(4)(5)9/26/202415,000,00015,000,00015,000,0002.3%Common units - 2,000 units(5)(8)(10)—2,000,0002,000,0000.3%15,000,00017,000,00017,000,000Watermill-QMC Midco, Inc.AutomotiveEquity - 2.3% partnership interest(5)(8)(10)—902,277170,5300.0%—902,277170,530Z Gallerie, LLCRetailSenior Secured First Lien Term Loan LIBOR + 6.500%, 1.000% Floor, PIK(5)(13)(16)10/8/20214,682,3754,491,2432,720,9280.4%4,682,3754,491,2432,720,928Total non-controlled/non-affiliated investments$819,032,531$758,474,260114.6%Controlled/affiliated investments– 24.9%(17)1888 Industrial Services, LLCEnergy: Oil & GasSenior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(4)(5)(12)9/30/2021943,344943,344943,3440.1%Senior Secured First Lien Term Loan LIBOR + 5.000%, 1.000% Floor(4)(5)9/30/20213,144,4813,144,4813,144,4810.5%Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor, PIK(4)(5)9/30/20217,815,7517,022,4226,005,6230.9%Units - 7,546.76 units(5)(10)———0.0%11,903,57611,110,24710,093,448





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)Access Media Holdings, LLCMedia: Broadcasting & SubscriptionSenior Secured First Lien Term Loan 10.000% PIK(5)(13)7/22/20208,140,8277,422,4075,141,7470.8%Common Stock - 14 units(5)(8)(10)———0.0%Preferred Equity - 1,400,000 units(5)(8)(10)—1,400,000—0.0%Preferred Equity - 700,000 units(5)(8)(10)—700,000—0.0%Preferred Equity - 849,800 units(5)(8)(10)(12)—849,800(88,200)0.0%8,140,82710,372,2075,053,547Caddo Investors Holdings 1  LLCForest Products & PaperEquity - 12.250% LLC Interest(5)(8)(19)—4,972,8635,186,9350.8%—4,972,8635,186,935Capstone Nutrition, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 12.500%, 1.000% Floor, PIK(4)(5)(13)9/25/202023,545,55215,652,2799,524,1761.4%Senior Secured First Lien Term Loan LIBOR + 12.500%, 1.000% Floor, PIK(4)(5)(13)9/25/202010,588,3337,268,8394,282,9810.6%Senior Secured First Lien Term Loan LIBOR + 12.500%, 1.000% Floor, PIK(4)(5)9/25/20201,745,5101,745,5091,745,5100.3%Common Stock - 2,197.8 shares(5)(10)—9—0.0%Common Stock - 3,498.5 shares(5)(10)———0.0%Common Stock - 7,068.3 shares(5)(10)—300,002—0.0%35,879,39524,966,63815,552,667Charming Charlie LLCRetailSenior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(4)(12)4/24/20233,121,4703,121,4703,121,4700.5%Senior Secured First Lien Term Loan LIBOR + 10.000%, 1.000% Floor(4)4/24/20233,821,3502,737,6581,515,5470.2%Senior Secured First Lien Term Loan 20.000%5/15/2019182,617182,617182,6170.0%Common Stock - 34,923,249 shares(10)———0.0%7,125,4376,041,7454,819,634MCM 500 East Pratt Holdings, LLCBanking, Finance, Insurance & Real EstateEquity - 5,000,000 units(8)(10)—5,000,0005,000,0000.8%—5,000,0005,000,000MCM Capital Office Park Holdings LLCBanking, Finance, Insurance & Real EstateEquity - 7,500,000 units(8)(10)—7,500,00012,499,1251.9%—7,500,00012,499,125Medley Chiller Holdings LLCServices:  BusinessEquity - 85% interest(8)(10)(19)—8,627,5009,098,1571.4%—8,627,5009,098,157Nomida, LLCConstruction & BuildingEquity 5,400,000 units(8)(10)—2,289,760989,8200.1%—2,289,760989,820Sierra Senior Loan Strategy JV I LLCMulti-Sector HoldingsEquity - 87.5% ownership of SIC Senior Loan Strategy JV I LLC(8)(12)(19)92,050,00092,050,00082,515,86012.5%92,050,00092,050,00082,515,860





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Company(1)(2)IndustryType of InvestmentMaturityPar AmountCostFair Value% of Net Assets(3)TwentyEighty, Inc.Services: BusinessSenior Secured First Lien Term Loan LIBOR + 4.000%, 1.000% Floor, 4.000% PIK(4)(12)3/31/20206,975,0356,975,0356,975,0351.1%Senior Secured First Lien Term Loan 0.250%, 8.750% PIK(4)3/31/20206,687,3836,406,3646,497,4611.0%Senior Secured First Lien Term Loan LIBOR + 8.000%, 1.000% Floor(4)3/31/2020323,167321,972319,8700.0%Common Units - 58,098 units(10)——404,9430.1%13,985,58513,703,37114,197,309Total controlled/affiliated investments$186,634,331$165,006,50224.9%Money market fund – 3.7%Federated Institutional Prime Obligations Fund(18)Money Market 2.460%34,482,18934,482,18934,482,1895.2%Total money market fund$34,482,189$34,482,189$34,482,189Derivative instrument - long exposureNotional AmountUnrealized Appreciation/(Depreciation)Total return swap with Citibank, N.A. (Note 5)Total Return Swap78,776,760(6,524,904)Total derivative instrument - long exposure$78,776,760$(6,524,904)





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the Company's investments are domiciled in the United States except for Livingston International Inc., which is domiciled in Canada and AMMC CLO 22, Limited Series 2018-22A, Apidos CLO XXIV, Series 2016-24A, Dryden 38 Senior Loan Fund, Series 2015-38A, Dryden 43 Senior Loan Fund, Series 2016-43A, Dryden 49 Senior Loan Fund, Series 2017-49A, Magnetite XIX, Limited,Sound Point CLOXX, Ltd., and VOYA CLO 2016-2, Ltd.

|    |                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Unless otherwise indicated, all securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy.

|    |                                                                           
|--- | --------------------------------------------------------------------------
|(3) | Percentage is based on net assets of $662,080,199 as of December 31, 2018.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(4) | The interest rate on these loans is subject to a base rate plus 3 Month “3M” LIBOR, which at December 31, 2018 was 2.81%.

|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(5) | An affiliated fund that is managed by an affiliate of SIC Advisors also holds an investment in this security.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(6) | The interest rate on these loans is subject to a base rate plus 1 Month "1M" LIBOR, which at December 31, 2018 was 2.50%.

|    |                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities represent a fair value of $78,405,516 or 11.8% of net assets as of December 31, 2018 and are considered restricted.

|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | The investment is not a qualifying asset as defined under Section 55(a) of the Investment Company Act of 1940 (the "1940 Act"). Non-qualifying assets represent 21.7% of the Company's portfolio at fair value.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | This investment is in the equity class of a collateralized loan obligation (CLO"). The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions that have been made regarding expected prepayments.

|     |                                  
|---- | ---------------------------------
|(10) | Security is non-income producing.

|     |                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------
|(11) | A portion of this investment was sold via a participation agreement. The listed amount is the portion retained by the Company.

|     |                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | The investment has an unfunded commitment as of December 31, 2018. For further details, see Note 11. Fair value includes an analysis of the unfunded commitment.

|     |                                                                  
|---- | -----------------------------------------------------------------
|(13) | The investment was on non-accrual status as of December 31, 2018.

|     |                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) | Security is also held in the underlying portfolio of the total return swap with Citibank, N.A. (see Note 5). The Company's total exposure to The Imagine Group, LLC, and Keystone Acquisition Corp. is $13,739,430 or 2.1% and $8,760,522 or 1.3% of Net Assets as of December 31, 2018.

|     |                                                                    
|---- | -------------------------------------------------------------------
|(15) | Represents securities in Level 2 in the ASC 820 table (see Note 4).

|     |                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------
|(16) | The interest rate on these loans is subject to a base rate plus 2 Month "2M" LIBOR, which at December 31, 2018 was 2.61%.

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(17) | Affiliate Investments are defined by the 1940 Act as investments in companies in which the Company owns at least 5% but no more than 25% of the voting securities or we are under common control with such portfolio company. Control Investments are defined by the 1940 Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.

|     |                                                                    
|---- | -------------------------------------------------------------------
|(18) | Represents securities in Level 1 in the ASC 820 table (see Note 4).

|     |                                                                                               
|---- | ----------------------------------------------------------------------------------------------
|(19) | As a practical expedient, the Company uses NAV to determine the fair value of this investment.




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The following is a summary of the total return swap ("TRS") reference assets as of December 31, 2018 :


Company(1)IndustryType of InvestmentMaturityPar AmountNotionalAmount(2)Fair ValueUnrealized Appreciation/ (Depreciation)Asurion, LLCBanking, Finance, Insurance & Real EstateSenior Secured Second Lien Term Loans   LIBOR + 6.500%, 1.000% Floor(4)8/4/2025$2,945,455$3,006,205$3,004,363$(1,842)BW NHHC Holdco Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loans   LIBOR + 5.000%(4)5/15/20252,991,0002,946,1352,911,140(34,995)Comfort Holding, LLCConsumer Goods:  DurableSenior Secured First Lien Term Loans   LIBOR + 4.750%, 1.000% Floor(4)2/5/20247,889,9497,788,6647,386,965(401,699)CT Technologies Intermediate Holdings, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loans   LIBOR + 4.250%, 1.000% Floor(4)12/1/2021984,733965,038926,634(38,404)Deliver Buyer, Inc.Capital EquipmentSenior Secured First Lien Term Loans   LIBOR + 5.000%, 1.000% Floor(5)5/1/20245,996,8855,973,0545,996,88523,831Highline Aftermarket Acquisitions, LLCAutomotiveSenior Secured First Lien Term Loans   LIBOR + 3.500%, 1.000% Floor(4)4/26/20251,760,2941,755,8931,708,542(47,351)Iqor US Inc.Services:  BusinessSenior Secured First Lien Term Loans   LIBOR + 5.000%, 1.000% Floor(4)4/1/20214,474,7514,385,2564,001,188(384,068)Keystone Acquisition Corp.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loans   LIBOR + 5.250%, 1.000% Floor(5)5/1/20241,825,6221,825,6221,807,731(17,891)Kronos IncorporatedServices:  BusinessSenior Secured Second Lien Term Loans  LIBOR + 8.250%, 1.000% Floor(3)(5)11/1/20242,000,0001,980,0001,971,260(8,740)LifeMiles Ltd.Services:  ConsumerSenior Secured First Lien Term Loans   LIBOR + 5.500%, 1.000% Floor(3)(5)8/18/20224,455,0004,410,4504,469,70259,252Lightstone Holdco LLCUtilities:  ElectricSenior Secured First Lien Term Loans   LIBOR + 3.750%, 1.000% Floor(4)1/30/2024224,885221,550212,329(9,221)Lightstone Holdco LLCUtilities:  ElectricSenior Secured First Lien Term Loans   LIBOR + 3.750%, 1.000% Floor(4)1/30/20244,187,0724,124,9933,953,308(171,685)Midcoast Energy LLCEnergy:  Oil & GasSenior Secured First Lien Term Loans   LIBOR + 5.500%, 1.000% Floor(5)8/1/20251,000,000990,000970,000(20,000)Midwest Physician Administrative Services, LLCHealthcare & PharmaceuticalsSenior Secured Second Lien Term Loans   LIBOR + 7.000%, 0.750% Floor(4)8/15/20253,950,0003,910,5003,863,890(46,610)Preferred Proppants, LLCEnergy:  Oil & GasSenior Secured First Lien Term Loans   LIBOR + 5.750%, 1.000% Floor(5)7/27/20205,887,9695,578,8512,060,789(3,518,062)Project Silverback Holdings Corp.High Tech IndustriesSenior Secured First Lien Term Loans   LIBOR + 3.500%, 1.000% Floor(4)8/21/20244,950,0004,937,6254,421,984(515,641)Sungard Availability Services Capital, Inc.Services:  BusinessSenior Secured First Lien Term Loans   LIBOR + 7.000%, 1.000% Floor(4)9/30/20215,682,0995,659,9934,801,374(858,619)Tensar CorporationCapital EquipmentSenior Secured First Lien Term Loans   LIBOR + 4.750%, 1.000% Floor(5)7/9/20216,900,1876,831,1856,710,432(120,753)The Imagine Group, LLCMedia:  Advertising, Printing & PublishingSenior Secured First Lien Term Loans   LIBOR + 4.750%, 1.000% Floor(4)6/21/20225,910,0005,850,9005,509,302(341,598)United Road Services, Inc.Transportation:  CargoSenior Secured First Lien Term Loans   LIBOR + 5.250%, 1.000% Floor(4)9/1/20241,891,5001,882,0431,880,151(1,892)YRC Worldwide Inc.Transportation:  CargoSenior Secured First Lien Term Loans   LIBOR + 8.500%, 1.000% Floor(4)7/26/20223,697,3433,752,8033,458,569(294,234)Total$79,604,744$78,776,760$72,026,538$(6,750,222)Total accrued interest income, net of expenses225,318Total unrealized depreciation on TRS$(6,524,904)





|    |                                                    
|--- | ---------------------------------------------------
|(1) | All investments are domiciled in the United States.

|    |                                                                     
|--- | --------------------------------------------------------------------
|(2) | Represents the cost of an investment in which the TRS is referenced.

|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(3) | The investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act.

|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which at December 31, 2018 was 2.50%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which at December 31, 2018 was 2.81%. The interest rate is subject to a minimum LIBOR floor.

See accompanying notes to consolidated financial statements.





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SIERRA INCOME CORPORATION


Notes to Consolidated Financial Statements


September 30, 2019


(unaudited)





Note 1. Organization


Sierra Income Corporation (the “Company”) was incorporated under the general corporation laws of the State of Maryland on June 13, 2011 and formally commenced operations on April 17, 2012. The Company is an externally managed, non-diversified closed-end management investment company 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 externally managed by SIC Advisors LLC (“SIC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). SIC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm (NYSE: MDLY), which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. The term “Medley” refers to the collective activities of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates. The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s fiscal year-end is December 31 st .





On April 17, 2012, the Company successfully reached its minimum escrow requirement and officially commenced operations by issuing 1,108,033 shares of common stock to SIC Advisors for gross proceeds of $10,000,000. On July 2, 2018, the Company’s board of directors determined to terminate the Company’s offering effective as of July 31, 2018. As of September 30, 2019 , the Company has sold a total of 101,330,757 shares of common stock, which includes shares issued as part of the distribution reinvestment plan (see Note 13), for total gross proceeds of $1.0 billion, which includes the shares sold to SIC Advisors. The proceeds from the issuance of common stock are presented in the Company’s Consolidated Statements of Changes in Net Assets and Consolidated Statements of Cash Flows and are presented net of selling commissions and dealer manager fees.





On August 15, 2013, the Company formed Arbor Funding LLC ("Arbor"), a wholly-owned financing subsidiary.





On June 18, 2014, the Company formed Alpine Funding LLC ("Alpine"), a wholly-owned financing subsidiary.





The Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for U.S. federal income tax purposes. Taxable Subsidiaries allow the Company to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.





The Company’s investment objective is to generate current income, and to a lesser extent, long-term capital appreciation. The Company intends to meet its investment objective by investing primarily in the debt of privately owned U.S. companies with a focus on senior secured debt, second lien debt and, to a lesser extent, subordinated debt. The Company will originate transactions sourced through SIC Advisors’ direct origination network, and also expects to acquire debt securities through the secondary market. The Company may make equity investments in companies that it believes will generate appropriate risk adjusted returns, although it does not expect such investments to be a substantial portion of the portfolio.





Agreements and Plan of Mergers


On August 9, 2018, the Company entered into definitive agreements to acquire Medley Capital Corporation (NYSE/TASE: MCC, MCC) and Medley Management Inc. (NYSE:MDLY, "MDLY"). Pursuant to the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and the Company (the "MCC Merger Agreement"), MCC would, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company (the "Combined Company") in the merger (the "MCC Merger").Under the MCC Merger, each share of MCC’s common stock issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC’s common stock held by MCC, the  Company or their respective wholly owned subsidiaries, would be converted into the right to receive 0.8050 shares of the Company’s common stock.





Simultaneously, pursuant to the Agreement and Plan of Merger (the "MDLY Merger Agreement" together with the MCC Merger Agreement, the “Merger Agreements”), dated as of August 9, 2018, by and among MDLY, the Company, and Sierra Management, Inc., a wholly owned subsidiary of the Company ("Merger Sub"), MDLY would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the Merger (the MDLY Merger together with the MCC Merger, the "Mergers"), and MDLY’s existing asset management business would continue to operate as a wholly owned subsidiary of the Combined Company. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the





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MDLY Merger Agreement) and shares of MDLY Class A common stock held by MDLY, the Company or their respective wholly owned subsidiaries, would be converted into the right to receive (i) 0.3836 shares of our common stock; plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY's stockholders would have the right to receive certain dividends and/or other payments.





On July 29, 2019, the Company entered into amended and restated definitive agreements with MCC and MDLY.  Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and the Company, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock, other than shares of MCC’s common stock held by MCC, the Company or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of the Company’s common  stock if the attorneys’ fees of plaintiffs’ counsel and litigation expenses paid or incurred by plaintiffs’ counsel or advanced by plaintiffs in connection with the consolidated actions pending in the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM (the “MCC Stockholder Action” and such fees and expenses, the “Plaintiff Attorney Fees”) are less than or equal to $10,000,000, (ii) 0.66 shares of the Company’s common  stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of the Company’s common  stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000; provided that cash will be paid in lieu of fractional shares of the Company’s common  stock issuable in the MCC Merger.





Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, the Company, and Merger Sub, pursuant to which MDLY will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A Common Stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than shares of MDLY Class A Common Stock held by MDLY, the Company or their respective wholly owned subsidiaries (the “Excluded MDLY Shares”) and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger effective time, by any person other than a Medley LLC Unitholder (as defined below), will be exchanged for (i) 0.2668 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.96 per share. In addition, in the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger effective time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger effective time, by holders of the issued and outstanding limited liability company interests of Medley LLC (the “Medley LLC Units” and, holders of the Medley LLC Units at any time on or after July 29, 2019, the “Medley LLC Unitholders”) will be exchanged for (i) 0.2072 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.66 per share.





As a result of the foregoing, the investment management function relating to the operation of the Combined Company will be internalized. Pursuant to the terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If the Mergers are, or only the MDLY Merger is consummated, the Company’s common stock will be listed on the New York Stock Exchange under the symbol "SRA, with such listing expected to be effective as of the closing date of the Mergers or only the MDLY Merger, as applicable. If the MCC Merger is also consummated, the Company’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the Mergers.





Set forth below is a description of the Decision (as defined below), which should be read in the context of the impact that the Decision and corresponding Settlement (as defined below).





On February 11, 2019, a purported stockholder class action was commenced in the Delaware Court of Chancery by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, the Company, MCC, MCC Advisors LLC, Medley Group LLC, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC’s stockholders in connection with the MCC Merger, and that MDLY, the Company, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the MCC Merger Agreement. The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Delaware Court of Chancery denied FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct





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a “shopping process” for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that the Company aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC’s stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Delaware Court of Chancery, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Delaware Court of Chancery granted a stipulation consolidating the MCC Stockholder Action and the Altman Action, designating the amended complaint in the MCC Stockholder Action as the operative complaint, and designating the plaintiffs in the MCC Stockholder Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.





On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the MCC Stockholder Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019, MDLY entered into a Stipulation of Settlement (and, as amended, on August 8, 2019, the “Stipulation”) by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the MCC Stockholder Action.





The Stipulation provides for the settlement of all claims brought against the Medley Parties in the MCC Stockholder Action. Under the Stipulation, MCC agreed to seek to obtain the agreement and/or consent of the Company to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of the Company’s stock, with the number of shares of the Company’s stock to be calculated using the pro forma NAV reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain actions, including consenting to certain amendments to the Merger Agreements That have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.





The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the MCC Stockholder Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the MCC Stockholder Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.





The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision.





The Stipulation is subject to the approval of the Delaware Court of Chancery. On September 26, 2019, FrontFour filed a motion seeking an order approving the Stipulation, and also moved for the Delaware Court of Chancery to award plaintiffs’ counsel attorneys’ fees in the amount of $22 million and expenses in the amount of $420,334.97 (the “Fee Application”).  The Delaware Court of Chancery held  a hearing to consider the Stipulation and the Fee Application on October 24, 2019.  The parties submitted supplemental briefing with respect to the Stipulation on October 31, 2019.  To date, the Delaware Court of Chancery has not issued a decision with respect to approval of the Stipulation or the Fee Application.








Note 2. Significant Accounting Policies


Basis of Presentation


The Company follows the accounting and reporting guidance in the Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 946 - Financial Services, Investment Companies ("ASC 946"). The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles





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("GAAP") and include the accounts of the Company and its wholly-owned subsidiaries, Alpine, Arbor, and the Taxable Subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All references made to the "Company," "we," and "us" herein include Sierra Income Corporation and its consolidated subsidiaries, except as stated otherwise. Additionally, the accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited interim financial results contain all adjustments and reclassifications, which are of a normal recurring nature, that are necessary for the fair presentation of financial statements for the periods presented. Therefore, this Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2018 , which was filed with the U.S. Securities and Exchange Commission ("SEC") on April 1, 2019. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2019 .





Cash and Cash Equivalents


The Company considers cash equivalents to be highly liquid investments or investments with original maturities of three months or less. Cash and cash equivalents include deposits in money market mutual funds. The Company deposits its cash in major United States financial institutions which, at times, may be in excess of the Federal Deposit Insurance Corporation insurance limits.





Offering Costs


Offering costs incurred directly by the Company are expensed in the period incurred.





Use of Estimates in the Preparation of Financial Statements


The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





Deferred Financing Costs


Financing costs, incurred in connection with the Company’s credit facilities (see Note 6), are deferred and amortized over the life of each corresponding facility.





Deferred Transaction Costs


Transaction costs, incurred in connection with the Mergers by and among the Company, MCC, MDLY and Merger Sub (see Note 1), are deferred until the closing or termination of the Mergers.





Indemnification


In the normal course of business, the Company enters into contractual agreements that provide general indemnifications against losses, costs, claims and liabilities arising from the performance of individual obligations under such agreements. The Company has had no claims or payments pursuant to such agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on management’s experience, the Company expects the risk of loss to be remote.





Revenue Recognition


Interest income, adjusted for amortization of premiums and accretion of discounts, is recorded on an accrual basis. The Company records amortized or accreted discounts or premiums as interest income using the effective interest method. Dividend income, which represents dividends from equity investments and distributions from subsidiaries, if any, is recognized on an accrual basis to the extent that the Company expects to collect such amount.





Fee income associated with investments in portfolio companies is recognized as income in the period that the Company becomes entitled to such fees. Other fees related to loan administration requirements are capitalized as deferred revenue and recorded into income over the respective period.





Prepayment penalties received by the Company for debt instruments paid back to the Company prior to the maturity date are recorded as income upon receipt.





The Company holds debt investments that contain a payment-in-kind (PIK) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on an accrual basis to





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the extent such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. For the three and nine months ended September 30, 2019 , the Company earned PIK interest of $1,817,434 and $4,137,513 , respectively.  For the three and nine months ended September 30, 2018 , the Company earned PIK interest of $922,929 and $2,366,828 , respectively.





Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized. For the three and nine months ended September 30, 2019 , the Company recognized realized losses on investments of $10,680,838 and $23,052,565 , respectively, related to certain non-cash restructuring transactions, which are recorded on the Consolidated Statements of Operations as a component of net realized gain/(loss) from non-controlled/non-affiliated investments and/or net realized gain/(loss) from controlled/affiliated investments.  For the three and nine months ended September 30, 2018 , the Company recognized realized losses on investments of $18,551,535 and $45,332,926 , respectively, related to certain non-cash restructuring transactions, which are recorded on the Consolidated Statements of Operations as a component of net realized gain/(loss) from non-controlled/non-affiliated investments and/or net realized gain/(loss) from controlled/affiliated investments.The Company reports changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation/(depreciation) on investments in the Consolidated Statements of Operations. For total return swap transactions (see Note 5), periodic payments are received or made at the end of each settlement period, but prior to settlement are recorded as realized gains or losses on total return swap in the Consolidated Statements of Operations.





Management reviews all loans that become 90 days or more past due on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on management's designation of non-accrual status. Accrued interest is generally reserved when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Loans on non-accrual status are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although the Company may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. As of September 30, 2019 , nine portfolio companies were on non-accrual status with a cost of $76,691,668 , or 9.2% of the cost of the Company's portfolio, and a fair value of $24,424,986 , or 3.3% of the fair value of the Company's portfolio. As of December 31, 2018 , seven portfolio companies were on non-accrual status with a cost of $87,597,395 , or 8.7% of the cost of the Company's portfolio, and a fair value of $41,109,398 , or 4.5% of the fair value of the Company's portfolio.





Interest income from investments in the “equity” class of a collateralized loan obligation ("CLO") security (typically subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets . The Company monitors the expected cash flows from these investments, including the expected residual payments, and the effective yield is determined and updated periodically. Any difference between the cash distribution received and the amount calculated pursuant to the effective interest method is recorded as an adjustment to the cost basis of such investments.





Investment Classification


The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, the Company would be deemed to “control” a portfolio company if it owns more than 25% of its outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company. The Company refers to such investments in portfolio companies that it “controls” as “Controlled Investments.” Under the 1940 Act, the Company would be deemed to be an “Affiliated Person” of a portfolio company if it owns at least 5%, but no more than 25%, of the portfolio company’s outstanding voting securities or if it is under common control with such portfolio company. The Company refers to such investments in Affiliated Persons as “Affiliated Investments.”





Valuation of Investments


The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.








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Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The Company weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the Company’s board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.





Investments in investment companies are valued at fair value. Fair values are generally determined utilizing the net asset value ("NAV") supplied by, or on behalf of, management of each investment company, which is net of management and incentive fees or allocations charged by the investment company and is in accordance with the "practical expedient", as defined by ASC 820. NAVs received by, or on behalf of, management of each investment company are based on the fair value of the investment company's underlying investments in accordance with policies established by management of each investment company, as described in each of their financial statements and offering memorandum.





The methodologies utilized by the Company in estimating the fair value of its investments categorized as Level 3 generally fall into the following two categories:





|  |                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | The “Market Approach” uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities, or a group of assets and liabilities, such as a business.

|  |                                                                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | The “Income Approach” converts future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. When the Income Approach is used, the fair value measurement reflects current market expectations about those future amounts.




The Company uses third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, the Company uses a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of the Company’s loans is determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, the Company uses a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, the Company weighs some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value.





The methodologies and information that the Company utilizes when applying the Market Approach for performing investments includes, among other things:





|  |                                                                             
|- | ----------------------------------------------------------------------------
|• | valuations of comparable public companies (“Guideline Comparable Approach”);

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|- | ------------------------------------------------------------------------------------------
|• | recent sales of private and public comparable companies (“Guideline Comparable Approach”);

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|- | ------------------------------------------------------------------------------------------------------------------
|• | recent acquisition prices of the company, debt securities or equity securities (“Recent Arms-length Transaction”);

|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
|• | external valuations of the portfolio company, offers from third parties to buy the company (“Estimated Sales Proceeds Approach”);

|  |                                                                                                  
|- | -------------------------------------------------------------------------------------------------
|• | subsequent sales made by the company of its investments (“Expected Sales Proceeds Approach”); and

|  |                                          
|- | -----------------------------------------
|• | estimating the value to potential buyers.




The methodologies and information that the Company utilizes when applying the Income Approach for performing investments includes:





|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|• | discounting the forecasted cash flows of the portfolio company or securities (“Discounted Cash Flow” or “DCF” Approach); and

|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|• | Black-Scholes model or simulation models or a combination thereof (Income Approach – Option Model) with respect to the valuation of warrants.







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For non-performing investments, the Company may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. The Company may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.





Over-the-counter derivative contracts, such as total return swaps (see Note 5) are fair valued using models that measure the change in fair value of reference assets underlying the swaps offset against any fees payable to the swap counterparty. The fair values of the reference assets underlying the swaps are determined using similar methods as described above for debt and equity investments where the Company also invests directly in such assets.





The Company undertakes a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:





|  |                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------
|• | the quarterly valuation process begins with each portfolio investment being initially valued by the Company's valuation professionals;

|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|• | preliminary valuation conclusions are then documented and discussed with senior management; and

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | an independent valuation firm engaged by the Company’s board of directors prepares an independent valuation report for approximately one-third of the portfolio investments each quarter on a rotating quarterly basis on non-fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms.




In addition, all of the Company’s investments are subject to the following valuation process:





|  |                                                                              
|- | -----------------------------------------------------------------------------
|• | management reviews preliminary valuations and its own independent assessment;

|  |                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | the independent audit committee of the Company’s board of directors reviews the preliminary valuations of senior management and independent valuation firms; and

|  |                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | the Company’s board of directors discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of SIC Advisors, the respective independent valuation firms and the audit committee.




The Company’s investments in subordinated notes are carried at fair value, which is based on a discounted cash flow model. The discounted cash flow model models both the underlying collateral (assets) and the liabilities of the CLO capital structure. The discounted cash flow model uses a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows of the assets. The discounted cash flow model distributes the asset cash flows to the liability structure based on the payment priorities and discounts them back using appropriate market discount rates based on discount rates for comparable CLOs. The assumptions are based on available market data as well as management estimates. Additional data is used to validate the results from the discounted cash flow method, such as analysis of relevant data observed in the CLO market, review of quotes, where available, recent acquisitions and observable transactions in the subordinated notes, among other factors.





Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.





Fair Value of Financial Instruments


The carrying amounts of certain of the Company’s financial instruments, including cash and accounts payable and accrued expenses, approximate fair value due to their short-term nature. The carrying amounts and fair values of the Company’s long-term obligations are discussed in Note 4.





U.S. Federal Income Taxes


The Company has elected, and intends to qualify annually, to be treated as a RIC under Subchapter M of the Code. In order to continue to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of the sum of its investment company taxable income ("ICTI") including PIK, as defined by the Code, and net tax-exempt interest income (which is the excess of the Company’s gross tax-exempt interest income over certain disallowed deductions) for each taxable year in order to be eligible for tax treatment under Subchapter M of the Code. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of





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current year dividend distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.





The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its ordinary income in any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year. To the extent the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S. federal excise tax purposes, the Company accrues U.S. federal excise tax, if any, on estimated excess taxable income as taxable income is earned. For the year ended December 31, 2018 , the Company distributed at least 98% of its ordinary income and 98.2% of its capital gains, and as such, there was no excise tax accrual or expense recorded.





The Taxable Subsidiaries accrue income taxes payable based on the applicable corporate rates on the unrealized gains generated by the investments held by the Taxable Subsidiaries. As of September 30, 2019 and December 31, 2018 , the Company recorded a deferred tax liability of $ 442,842 and $ 0 , respectively, on the Consolidated Statements of Assets and Liabilities. The change in deferred tax liabilities is included as a component of net realized and unrealized gain/(loss) on investments on the Consolidated Statements of Operations.





ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount ("OID"), the Company must include in ICTI each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as PIK interest income and interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any OID or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.





Although the Company files federal and state tax returns, the Company's major tax jurisdiction is the United States federal jurisdiction. The Company’s federal and state tax returns for the prior three fiscal years remain open, subject to examination by the Internal Revenue Service.





The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC 740”). ASC 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current period. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations. There were no interest or penalties due to material uncertain income tax positions at September 30, 2019 and 2018 . For the nine months ended September 30, 2019 the company recognized $828,611 relating to state income taxes and $2,000,000 relating to federal income taxes as a result of the sale of Medley Chiller Holdings LLC. These taxes are recorded on the Consolidated Statements of Operations as a component of net realized gain/(loss) from controlled/affiliated investments.





The following table reflects, for U.S. federal income tax purposes, the sources of the cash distributions that the Company has paid on its common stock for the nine months ended September 30, 2019 and 2018 :


Nine Months Ended September 30, 2019Nine Months Ended September 30, 2018Source of DistributionDistributionAmountPercentageDistributionAmountPercentageOrdinary income$47,902,108100.0%$46,592,535100.0%Net realized gain————Return of capital————Distributions on a tax basis$47,902,108100.0%$46,592,535100.0%








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As of September 30, 2019 , for federal income tax purposes, the aggregate gross unrealized appreciation and the aggregate gross unrealized depreciation are $16,480,016 and $115,579,450, respectively. As of September 30, 2019 , net unrealized depreciation is $99,099,434 based on a tax basis cost of $836,050,091.





Segments


The Company invests in various industries. The Company separately evaluates the performance of each of its investment relationships. However, because each of these investment relationships has similar business and economic characteristics, they have been aggregated into a single investment segment. All applicable segment disclosures are included in or can be derived from the Company’s consolidated financial statements (See Note 3).





Company Investment Risk, Concentration of Credit Risk, and Liquidity Risk


SIC Advisors has broad discretion in making investments for the Company. Investments generally consist of debt instruments that may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Company’s activities and the value of its investments. In addition, the value of the Company’s portfolio may fluctuate as the general level of interest rates fluctuates.





The value of the Company’s investments in loans and bonds may be detrimentally affected to the extent, among other things, that a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan, observable secondary or primary market yields for similar instruments issued by comparable companies increase materially or risk premiums required in the market between smaller companies, such as the Company’s borrowers, and those for which market yields are observable, increase materially.





The Company’s assets may, at any time, include securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.





Recent Accounting Pronouncements





In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“ASU 2018-13”) (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance is effective for the Company on January 1, 2020 and early adoption is permitted. The Company is currently assessing the potential impact of this guidance to the fair value disclosures.





In October 2018, the SEC adopted amendments (the Amendments) to certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, U.S. GAAP requirements, or changes in the information environment. In part, the Amendments require an investment company to present distributable earnings in total, rather than showing the three components of distributable earnings. The compliance date for the Amendments is for all filings on or after November 5, 2018. Management has adopted the Amendments and included the required disclosures in the Company’s consolidated financial statements.





In October 2018, the SEC adopted an amendment requiring registrants to report a reconciliation of changes in stockholders’ equity, either as a separate statement or in the notes, and the analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed. The compliance date for the amendment is for all interim period filings on or after November 5, 2018. Management has adopted the amendment and included the required reconciliation in the Company’s Consolidated Statement of Changes in Net Assets.





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Note 3. Investments


The following table shows the amortized cost and the fair value of the Company’s portfolio investments as of September 30, 2019 :


Amortized CostPercentageFair ValuePercentageSenior secured first lien term loans$419,330,17850.1%$365,464,03249.5%Senior secured second lien term loans158,038,53918.8142,716,81019.4Senior secured first lien notes15,965,0001.915,095,0002.0Subordinated notes72,058,2588.662,478,0398.5Sierra Senior Loan Strategy JV I LLC92,050,00011.073,409,35910.0Equity/warrants80,168,1379.677,787,41710.6Total$837,610,112100.0%$736,950,657100.0%





The following table shows the amortized cost and the fair value of the Company’s portfolio investments as of December 31, 2018 :


Amortized CostPercentageFair ValuePercentageSenior secured first lien term loans$532,302,57352.9%$479,593,27952.0%Senior secured second lien term loans174,258,97117.3169,923,54718.4Senior secured first lien notes37,930,3083.835,495,0933.8Subordinated notes92,050,0009.282,515,8608.9Sierra Senior Loan Strategy JV I LLC77,930,0627.766,187,8577.2Equity/warrants91,194,9489.189,765,1269.7Total$1,005,666,862100.0%$923,480,762100.0%








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The following table shows the composition of the Company’s portfolio investments by industry classification at amortized cost and fair value as of September 30, 2019 :


Industry ClassificationAmortized CostPercentageFair ValuePercentageServices: Business$128,897,87015.4%$101,604,64913.8%Multi-Sector Holdings162,902,04519.4%134,674,30818.3%High Tech Industries93,605,11211.2%88,034,98611.9%Healthcare & Pharmaceuticals58,131,5496.9%56,763,8577.7%Banking, Finance, Insurance & Real Estate42,741,2415.1%49,008,2356.7%Construction & Building44,977,5645.4%41,879,4745.7%Aerospace & Defense34,875,1624.2%34,492,1444.7%Wholesale34,545,0404.1%28,872,4783.9%Hotel, Gaming & Leisure21,409,9702.6%21,310,7302.9%Automotive26,947,8363.2%24,397,6603.3%Consumer Goods: Durable22,948,7502.7%24,283,5773.3%Capital Equipment17,667,2932.1%17,221,8682.3%Containers, Packaging & Glass16,445,0182.0%15,788,7472.1%Services:  Consumer15,575,0001.9%15,575,0002.1%Energy: Oil & Gas21,875,2222.6%10,300,0821.4%Transportation: Cargo13,788,1101.6%13,754,0491.9%Chemicals, Plastics & Rubber11,426,7021.4%10,979,0421.5%Media: Diversified & Production14,279,2581.7%10,524,2911.4%Forest Products & Paper6,478,1730.8%7,073,9321.0%Transportation: Consumer6,984,6660.8%6,833,8050.9%Environmental Industries5,032,3330.6%6,425,4920.9%Media: Advertising, Printing & Publishing8,865,8521.1%5,116,7150.7%Consumer Goods: Non-durable4,925,0000.6%4,682,1970.6%Metals & Mining3,364,2360.4%3,467,1150.5%Media: Broadcasting & Subscription10,496,3421.3%2,195,4530.3%Retail8,424,7681.0%1,690,7710.2%Total$837,610,112100.0%$736,950,657100.0%








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The following table shows the composition of the Company’s portfolio investments by industry classification at amortized cost and fair value as of December 31, 2018 :


Industry ClassificationAmortized CostPercentageFair ValuePercentageServices:  Business$168,346,87816.7%$156,398,95716.9%Multi-Sector Holdings169,027,68216.8147,751,33716.0Healthcare & Pharmaceuticals87,119,3138.775,750,1458.2High Tech Industries78,073,8427.872,744,7127.9Aerospace & Defense55,819,5565.655,177,3036.0Banking, Finance, Insurance & Real Estate48,224,4964.853,079,9835.7Construction & Building51,971,7815.250,606,6345.5Wholesale39,508,0903.942,859,1214.6Hotel, Gaming & Leisure34,674,4783.434,305,5633.7Transportation:  Cargo26,079,0182.625,736,2612.8Automotive27,246,7382.725,711,8382.8Consumer Goods:  Durable23,711,2502.423,617,2932.6Chemicals, Plastics & Rubber22,340,7682.222,245,2362.4Containers, Packaging & Glass17,132,0821.716,165,0411.8Media: Advertising, Printing & Publishing16,288,8151.615,298,9161.7Energy:  Oil & Gas25,566,9162.514,779,3431.6Media: Diversified & Production15,247,0001.514,321,3991.6Services:  Consumer11,931,4291.211,801,3891.3Capital Equipment11,187,5001.111,187,5001.2Retail11,672,8491.28,605,1490.9Forest Products & Paper7,476,0450.77,690,1170.8Consumer Goods:  Non-durable8,767,5560.97,522,9880.8Transportation:  Consumer7,402,3670.77,402,3670.8Metals & Mining19,743,2602.06,925,6150.7Environmental Industries4,906,7210.55,164,0680.6Media: Broadcasting & Subscription10,372,2071.05,053,5470.5Beverage & Food4,965,3080.54,742,1000.5Telecommunications862,9170.1836,8400.1Total$1,005,666,862100.0%$923,480,762100.0%





See the Consolidated Schedule of Investments for industry classifications of the underlying total return swap ("TRS") reference assets as December 31, 2018 . There were no underlying TRS assets as of September 30, 2019 .





The following table shows the composition of the Company’s portfolio investments by geography classification at fair value as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018GeographyFair ValuePercentageFair ValuePercentageUnited States$675,685,70891.7%$853,885,72992.4%Cayman Islands61,264,9498.365,235,4777.1Canada——4,359,5560.5Total$736,950,657100.0%$923,480,762100.0%





Transactions with Controlled/Affiliated Companies





During the nine months ended September 30, 2019 and 2018 , the Company had investments in portfolio companies designated as controlled/affiliated investments under the 1940 Act. Transactions with controlled/affiliated investments were as follows:











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Name of Investment(3)Type of InvestmentFair Value at December 31, 2018Purchases/(Sales)of InvestmentsTransfersIn/(Out)of InvestmentsNet change inunrealizedappreciation/(depreciation)Realized Gain/(Loss)Fair Value at September 30, 2019IncomeEarned1888 Industrial Services, LLCRevolving Credit Facility$943,344$566,007$—$—$—$1,509,351$66,903Senior Secured First Lien Term Loan3,144,481————3,144,481180,516Senior Secured First Lien Term Loan6,005,623(159,607)—(3,892,078)—1,953,938—Senior Secured First Lien Term Loan—401,814———401,8147,769Senior Secured First Lien Term Loan—78,38478,384187Membership Units———————Access Media Holdings, LLCSenior Secured First Lien Term Loan5,141,74735,935—(2,982,229)—2,195,453—Common Stock———————Preferred Equity———————Preferred Equity———————Preferred Equity(88,200)88,200—————Caddo Investors Holdings 1 LLCEquity5,186,93554,619—390,246—5,631,800—Capstone Nutrition, Inc.Senior Secured First Lien Term Loan9,524,176(1,413,538)6,128,103(14,238,741)——Senior Secured First Lien Delayed Draw  Term Loan4,282,981(635,662)—2,985,858(6,633,177)——Senior Secured First Lien Incremental Delayed Draw Term Loan1,745,510(1,745,510)————319,581Common Stock———9(9)——Common Stock———————Common Stock———300,002(300,002)——Charming Charlie LLCSenior Secured First Lien Term Loan3,121,470——(3,380,178)—(258,708)—Senior Secured First Lien Term Loan1,515,547(115,404)—(1,400,143)———Senior Secured First Lien Term Loan182,617——(45,654)—136,96327,697Senior Secured First Lien Term Loan—1,034,831—(304,362)—730,46991,608Common Stock———————Dynamic Energy Services International LLCRevolving Credit Facility—40,219246,677286,89654,451Senior Secured First Lien Term Loan——9,828,831(3,783,319)(5,379,806)665,706—Equity———————Kemmerer Operations, LLCSenior Secured First Lien Term Loan—1,694,915—71,596—1,766,51172,332Senior Secured First Lien Delayed Draw Term Loan—706,604———706,60428,933Equity—962,717—31,283—994,000—MCM 500 East Pratt Holdings, LLCEquity5,000,000——2,100,000—7,100,000367,254MCM Capital Office Park Holdings LLCEquity12,499,125——(724,125)—11,775,000294,935





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Name of Investment(3)Type of InvestmentFair Value at December 31, 2018Purchases/(Sales)of InvestmentsTransfersIn/(Out)of InvestmentsNet change inunrealizedappreciation/(depreciation)Realized Gain/(Loss)Fair Value at September 30, 2019IncomeEarnedMedley Chiller Holdings LLCEquity9,098,157(20,531,808)—(470,657)11,904,308—557,697Nomida LLC(1)Equity989,820(771,420)—1,299,940(1,518,340)——Sierra Senior Loan Strategy JV I LLC(2)Equity82,515,860——(9,106,501)—73,409,3596,037,500TwentyEighty, Inc.Senior Secured First Lien Term Loan6,975,035(6,975,035)————427,674Senior Secured First Lien Term Loan6,497,461(6,521,105)—(91,097)114,741—631,186Senior Secured First Lien Term Loan319,870(322,723)—2,102751—18,846Senior Secured First Lien Term Loan———————Equity404,943——5,889,975—6,294,918—Total$165,006,502$(33,527,567)$10,075,508$(6,981,229)$(16,050,275)$118,522,939$9,185,069





Name of Investment(3)Type of InvestmentFair Value at December 31, 2017Purchases/(Sales)of InvestmentsTransfersIn/(Out)of InvestmentsNet change inunrealizedappreciation/(depreciation)Realized Gain/(Loss)Fair Value at September 30, 2018IncomeEarned1888 Industrial Services, LLCSenior Secured First Lien Term Loan$188,669$1,069,123$—$—$—$1,257,792$43,755Senior Secured First Lien Term Loan3,144,481————3,144,481169,519Senior Secured First Lien Term Loan7,078,964699,392—(874,530)—6,903,826569,786Membership Units———————Access Media Holdings, LLCSenior Secured First Lien Term Loan7,390,58731,820—(2,280,663)—5,141,744—Common Stock———————Preferred Equity———————Preferred Equity———————Preferred Equity130,200320,600—(602,000)—(151,200)—Caddo Investors Holdings 1 LLCEquity—4,975,000———4,975,00055,243Capstone Nutrition, Inc.Senior Secured First Lien Term Loan12,042,30132,381—(2,581,434)—9,493,248—Senior Secured First Lien Term Loan5,210,693399,652—(1,341,273)—4,269,072—Senior Secured First Lien Term Loan—1,682,040———1,682,040197,424Common Stock———————Common Stock———————Common Stock———————Charming Charlie LLCSenior Secured First Lien Term Loan—3,082,088———3,082,088194,997





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Name of Investment(3)Type of InvestmentFair Value at December 31, 2017Purchases/(Sales)of InvestmentsTransfersIn/(Out)of InvestmentsNet change inunrealizedappreciation/(depreciation)Realized Gain/(Loss)Fair Value at September 30, 2018IncomeEarnedSenior Secured First Lien Term Loan—2,602,031—(1,086,565)—1,515,466202,465Senior Secured First Lien Term Loan—182,617———182,617406Common Stock——————MCM 500 East Pratt Holdings, LLCEquity455,8714,544,129———5,000,000377,150MCM Capital Office Park Holdings LLCEquity7,500,000——1,875,000—9,375,000292,208Medley Chiller Holdings LLCEquity—8,627,500—(128,613)—8,498,887—Nomida LLC(1)Senior Secured First Lien Term Loan2,935,000(2,935,000)————71,564Equity5,400,000(1,326,000)—(856,545)—3,217,455—Sierra Senior Loan Strategy JV I LLC(2)Equity79,515,51312,233,750—(4,826,019)—86,923,2446,037,499TwentyEighty, Inc.Senior Secured First Lien Term Loan6,696,055206,883—(90,429)—6,812,509410,555Senior Secured First Lien Term Loan5,501,849575,335—(230,898)—5,846,286427,495Senior Secured First Lien Term Loan3,098,085(2,733,735)—(11,886)7,969360,433179,436Equity———————Total$146,288,268$34,269,606$—$(13,035,855)$7,969$167,529,988$9,229,502








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Nomida, LLC ("Nomida") is a non-public real estate investment formed by the Company to purchase and develop a residential property. The Company is the sole equity shareholder of Nomida and has provided 100% of the debt financing to the entity. The Company is Nomida’s sole member responsible for Nomida’s daily operations. In addition, the Chief Financial Officer and Secretary of the Company also serves as President of Nomida. The assets of Nomida are comprised of a residential development property in the city of Chicago, IL and the proceeds of the loan from the Company; the liabilities of Nomida consist of the loan payable to the Company. As ofSeptember 30, 2019, the investment has been realized.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The Company and Great American Life Insurance Company ("GALIC") are the members of Sierra Senior Loan Strategy JV I LLC ("Sierra JV"), a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members of Sierra JV make capital contributions as investments by Sierra JV are completed, and all portfolio and other material decisions regarding Sierra JV must be submitted to Sierra JV’s board of managers, which is comprised of an equal number of members appointed by each of the Company and GALIC. Approval of Sierra JV’s board of managers requires the unanimous approval of a quorum of the board of managers, with a quorum consisting of equal representation of members appointed by each of the Company and GALIC. Because management of Sierra JV is shared equally between the Company and GALIC, the Company does not have operational control over the Sierra JV for purposes of the 1940 Act or otherwise.

|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(3) | The par amount and additional detail are shown in the consolidated schedule of investments




Purchases/(sales) of investments in controlled/affiliated investments are included in the purchases and sales presented on the Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 . Transfers in/(out) of controlled/affiliated represents the fair value for the month an investment became or was removed as a controlled/affiliates investment. Income received from controlled/affiliated investments is included in total investment income on the Consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018 .





Sierra Senior Loan Strategy JV I LLC


On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage Sierra JV. All portfolio and other material decisions regarding Sierra JV must be submitted to Sierra JV's board of managers, which is comprised of four members, two of whom are selected by the Company and the other two are selected by GALIC. The Company has concluded that it does not operationally control Sierra JV. As the Company does not operationally control Sierra JV, it does not consolidate the operations of Sierra JV within the consolidated financial statements. As a practical expedient, the Company uses





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NAV to determine the fair value of its investment in Sierra JV; therefore, this investment has been presented as a reconciling item within the fair value hierarchy (see Note 4).





As of September 30, 2019 and December 31, 2018 , Sierra JV had total capital commitments of $116 million, with the Company providing $101.5 million and GALIC providing $14.5 million. Approximately $105.2 million was funded as of September 30, 2019 and December 31, 2018 , relating to these commitments, of which $92.1 million was from the Company. The Company does not have the right to withdraw any of their respective capital commitment, unless in connection with a transfer of its membership interests. The Company may transfer full membership interests as long as it is approved by all members and transferred in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, or applicable state securities laws.





At September 30, 2019 and December 31, 2018 , Sierra JV had a $250 million senior secured revolving credit facility (the "JV Facility") with Deutsche Bank, AG, New York Branch ("DB"). The JV Facility bears interest at a rate of LIBOR (with no minimum) plus 2.50% per annum. On March 29, 2019, the JV amended the Credit Facility and extended the reinvestment period. On March 29, 2019, the JV Facility reinvestment period was extended to June 28, 2019 from March 30, 2019. On June 28, 2019, the JV Facility reinvestment period was further extended to October 28, 2019. On October 28, 2019, the JV Facility reinvestment period was further extended from October 28, 2019 to March 31, 2020 while the interest rate was modified from bearing an interest rate of LIBOR (with no minimum) + 2.50% per annum to LIBOR (with no minimum) + 2.75% per annum.The final maturity date is March 30, 2022 and is secured substantially by all of the SPV's assets, subject certain exclusions set forth in the Credit Facility. As of September 30, 2019 and December 31, 2018 , there was $204.9 million outstanding under the JV Facility.





The following table shows a summary of Sierra JV's portfolio as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018Senior secured loans(1)$268,804,900$284,070,735Weighted average current interest rate on senior secured loans(2)7.05%7.61%Number of borrowers in the Sierra JV6158Investments at fair value$256,366,040$277,168,454Largest loan to a single borrower(1)$10,884,644$11,058,001Total of five largest loans to borrowers(1)$43,626,877$48,114,884





|    |              
|--- | -------------
|(1) | At par value.

|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Computed as the (a) annual stated interest rate on accruing senior secured loans, divided by (b) total senior secured loans at principal amount.










The following is a listing of the individual investments in Sierra JV's portfolio as of September 30, 2019 (unaudited):


CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)4Over International, LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(2)6/7/2022$10,884,644$10,884,645$10,635,385Acrisure, LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(2)11/22/20232,565,0132,570,8332,550,649AL Midcoast Holdings, LLCEnergy: Oil & GasSenior Secured First Lien Term Loan LIBOR + 5.50%, 1.00% LIBOR Floor(4)8/1/20255,954,4965,909,0465,839,574Brightspring Health ServicesHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 4.50%(2)(5)3/5/20263,990,0003,941,0593,990,000Callaway Golf CompanyConsumer Goods: DurableSenior Secured First Lien Term Loan LIBOR + 4.50%,(2)1/4/20262,774,1872,725,2172,801,929Cardenas Markets LLCRetailSenior Secured First Lien Term Loan LIBOR + 5.75%, 1.00% LIBOR Floor(2)11/29/20236,321,2506,283,6346,113,281CHA Consulting, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(4)(6)4/10/20251,354,1001,348,7471,324,581CHA Consulting, Inc.Construction & BuildingSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(2)4/10/2025598,500598,500584,908





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)Covenant Surgical Partners, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(3)(4)7/1/20265,000,0004,951,6504,940,000CT Technologies Intermediate Holdings, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(2)12/1/20214,131,9004,067,9813,770,359Directbuy Home Improvement, Inc.RetailSenior Secured First Lien Term Loan LIBOR + 6.50%, 1.00% LIBOR Floor(2)6/20/2022274,413274,413274,193Directbuy Home Improvement, Inc.RetailCommon Stock - 201,591 shares(7)201,59179,23764,509Envision Healthcare CorporationHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 3.75%, 1.00% LIBOR Floor(4)10/10/20251,960,1881,898,3841,594,220GC EOS Buyer, Inc.AutomotiveSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(3)8/1/20253,445,0863,399,3353,400,989GK Holdings, Inc.Services: BusinessSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(4)1/20/20213,916,2313,910,0773,557,113Glass Mountain Pipeline Holdings, LLCEnergy: Oil & GasSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(5)12/23/20244,900,3754,886,5824,618,603Golden West Packaging Group LLCForest Products & PaperSenior Secured First Lien Term Loan LIBOR + 5.25%, 1.00% LIBOR Floor(2)6/20/20234,188,3484,188,3484,163,637High Ridge Brands Co.Consumer Goods: Non-DurableSenior Secured First Lien Term Loan LIBOR + 7.00%, 1.00% LIBOR Floor(4)(8)6/30/20223,031,2503,009,5842,368,922Highline Aftermarket Acquisitions, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 3.50%, 1.00% LIBOR Floor(2)4/26/20254,066,1764,055,3743,601,412The Imagine Group, LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan LIBOR + 4.75%, 1.00% LIBOR Floor(2)6/21/20227,800,0007,757,1455,187,780Infogroup, Inc.Services: BusinessSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(4)4/3/20234,875,0004,846,2754,748,738Intermedia Holdings, Inc.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(4)7/21/20253,970,0003,936,7843,964,045Intermediate LLCHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(4)7/1/20262,750,0002,732,9052,732,400Isagenix International, LLCWholesaleSenior Secured First Lien Term Loan LIBOR + 5.75%, 1.00% LIBOR Floor(4)6/16/20252,788,2682,775,3602,115,738Jackson Hewitt Tax Service Inc.Services: ConsumerSenior Secured First Lien Term Loan LIBOR + 6.25%)(2)4/20/20235,850,0005,850,0005,811,390Jordan Health Products I, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(2)5/15/20255,181,7765,117,3494,378,601Keystone Acquisition Corp.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.25%, 1.00% LIBOR Floor(4)5/1/20246,162,6996,086,3495,972,888KNB Holdings CorporationConsumer Goods: DurableSenior Secured First Lien Term Loan LIBOR + 5.50%, 1.00% LIBOR Floor(4)4/26/20244,871,3644,807,6083,975,033LifeMiles Ltd.Services: ConsumerSenior Secured First Lien Term Loan LIBOR + 5.50%, 1.00% LIBOR Floor(3)8/18/20224,836,3934,821,1624,759,978Manna Pro Products, LLCConsumer Goods: Non-DurableSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(2)12/8/20233,029,3753,029,3752,880,027Manna Pro Products, LLCConsumer Goods: Non-DurableSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(2)12/8/2023615,125615,125584,799





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)New Media Holdings II LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan LIBOR + 6.25%, 1.00% LIBOR Floor(2)7/14/20222,906,4222,900,5762,900,900NGS US Finco, LLCCapital EquipmentSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(4)10/1/20252,977,5002,965,0412,903,360Northern Star Industries, Inc.Capital EquipmentSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(5)3/28/20254,186,2504,169,7453,984,054Nuvei Technologies Corp.Banking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(2)(6)9/29/20251,002,4081,002,408983,612Nuvei Technologies Corp.Banking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(2)9/29/20254,961,0624,916,9774,868,376Nuvei Technologies Corp.Banking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(2)9/29/2025726,749726,749713,123Offen, Inc.Transportation: CargoSenior Secured First Lien Term Loan LIBOR + 5.00%)(4)(6)6/22/20263,663,3853,628,0603,613,477Peraton Corp.Aerospace and DefenseSenior Secured First Lien Term Loan LIBOR + 5.25%, 1.00% LIBOR Floor(2)4/29/20243,406,4393,395,2563,384,979PetroChoice Holdings, Inc.Chemicals, Plastics and RubberSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(4)8/19/20226,840,7916,823,9786,567,159Plaskolite PPC Intermediate II LLCChemicals, Plastics and RubberSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(2)12/15/20253,225,6253,169,6983,194,659Port Townsend Holdings Company, Inc.Forest Products & PaperSenior Secured First Lien Term Loan LIBOR + 4.75%, 1.00% LIBOR Floor(5)4/3/20243,041,8423,018,7762,992,564PT Network, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.50%, 1.00% LIBOR Floor, 2% PIK)(4)(9)11/30/20234,416,7104,159,4754,129,182PT Network, LLCHealthcare & PharmaceuticalsClass C Common Stock(7)———PVHC Holding CorpContainers, Packaging and GlassSenior Secured First Lien Term Loan LIBOR + 4.75%, 1.00% LIBOR Floor(4)(6)8/5/20241,972,3501,964,2981,912,138Quantum Spatial, Inc.Aerospace & DefenseSenior Secured First Lien Term Loan LIBOR + 5.25%, 1.00% LIBOR Floor(4)9/5/20245,000,0005,000,0005,000,000Quartz Holding CompanyHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(4)4/2/20266,982,5006,957,4486,885,443RB Media, Inc.Media: Diversified & ProductionSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(2)8/29/20255,445,0005,398,7695,445,000Rough Country, LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 3.75%, 1.00% LIBOR Floor(2)5/25/20234,993,3214,977,0114,912,430Safe Fleet Holdings LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 3.00%, 1.00% LIBOR Floor(2)2/3/20251,335,8801,292,9601,288,055Safe Fleet Holdings LLCAutomotiveSenior Secured First Lien Term Loan LIBOR + 3.75%, 1.00% LIBOR Floor(2)2/3/20253,422,8753,416,1863,297,255Salient CRGT Inc.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 6.00%, 1.00% LIBOR Floor(2)2/28/20224,409,2264,366,2784,172,451SCS Holdings I Inc.WholesaleSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(2)7/1/20262,244,3752,238,9622,249,986





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)Shift4 Payments, LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(2)11/29/20249,825,0009,788,6629,825,000Sierra Enterprises, LLCBeverage & FoodSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(2)11/11/20243,918,9933,909,6343,821,018Simplified Logistics, LLCServices: BusinessSenior Secured First Lien Term Loan LIBOR + 6.50%, 1.00% LIBOR Floor(4)2/27/20223,482,5003,406,0823,482,500SMB Shipping Logistics, LLCTransportation: CargoSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(5)2/5/20242,465,8072,446,3812,453,478Syniverse Holdings, Inc.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 5.00%, 1.00% LIBOR Floor(2)3/9/20233,935,0503,907,8193,695,799The Octave Music Group, Inc.Media: Diversified & ProductionSenior Secured First Lien Term Loan LIBOR + 4.75%, 1.00% LIBOR Floor(2)5/28/20214,348,6444,348,6444,325,596ThoughtWorks, Inc.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 4.00%, 1.00% LIBOR Floor(2)10/11/20246,674,9436,659,3476,674,943Tortoise Borrower LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan LIBOR + 3.50%, 1.00% LIBOR Floor(2)1/31/20252,437,8752,428,5572,392,287United Road Services, Inc.Transportation: CargoSenior Secured First Lien Term Loan LIBOR + 5.75%, 1.00% LIBOR Floor(2)9/2/20243,759,9993,746,4653,699,087Vero Parent, Inc.High Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 4.50%, 1.00% LIBOR Floor(2)8/16/20243,915,4753,891,3933,886,109Wawona Delaware Holdings, LLCBeverage & FoodSenior Secured First Lien Term Loan LIBOR + 4.75%, 1.00% LIBOR Floor(2)9/11/20264,975,0004,925,4654,925,250Wok Holdings Inc.RetailSenior Secured First Lien Term Loan LIBOR + 6.50%, 1.00% LIBOR Floor(2)3/1/20266,616,7506,563,9175,599,756Wrench Group LLCServices: ConsumerSenior Secured First Lien Term Loan LIBOR + 4.25%, 1.00% LIBOR Floor(2)(6)4/30/20262,225,6722,208,2332,225,672Xebec Global Holdings, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan LIBOR + 5.25%, 1.00% LIBOR Floor(3)2/12/20248,134,7348,134,7348,114,397Z Medica, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 5.50%, 1.00% LIBOR Floor(4)9/29/20222,640,0002,640,0002,541,264Total$268,804,900$266,852,067$256,366,040





|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All securities are valued using significant unobservable inputs, which are categorized as Level 3 assets under the definition of ASC 820 fair value hierarchy

|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which atSeptember 30, 2019was2.02%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | The interest rate on these loans is subject to a base rate plus 2 Month (“2M”) LIBOR, which atSeptember 30, 2019was2.07%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which atSeptember 30, 2019was2.09%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | The interest rate on these loans is subject to a base rate plus 6 Month (“6M”) LIBOR, which atSeptember 30, 2019was2.06%. The interest rate is subject to a minimum LIBOR floor.

|    |                                                                    
|--- | -------------------------------------------------------------------
|(6) | Includes an analysis of the value of any unfunded loan commitments.

|    |                                  
|--- | ---------------------------------
|(7) | Security is non-income producing.

|    |                                                                  
|--- | -----------------------------------------------------------------
|(8) | The investment was on non-accrual status as ofSeptember 30, 2019.

|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(9) | Par amount includes accumulated paid-in-kind ("PIK") interest and is net of repayments.




The following is a listing of the individual investments in Sierra JV's portfolio as of December 31, 2018 :





CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)4Over International, LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan  LIBOR + 6.00% , 1.00% LIBOR Floor(2)6/7/2022$11,058,000$11,058,000$10,803,667





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)Acrisure, LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan  LIBOR + 4.25% , 1.00% LIBOR Floor(2)11/22/20235,391,7505,406,2105,275,288Avantor, Inc.WholesaleSenior Secured First Lien Term Loan  LIBOR + 3.75% , 1.00% LIBOR Floor(2)11/22/20245,694,7385,640,3365,505,104BW NHHC Holdco Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan LIBOR + 3.75% , 1.00% LIBOR Floor(2)5/15/20255,221,1325,147,5875,081,727Cardenas Markets LLCRetailSenior Secured First Lien Term Loan  LIBOR + 5.75% , 1.00% LIBOR Floor(2)11/29/20236,370,0006,325,2916,240,689CD&R TZ Purchaser, Inc.Services: ConsumerSenior Secured First Lien Term Loan  LIBOR + 6.00% , 1.00% LIBOR Floor(4)7/21/20236,350,2726,287,8836,094,356CHA Consulting, Inc.Construction & BuildingSenior Secured First Lien Term Loans LIBOR + 4.50% , 1.00% LIBOR Floor(4)(6)4/10/20251,364,3841,358,2541,360,973Covenant Surgical Partners, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 4.50%(4)(6)10/4/20249,907,3869,886,9039,808,312CT Technologies Intermediate Holdings, Inc.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 4.25% , 1.00% LIBOR Floor(2)12/1/20214,164,2664,077,6693,918,573Deliver Buyer, Inc.Capital EquipmentSenior Secured First Lien Term Loan  LIBOR + 5.00% , 1.00% LIBOR Floor(2)5/1/2024530,639529,418530,640Elite Comfort Solutions LLC.Chemicals, Plastics & RubberSenior Secured First Lien Term Loan  LIBOR + 6.50% , 1.00% LIBOR Floor(4)1/15/20219,053,0819,053,0819,053,081Envision Healthcare CorporationHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 3.75% , 1.00% LIBOR Floor(4)10/10/20251,975,0001,903,8611,903,505GC EOS Buyer, Inc.AutomotiveSenior Secured First Lien Term Loan  LIBOR + 4.50% , 1.00% LIBOR Floor(2)8/1/20252,182,0312,161,4442,138,391GK Holdings, Inc.Services: BusinessSenior Secured First Lien Term Loan  LIBOR + 6.00% , 1.00% LIBOR Floor(4)1/20/20213,947,0673,937,3233,550,387Glass Mountain Pipeline Holdings, LLCEnergy:  Oil & GasSenior Secured First Lien Term Loan  LIBOR + 4.50% , 1.00% LIBOR Floor(4)12/23/20244,937,6864,921,8034,886,336Golden West Packaging Group LLCForest Products & PaperSenior Secured First Lien Term Loan  LIBOR + 5.25% , 1.00% LIBOR Floor(2)6/20/20237,227,0347,227,0347,227,034High Ridge Brands Co.Consumer Goods - Non-DurableSenior Secured First Lien Term Loan  LIBOR + 5.25% , 1.00% LIBOR Floor(4)6/30/20223,046,8753,019,1762,808,914Highline Aftermarket Acquisitions, LLCAutomotiveSenior Secured First Lien Term Loan  LIBOR + 3.50% , 1.00% LIBOR Floor(2)4/26/20254,097,0594,084,7253,976,605InfoGroup, IncServices: BusinessSenior Secured First Lien Term Loan  LIBOR + 5.00% , 1.00% LIBOR Floor(4)4/3/20234,912,5004,877,3854,843,725Intermedia Holdings, Inc.High Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 6.00% , 1.00% LIBOR Floor(4)7/21/20254,000,0003,962,2253,992,000Isagenix International, LLCWholesaleSenior Secured First Lien Term Loans LIBOR + 5.75% , 1.00% LIBOR Floor(4)6/16/20252,900,6242,885,4322,864,077Jackson Hewitt Tax Services Inc.Services: ConsumerSenior Secured First Lien Term Loans LIBOR + 6.25% , 1.00% LIBOR Floor(2)4/20/20235,962,5005,962,5005,962,500Keystone Acquisition Corp.Healthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 5.25% , 1.00% LIBOR Floor(4)5/1/20246,209,8636,120,3896,149,006KNB Holdings CorporationConsumer Goods: DurableSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)4/26/20244,967,5104,891,8684,868,159





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)LifeMiles Ltd.Services: ConsumerSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)8/18/20225,272,4365,251,5265,289,835Loparex International B.V.Containers, Packaging & GlassSenior Secured First Lien Term Loans LIBOR + 4.25% , 1.00% LIBOR Floor(4)4/11/20256,633,3336,603,5106,600,167Manna Pro Products, LLCConsumer Goods - Non-DurableSenior Secured First Lien Term Loan  LIBOR + 6.00% , 1.00% LIBOR Floor(2)(6)12/8/20233,428,6683,428,6683,346,036Midcoast Energy LLCEnergy:  Oil & GasSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)8/1/20255,486,2505,434,5685,321,663New Media Holdings II LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan  LIBOR + 6.25% , 1.00% LIBOR Floor(2)7/14/20223,539,8543,530,8223,522,155NGS US Finco, LLCCapital EquipmentSenior Secured First Lien Term Loans LIBOR + 4.25% , 1.00% LIBOR Floor(4)10/1/20253,000,0002,985,6022,985,000Northern Star Industries, Inc.Capital EquipmentSenior Secured First Lien Term Loans LIBOR + 4.75% , 1.00% LIBOR Floor(4)3/28/20254,218,1254,199,2304,098,330Nuvei Technologies Corp.Banking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan  LIBOR + 4.50% , 1.00% LIBOR Floor(2)9/29/20256,394,8236,342,5336,330,876Peraton Corp.Aerospace and DefenseSenior Secured First Lien Term Loan  LIBOR + 5.25% , 1.00% LIBOR Floor(4)4/29/20243,432,5763,419,4673,374,908PetroChoice Holdings, Inc.Chemicals, Plastics & RubberSenior Secured First Lien Term Loan  LIBOR + 5.00% , 1.00% LIBOR Floor(4)8/19/20226,894,2316,874,6056,830,803Plaskolite PPCChemicals, Plastics & RubberSenior Secured First Lien Term Loan  LIBOR + 4.25% , 1.00% LIBOR Floor(4)12/13/20253,250,0003,185,5633,185,000Port Townsend Holdings Company, Inc.Forest Products & PaperSenior Secured First Lien Term Loans LIBOR + 4.75% , 1.00% LIBOR Floor(2)4/3/20243,064,8863,037,7943,064,886PT Network, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)11/30/20214,412,5444,412,5434,321,203PVHC Holding Corp.Containers, Packaging & GlassSenior Secured First Lien Term Loan  LIBOR + 4.75% , 1.00% LIBOR Floor(4)(6)8/3/20241,987,2931,977,9281,977,356Recorded Books, Inc.Media: Diversified & ProductionSenior Secured First Lien Term Loan  LIBOR + 4.50%(4)8/29/20255,486,2505,433,7825,431,388Rough Country, LLCAutomotiveSenior Secured First Lien Term Loan  LIBOR + 3.75% , 1.00% LIBOR Floor(2)5/25/20236,079,6276,055,7006,018,830Safe Fleet Holdings LLCAutomotiveSenior Secured First Lien Term Loan  LIBOR + 3.00% , 1.00% LIBOR Floor(2)2/3/20255,930,2185,855,2235,803,337Salient CRGT Inc.High Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 5.75% , 1.00% LIBOR Floor(2)2/28/20224,502,9764,445,5384,528,643SCS Holdings I Inc. (Sirius ComputerWholesaleSenior Secured First Lien Term Loan  LIBOR + 4.25% , 1.00% LIBOR Floor(2)10/31/20225,062,6265,043,2155,006,432Shift4 Payments, LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan  LIBOR + 4.50% , 1.00% LIBOR Floor(2)11/29/20249,900,0009,858,0879,764,370Sierra Enterprises, LLCBeverage & FoodSenior Secured First Lien Term Loans LIBOR + 3.50% , 1.00% LIBOR Floor(2)11/11/20245,198,8335,184,5525,133,328SMB Shipping Logisitics, LLCTransportation: CargoSenior Secured First Lien Term Loan  LIBOR + 4.00% , 1.00% LIBOR Floor(4)2/5/20242,487,3422,464,3802,474,905Starfish Holdco, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 4.50% , 1.00% LIBOR Floor(2)8/16/20243,945,1383,917,1563,891,878





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CompanyIndustryType of InvestmentMaturityPar AmountCostFair Value(1)Syniverse Holdings, Inc.High Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 5.00% , 1.00% LIBOR Floor(2)3/9/20233,965,0133,931,6113,752,488The Imagine Group LLCMedia: Advertising, Printing & PublishingSenior Secured First Lien Term Loan  LIBOR + 4.75% , 1.00% LIBOR Floor(2)6/21/20227,860,0007,804,9677,327,092The KeyW CorporationAerospace and DefenseSenior Secured First Lien Term Loans LIBOR + 4.50% , 1.00% LIBOR Floor(2)5/8/20242,697,6752,685,1992,684,186The Octave Music Group, Inc.Media: Diversified & ProductionSenior Secured First Lien Term Loan  LIBOR + 4.75% , 1.00% LIBOR Floor(2)5/28/20214,382,7064,382,7064,376,570ThoughtWorks, Inc.High Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 4.00% , 1.00% LIBOR Floor(2)(6)10/11/20245,723,1215,710,4315,652,726Tortoise Borrower LLCBanking, Finance, Insurance & Real EstateSenior Secured First Lien Term Loan  LIBOR + 3.50% , 1.00% LIBOR Floor(2)1/31/20252,456,4372,445,7342,456,438United Road Services, IncTransportation: CargoSenior Secured First Lien Term Loan  LIBOR + 5.25% , 1.00% LIBOR Floor(2)9/2/20243,850,0003,834,0403,826,900Valence Surface Technologies, Inc.Aerospace and DefenseSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)6/13/20216,272,9136,269,0626,272,913Xebec Global Holdings, LLCHigh Tech IndustriesSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)2/12/20248,196,4178,196,4178,196,417Z Gallerie, LLCRetailSenior Secured First Lien Term Loan  LIBOR + 6.50% , 1.00% LIBOR Floor(4)(7)10/8/20214,924,5274,924,5272,861,642Z-Medica, LLCHealthcare & PharmaceuticalsSenior Secured First Lien Term Loan  LIBOR + 5.50% , 1.00% LIBOR Floor(4)9/29/20222,662,5002,662,5002,616,704Total$284,070,735$282,514,983$277,168,454





|    |                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the fair value in accordance with ASC 820 as determined by the board of managers of Sierra JV. The approval of the fair value of the portfolio investments held by Sierra JV is not included in the valuation process of the Company's board of directors described elsewhere herein.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(2) | The interest rate on these loans is subject to a base rate plus 1 Month (“1M”) LIBOR, which atDecember 31, 2018was 2.50%.

|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(3) | The interest rate on these loans is subject to a base rate plus 2 Month (“2M”) LIBOR, which atDecember 31, 2018was 261%.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(4) | The interest rate on these loans is subject to a base rate plus 3 Month (“3M”) LIBOR, which atDecember 31, 2018was 2.81%.

|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(5) | The interest rate on these loans is subject to a base rate plus 6 Month (“6M”) LIBOR, which atDecember 31, 2018was 2.88%.

|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(6) | The interest rate on these loans is subject to a base rate plus 12 Month (“12M”) LIBOR, which atDecember 31, 2018was 2.93%.

|    |                                                                 
|--- | ----------------------------------------------------------------
|(7) | The investment was on non-accrual status as ofDecember 31, 2018.

|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|(8) | Par amount includes accumulated paid-in-kind ("PIK") interest and is net of repayments.

|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|(9) | The interest rate on these loans is subject to an adjusted base rate ("ABR") plus a spread.

|     |                                                                    
|---- | -------------------------------------------------------------------
|(10) | Includes an analysis of the value of any unfunded loan commitments.

|     |                                  
|---- | ---------------------------------
|(11) | Security is non-income producing.




Below is certain summarized financial information for the Sierra JV as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 .


September 30, 2019December 31, 2018(unaudited)Selected Consolidated Statement of Assets and Liabilities Information:Investments in loans at fair value (amortized cost of $266,852,067 and $282,514,983, respectively)$256,366,040$277,168,454Cash and cash equivalents31,344,72220,494,190Other assets1,321,2151,781,149Total assets$289,031,977$299,443,793Senior credit facility payable (net of deferred financing costs of $2,145,426 and $1,599,958, respectively)202,950,742203,300,042Other liabilities435,779411,102Interest payable819,058953,352Total liabilities$204,205,579$204,664,496Members’ capital84,826,39894,779,297Total liabilities and members' capital$289,031,977$299,443,793





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Three Months Ended September 30,Nine Months Ended September 30,2019201820192018(unaudited)(unaudited)(unaudited)(unaudited)Selected Consolidated Statement of Operations Information:Total investment income$5,280,076$5,401,302$16,305,521$15,131,733Total expenses(3,168,637)(3,020,096)(9,581,333)(8,373,213)Net change in unrealized appreciation/(depreciation) of investments(3,584,545)(2,841,807)(5,139,832)(5,628,655)Net realized gain/(loss) on investments134,566188,240(4,637,590)736,296Net income$(1,338,540)$(272,361)$(3,053,234)$1,866,161





In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine which of its unconsolidated Control Investments, if any, are considered “significant subsidiaries.” In evaluating these investments, there are three tests utilized to determine if any Controlled Investments are considered significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X requires the Company to include separate audited financial statements of any unconsolidated majority-owned subsidiary (Control Investments in which the Company owns greater than 50% of the voting securities) in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information of Control Investments in an annual report if any of the three tests exceeds 10%, and summarized financial information in a quarterly report if any of the three tests exceeds 20% pursuant to Rule 10-01(b)(1) of Regulation S-X.





As of September 30, 2019 , excluding Sierra JV, the Company had no single Control Investment which would be deemed to be a significant subsidiary pursuant to Rule 10-01(b)(1) of Regulation S-X.








Note 4. Fair Value Measurements


The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:





|  |                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------
|• | Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2 — Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 3 — Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and is based upon management’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.







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In addition to using the above inputs in investment valuations, the Company employs the valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with the Company’s valuation policy, the Company evaluates the source of inputs, including any markets in which the Company’s investments are trading, in determining fair value.





The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of September 30, 2019 :


Type of Investment(1)Level 1Level 2Level 3TotalAssetSenior secured first lien term loans$—$—$365,464,032$365,464,032Senior secured first lien notes——15,095,00015,095,000Senior secured second lien term loans——142,716,810142,716,810Subordinated notes——62,478,03962,478,039Equity/warrants27,450,133—44,705,48472,155,617Total$27,450,133$—$630,459,365$657,909,498Investments measured at net asset value$79,041,159Total Investments, at fair value$736,950,657





|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in

the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.





The following table presents the fair value measurements of the Company’s total investments, by major class according to the fair value hierarchy, as of December 31, 2018 :


Type of Investment(1)Level 1Level 2Level 3TotalAssetSenior secured first lien term loans$—$—$479,593,279$479,593,279Senior secured first lien notes—4,742,10030,752,99335,495,093Senior secured second lien term loans——169,923,547169,923,547Subordinated notes——66,187,85766,187,857Equity/warrants——75,480,03475,480,034Total$—$4,742,100$821,937,710$826,679,810Investments measured at net asset value$96,800,952Total Investments, at fair value$923,480,762





|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in

the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.





Derivative Instrument-Long ExposureLevel 1Level 2Level 3TotalAsset/(Liability)Unrealized depreciation on TRS with Citibank, N.A.$—$—$(6,524,904)$(6,524,904)





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The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the nine months ended September 30, 2019 :





SeniorSecuredFirst LienTerm LoansSeniorSecuredFirst LienNotesSeniorSecuredSecond LienTerm LoansSubordinated NotesEquity/WarrantsTotalReturnSwapTotalBalance, December 31, 2018$479,593,279$30,752,993$169,923,547$66,187,857$75,480,034$(6,524,904)$815,412,806Purchases96,284,986-9,687,2527,400,227(7,115,943)-106,256,522Sales(165,383,818)(15,271,250)(27,327,760)(11,290,388)(43,626,923)-(262,900,139)Transfers in------—Transfers out------—Amortization of discount/(premium)670,606-509,528---1,180,134Paid-in-kind interest income3,311,294-826,220---4,137,514Net realized gains/(losses)(47,855,463)(1,728,750)84,328(1,981,643)15,610,206-(35,871,322)Net change in unrealized appreciation/(depreciation)(1,156,852)1,342,007(10,986,305)2,161,9864,358,1106,524,9042,243,850Balance, September 30, 2019$365,464,032$15,095,000$142,716,810$62,478,039$44,705,484$—$630,459,365Change in net unrealized appreciation/ (depreciation) in investments held as of September 30, 2019(1)$(29,669,966)$54,808$(11,610,130)$(716,706)$14,153-$(41,927,841)





|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Amount is included in the related amount on investments and total return swap in the Consolidated Statements of Operations.




Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the nine months ended September 30, 2019 , the Company recorded no transfers from Level 3 to Level 2 and no transfers from Level 2 to Level 3. The Company recorded no other transfers between levels.





The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the nine months ended September 30, 2018 :





SeniorSecuredFirst LienTerm LoansSeniorSecuredFirst LienNotesSeniorSecuredSecond LienTerm LoansSubordinated NotesEquity/WarrantsTotalReturnSwapTotalBalance, December 31, 2017$567,414,544$30,270,881$231,837,617$74,341,285$65,754,315$(5,354,868)$964,263,774Purchases126,033,3223,379,999911,18610,318,05929,563,879—170,206,445Sales(161,089,099)(1,893,250)(52,354,019)(5,232,166)(6,421,660)—(226,990,194)Transfers in———————Transfers out—(6,706,400)————(6,706,400)Amortization of discount/(premium)851,612—528,248———1,379,860Paid-in-kind interest income1,485,027—881,801———2,366,828Net realized gains/(losses)(31,950,356)(106,750)(17,853,861)436,466(1,191,691)—(50,666,192)Net change in unrealized appreciation/(depreciation)(11,918,005)(379,913)17,451,080(2,549,120)624,7463,370,5296,599,317Balance, June 30, 2018$490,827,045$24,564,567$181,402,052$77,314,524$88,329,589$(1,984,339)$860,453,438Change in net unrealized appreciation/(depreciation) in investments held as of September 30, 2018(1)$(43,906,776)$(866,114)$(1,034,295)$(1,849,176)$(189,386)$3,370,529$(44,475,218)





|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Amount is included in the related amount on investments and total return swap in the Consolidated Statements of Operations.




Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the nine months ended September 30, 2018 , the Company recorded $6,706,400 in transfers from Level 3 to Level 2 and no transfers from Level 2 to Level 3. The Company recorded no other transfers between levels.








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The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of September 30, 2019 :


Type of InvestmentFair ValueValuation techniquesUnobservable input(1)Range (weighted average)Senior Secured First Lien Term Loan$255,889,283Income Approach (DCF)Market yield6.98% - 23.64% (10.86%)Senior Secured First Lien Term Loan11,605,003Market Approach (Guideline Comparable)/Income Approach (DCF)/Enterprise Valuation AnalysisRevenue Multiple, EBITDA Multiple, Discount Rate3.00x - 6.50x (5.38x) / 16.75% - 18.75% (17.75%) / 1.25x - 1.45x (1.35x)Senior Secured First Lien Term Loan97,969,746Recent Arms-length transactionRecent Arms-length transactionN/ASenior Secured First Lien Notes15,095,000Income Approach (DCF)Market yield11.42% - 40.34% (21.25%)Senior Secured Second Lien Term Loan135,722,452Income Approach (DCF)Market yield9.119% - 29.760% (13.70%)Senior Secured Second Lien Term Loan6,994,358Market Approach (Guideline Comparable)/Income Approach (DCF)EBITDA Multiple, Discount Rate6.00x - 7.00x (6.50x) / 17.50% - 19.50% (18.50%)Equity/warrants39,802,575Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/ Option Model/Income Approach (DCF)/ Enterprise Valuation AnalysisRevenue Multiple, EBITDA Multiple, Discount Rate, Capitalization Rate, book Value Multiple3.50x - 9.50x (7.94x) /    17.00% - 21.25% (17.67%) / 1.25x - 1.45x (1.35x) / 7.63% - 8.50% (8.17%) / 1.00x - 1.50x (1.25x)Equity/warrants4,100,471Recent Arms-length transactionRecent Arms-length transactionN/AEquity/warrants802,438Enterprise Value AnalysisExpected Proceeds$10.20M - $15.20M ($12.70M)Subordinated Notes61,264,948Income Approach (DCF)Discount rate9.20% - 22.50% (18.03%)Subordinated Notes260,711Recent Arms-length transactionRecent Arms-length transactionN/ASubordinated Notes952,380Market Approach (Guideline Comparable)EBITDA Multiple7.00x - 8.00x (7.50x)Total$630,459,365





|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the method used when the Company has determined that market participants would use such inputs when measuring the fair value of these investments.







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The following table presents the quantitative information about Level 3 fair value measurements of the Company’s total investments, as of December 31, 2018 :


Type of InvestmentFair ValueValuation techniquesUnobservable input(1)Range (weighted average)Senior Secured First Lien Term Loan$264,976,095Income Approach (DCF)Market yield7.69% - 17.93% (10.66%)Senior Secured First Lien Term Loan87,515,822Market Approach (Guideline Comparable)/Income Approach (DCF)/Enterprise Valuation AnalysisRevenue Multiple, EBITDA Multiple, Discount Rate, Expected Proceeds1.35x - 1.35x (1.35x) / 3.50x-7.50x (6.14x) / 16.25% - 18.50% (17.34%) / $0.0M - $102.5M ($32.1M)Senior Secured First Lien Term Loan128,053,745Recent Arms-length transactionRecent Arms-length transactionN/ASenior Secured First Lien Notes30,752,993Income Approach (DCF)Market yield12.31% - 28.86% (15.10%)Senior Secured Second Lien Term Loan153,447,349Income Approach (DCF)Market yield9.34% - 17.63% (11.86%)Senior Secured Second Lien Term Loan9,776,992Recent Arms-length transactionRecent Arms-length transactionN/ASenior Secured Second Lien Term Loan6,699,206Market Approach (Guideline Comparable)/Income Approach (DCF)EBITDA Multiple, Discount Rate5.00x - 6.00x (5.50x) / 17.50% - 19.50% (18.50%)Equity/warrants46,183,711Market Approach (Guideline Comparable)/Market Approach (Comparable Transactions)/ Option Model/Income Approach (DCF)/ Enterprise Valuation AnalysisRevenue Multiple, EBITDA Multiple, Book Value Multiple, Discount Rate, Volatility , Average List Price, Expected Proceeds1.35x - 1.35x (1.35x) / 3.50x-13.50x (8.52x) / 12.50% - 21.25% (20.02%) / 50.00% - 50.00% (50.00%) / $1.1M - $1.1M ($1.1M) / 7.63% - 8.50% (8.25%) / 1.25x - 1.25x (1.25x) / $1.2M - $86.0M ($1.2M)Equity/warrants2,000,000Recent Arms-length transactionRecent Arms-length transactionN/AEquity/warrants27,296,321Income Approach (DCF)Market yield13.31% - 18.90% (14.47%)Subordinated Notes63,437,676Income Approach (DCF)Discount rate13.00% - 25.00% (18.46%)Subordinated Notes1,797,800Income Approach (DCF)Market yield9.30%Total$821,937,710TRS(6,524,904)Income Approach (DCF)Market yield6.65% - 16.85% (9.39%)Total$815,412,806





|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the method used when the Company has determined that market participants would use such inputs when measuring the fair value of these investments.




The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of revenue or EBITDA for the latest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases or decreases in any of the above significant unobservable inputs in isolation would result in a lower or higher fair value measurement for such assets.








Note 5. Total Return Swap


On August 27, 2013, the Company, through its wholly-owned financing subsidiary, Arbor, entered into a TRS with Citibank, N.A. (“Citibank”) that is indexed to a basket of loans.





The TRS with Citibank enabled Arbor to obtain the economic benefit of the loans underlying the TRS, despite the fact that such loans were not directly held or otherwise owned by Arbor, in return for an interest-type payment to Citibank.





SIC Advisors acted as the investment manager of Arbor and had discretion over the composition of the basket of loans underlying the TRS. The terms of the TRS were governed by an ISDA 2002 Master Agreement, the Schedule thereto and Credit Support Annex to such Schedule, and the Confirmation exchanged thereunder, between Arbor and Citibank, which collectively established the TRS, and are collectively referred to herein as the “TRS Agreement”. On March 21, 2014, Arbor amended and restated its Confirmation Letter Agreement (the “Amended Confirmation Agreement”) with Citibank. The Amended Confirmation Agreement increased the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $100 million to $200 million, and increased the interest rate payable to Citibank from LIBOR plus 1.30% per annum to LIBOR plus 1.35% per annum. On July 23, 2014, Arbor entered into the Second Amended and Restated Confirmation Letter Agreement with Citibank to increase the maximum market value (determined at the time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $200 million to $350 million. On June 8, 2015, Arbor entered into the Third Amended and Restated Confirmation Letter Agreement with Citibank to decrease the maximum market value (determined at the





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time each such loan becomes subject to the TRS) of the portfolio of loans that Arbor may select from $350 million to $300 million. On March 21, 2016, Arbor entered into the Fourth Amended and Restated Confirmation Letter Agreement (the “Fourth Amended Confirmation Agreement”) with Citibank to extend the term of the TRS from March 21, 2016 through March 21, 2019 and increase the interest rate payable to Citibank from LIBOR plus 1.35% per annum to LIBOR plus 1.65% per annum. On September 29, 2017, Arbor entered into the Fifth Amended and Restated Confirmation Letter Agreement (the “Fifth Amended Confirmation Agreement”) with Citibank to reduce the maximum portfolio notional (determined at the time each such loan becomes subject to the TRS) from $300,000,000 to $180,000,000, through incremental reductions of $60,000,000 on October 3, 2017 and $20,000,000 on each of November 3, 2017, December 3, 2017 and January 3, 2018. The Fifth Amended Confirmation Agreement also decreased the interest rate payable to Citibank from LIBOR plus 1.65% per annum to LIBOR plus 1.60% per annum. On July 22, 2019 the TRS with Citibank was terminated.





Pursuant to the terms of the TRS Agreement, as amended and subject to conditions customary for transactions of this nature, Arbor could select a portfolio of loans with a maximum market value (determined at the time each such loan becomes subject to the TRS) of $180 million, subject to the Fifth Amended Confirmation Agreement, which is also referred to as the maximum notional amount of the TRS. Arbor received from Citibank a periodic payment on set dates that is based upon any coupons, both earned and accrued, generated by the loans underlying the TRS, subject to limitations described in the TRS Agreement as well as any fees associated with the loans included in the portfolio. Arbor paid to Citibank interest at a rate equal to one-month LIBOR plus 1.60% per annum. In addition, upon the termination or repayment of any loan subject to the TRS, Arbor either received from Citibank the appreciation in the value of such loan, or paid to Citibank any depreciation in the value of such loan.





Arbor was required to pay a minimum usage fee in connection with the TRS of 1.60% on the amount equal to 85% of the average daily unused portion of the maximum amount permitted under the TRS. Such minimum usage fee did not apply during the first 365 days and last 60 days of the term of the TRS. Arbor also paid Citibank customary fees in connection with the establishment and maintenance of the TRS. During the three and nine months ended September 30, 2019 and 2018 , Arbor paid no minimum usage fees.





Arbor was required to initially cash collateralize a specified percentage of each loan (generally 20% to 30% of the market value of such loan) included under the TRS in accordance with margin requirements described in the TRS Agreement. As of September 30, 2019 and December 31, 2018 , Arbor has posted $1,216 and $27,000,000 , respectively, in collateral to Citibank in relation to the TRS, which is recorded on the Consolidated Statements of Assets and Liabilities as cash collateral on TRS. Arbor was restricted from removing the cash collateral posted to Citibank and was required to post additional collateral from time to time as a result of a decline in the mark-to-market value of the portfolio of loans subject to the TRS. The obligations of Arbor under the TRS Agreement were non-recourse to the Company and the Company’s exposure under the TRS Agreement was limited to the value of the Company’s investment in Arbor, which generally equaled the value of cash collateral provided by Arbor under the TRS Agreement.





In connection with the TRS, Arbor made customary representations and warranties and was required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. In addition to customary events of default and termination events included in the form ISDA 2002 Master Agreement, the TRS Agreement contained the following termination events: (a) a failure to satisfy the portfolio criteria for at least 30 days; (b) a failure to post initial cash collateral or additional collateral as required by the TRS Agreement; (c) a default by Arbor or the Company with respect to indebtedness in an amount equal to or greater than the lesser of $10,000,000 and 2% of the Company’s NAV at such time; (d) a merger of Arbor or the Company meeting certain criteria; (e) the Company or Arbor amending their respective constituent documents to alter their investment strategy in a manner that has or could reasonably be expected to have a material adverse effect; and (f) SIC Advisors ceasing to be the investment manager of Arbor or to have authority to enter into transactions under the TRS Agreement on behalf of Arbor, and not being replaced by an entity reasonably acceptable to Citibank. As of September 30, 2019 and December 31, 2018 , the Company did not have any derivatives with contingent features in net liability positions; therefore, if a trigger event had occurred, no amount would have been required to be posted by the Company.





The Company’s maximum credit risk exposure as of September 30, 2019 and December 31, 2018 is $1,216 and $27,113,252 , respectively, which is recorded on the Consolidated Statements of Assets and Liabilities as cash collateral on TRS and receivable due on TRS.





The Company’s receivable from Citibank represents realized amounts from payments on underlying loans in the TRS portfolio that as of September 30, 2019 and December 31, 2018 was $0 and $113,252 , respectively, which is recorded on the Consolidated Statements of Assets and Liabilities as receivable due on total return swap. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation or depreciation outstanding in the Consolidated Statements of Assets and Liabilities as of September 30, 2019 and December 31, 2018 .





Transactions in TRS contracts during the three and nine months ended September 30, 2019 and 2018 were as follows:





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Three Months EndedSeptember 30,Nine Months Ended September 30,2019201820192018Interest income and settlement from TRS portfolio$—$1,463,986$309,388$4,123,660Traded gains/(loss) on TRS loan sales—(364,450)(9,632,904)(2,589,178)Net realized gains/(loss) on TRS portfolio$—$1,099,536$(9,323,516)$1,534,482Net change in unrealized appreciation/(depreciation) on TRS portfolio$—$735,874$6,524,904$3,370,529





The Company held one derivative position as of September 30, 2019 and December 31, 2018 , subject to a Master Agreement (“MA”). The following table represents the Company’s gross and net amounts after offset under the MA, of the derivative assets and liabilities presented by derivative type net of the related collateral pledged by the Company as of September 30, 2019 and December 31, 2018 :


GrossDerivative  Assets/(Liabilities)Subject to MADerivative AmountAvailable forOffsetNet Amount Presentedin the ConsolidatedStatements of Assetsand LiabilitiesCash Collateral Posted(1)Net Amount ofDerivativeAssets/(Liabilities)September 30, 2019TRS(1)(2)$—$—$—$—$—December 31, 2018TRS(1)$(6,524,904)$—$(6,524,904)$6,524,904$—





|    |                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As ofSeptember 30, 2019andDecember 31, 2018,$1,216and$27,000,000, respectively, of cash was posted for initial margin requirements for the TRS as reported on the Consolidated Statements of Assets and Liabilities as cash collateral on TRS.

|    |                                                                 
|--- | ----------------------------------------------------------------
|(2) | As ofSeptember 30, 2019, there were no loans underlying the TRS.




The volume of the Company’s derivative transactions for the three and nine months ended September 30, 2019 and 2018 were as follows:


Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2019201820192018Average notional amount of contracts(1)$—$168,753,875$12,225,430$170,174,081





|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average notional amount is based on the average month end balances for thethree and nine months ended September 30, 2019and2018, which is representative of the volume of notional contract amounts held during each year.










Note 6. Borrowings


The following table shows the Company's outstanding debt as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018TotalCommitmentBalanceOutstandingUnusedCommitmentTotalCommitmentBalanceOutstandingUnusedCommitmentING Credit Facility$215,000,000$88,100,000$126,900,000$220,000,000$115,000,000$105,000,000Alpine Credit Facility300,000,000240,000,00060,000,000300,000,000240,000,00060,000,000Total before deferred financing costs515,000,000328,100,000186,900,000520,000,000355,000,000165,000,000Unamortized deferred financing costs—(2,660,252)——(3,460,986)—Total borrowings outstanding, net of deferred financing costs$515,000,000$325,439,748$186,900,000$520,000,000$351,539,014$165,000,000





As a BDC, the Company is generally allowed to employ leverage to the extent that its asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after giving effect to such leverage. The amount of leverage that the Company employs at any time depends on its assessment of the market and other factors at the time of any proposed borrowing.





The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s margin borrowings are estimated based upon market interest rates for





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its own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company’s debt obligation is recorded at its carrying value, which approximates fair value.





ING Credit Facility


On August 12, 2016, the Company amended its existing senior secured syndicated revolving credit facility (the “ING Credit Facility”) pursuant to a Senior Secured Revolving Credit Agreement (the “Revolving Credit Agreement”) with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Credit Facility matures on August 12, 2020 and is secured by substantially all of the Company’s assets, subject to certain exclusions as further set forth in an Amended and Restated Guarantee, Pledge and Security Agreement (the “Security Agreement”) entered into in connection with the Revolving Credit Agreement, among the Company, the subsidiary guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Credit Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature. On February 13, 2015, commitments to the ING credit facility were expanded from $150,000,000 to $170,000.000. On August 12, 2016, commitments to the ING credit facility were expanded from $170,000,000 to $175,000,000. On April 20, 2017, commitments to the ING Credit Facility were expanded from $175,000,000 to $220,000,000. On February 8, 2019, we amended our ING Credit Facility, among other things, to permit the transactions contemplated by the MCC Merger Agreement and the MDLY Merger Agreement. On July 25, 2019, the Company entered into Amendment No. 2 to the Revolving Credit Agreement (the “Amendment”), with certain lenders party thereto, ING Capital LLC, as administrative agent (the “Administrative Agent”), and, solely with respect to Section 2.10 of the Amendment, SIC AAR LLC, SIC Investment Holdings LLC and Sierra Management, Inc., as subsidiary guarantors.  The Amendment amends certain provisions of the Revolving Credit Agreement (as amended by Amendment No. 1, the “Prior Facility” and, as further amended by Amendment No. 2, the “Facility”) to, among other things, (i) reduce the size of the commitments thereunder from $220.0 million to $215.0 million, (ii) extend the Revolver Termination Date (as defined in the Prior Facility) from August 12, 2019 to March 31, 2020 and (iii) extend the Maturity Date (as defined in the Prior Facility) from August 12, 2020 to March 31, 2021.





The ING Credit Facility allows for the Company, at its option, to borrow money at a rate of either (i) an alternate base rate plus 1.50% per annum or (ii) LIBOR plus 2.50% per annum. The interest rate margins are subject to certain step-downs upon the satisfaction of certain conditions described in the Revolving Credit Agreement. The alternate base rate will be the greater of (i) the U.S. Prime Rate set forth in the Wall Street Journal, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) three month LIBOR plus 1.00%. As of September 30, 2019 and December 31, 2018 , the commitment under the ING Credit Facility was $215,000,000 and 220,000,000, respectively.  The ING Credit Facility includes an accordion feature that allows for potential future expansion of the ING Credit Facility up to a total of $500,000,000. Availability of loans under the ING Credit Facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism.





The Company is also required to pay a commitment fee to the lenders based on the daily unused portion of the aggregate commitments under the ING Credit Facility. The commitment fee is (i) 1.50% if the used portion of the aggregate commitments is less than or equal to 40%, (ii) 0.75% if the used portion of the aggregate commitments is greater than 40% and less than or equal to 65% or (iii) 0.50% if the used portion of the aggregate commitments is greater than 65%. The ING Credit Facility provides that the Company may use the proceeds of the facility for general corporate purposes, including making investments in accordance with the Company’s investment objective and strategy.





Borrowings under the Revolving Credit Agreement are subject to, among other things, a minimum borrowing base. Substantially all of the Company’s assets are pledged as collateral under the Revolving Credit Agreement. The ING Credit Facility requires the Company to, among other things (i) make representations and warranties regarding the collateral as well the Company’s business and operations, (ii) agree to certain indemnification obligations, and (iii) agree to comply with various affirmative and negative covenants. The documents for the Revolving Credit Agreement also include default provisions, such as the failure to make timely payments under the Revolving Credit Agreement, the occurrence of a change in control, and the failure by the Company to materially perform under the operative agreements governing the Revolving Credit Agreement, which, if not complied with, could accelerate repayment under the Revolving Credit Agreement, thereby materially and adversely affecting the Company’s liquidity, financial condition and results of operations.





In connection with the security interest established under the Security Agreement, the Company, ING Capital LLC, in its capacity as collateral agent, and State Street Bank and Trust Company, in its capacity as the Company’s custodian, entered into a control agreement dated as of December 4, 2013, in order to, among other things, perfect the security interest granted pursuant to the Security Agreement in, and provide for control over, the related collateral.





As of September 30, 2019 and December 31, 2018 , the carrying amount of the Company’s borrowings under the ING Credit Facility approximated their fair value. The fair value of the Company’s debt obligation is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants





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at the measurement date under current market conditions. The fair value of the Company’s borrowing under the ING Credit Facility is estimated based upon market interest rates of the Company’s borrowing or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2019 and December 31, 2018 , the ING Credit Facility would be deemed to be Level 3, as defined in Note 4.





As of September 30, 2019 and December 31, 2018 , the financing costs of $1,344,757 and $1,419,794 related to the ING Credit Facility have been capitalized and are being amortized over the respective terms, respectively. The following table shows additional information about the interest and financing costs related to the ING Credit Facility for the three and nine months ended September 30, 2019 and 2018 :





For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Interest expense related to the ING Credit Facility$1,322,880$1,792,545$4,279,682$5,352,403Financing expenses related to the ING Credit Facility233,388234,490721,574695,986Total interest and financing expenses related to the ING Credit Facility$1,556,268$2,027,035$5,001,256$6,048,389Weighted average outstanding debt balance of the ING Credit Facility$88,100,000$142,173,913$95,194,505$149,439,560Weighted average interest rate of the ING Credit Facility (annualized)5.9%4.9%5.9%4.7%





Alpine Credit Facility


On September 29, 2017, the Company’s wholly-owned, special purpose financing subsidiary, Alpine, amended its existing revolving credit facility (the “Alpine Credit Facility”) pursuant to an Amended and Restated Loan Agreement (the “Amendment”) with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). The Loan Agreement was amended to, among other things, (i) extend the reinvestment period until December 29, 2020, (ii) extend the scheduled termination date until March 29, 2022, (iii) decrease the applicable margin for advances to 2.85% per annum and (iv) increase the compliance condition for net advances to 55% of net asset value. Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.





The Alpine Credit Facility provides for borrowings in an aggregate principal amount up to $300,000,000 on a committed basis. Borrowings under the Alpine Credit Facility are subject to compliance with a NAV coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 29, 2022.





Pricing under the Alpine Credit Facility for each one month calculation period is based on LIBOR for an interest period of one month, plus a spread of 2.85% per annum. If LIBOR is unavailable, pricing will be determined at the prime rate offered by JPMorgan or the federal funds effective rate, plus a spread of 2.85% per annum. Interest is payable monthly in arrears. Alpine is also required to pay a commitment fee of 1.00% on the average daily unused amount of the financing commitments to the extent that $300,000,000 has not been borrowed.





Borrowings of Alpine are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to BDCs.





Pursuant to a Sale and Contribution Agreement entered into between the Company and Alpine (the “Sale Agreement”) in connection with the Alpine Credit Facility, the Company may sell loans or contribute cash or loans to Alpine from time to time and will retain a residual interest in any assets contributed through its ownership of Alpine or will receive fair market value for any assets sold to Alpine. In certain circumstances the Company may be required to repurchase certain loans sold to Alpine. In addition to the acquisition of loans pursuant to the Sale Agreement, Alpine may purchase additional assets from various sources. Alpine has appointed SIC Advisors to manage its portfolio of assets pursuant to the terms of a Portfolio Management Agreement between SIC Advisors and Alpine.





As of September 30, 2019 and December 31, 2018 , the carrying amount of the Company’s borrowings under the Alpine Credit Facility approximated the fair value of the Company’s debt obligation. The fair value of the Company’s debt obligation is determined





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in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Company’s borrowings under the Alpine Credit Facility is estimated based upon market interest rates of the Company’s borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. As of September 30, 2019 and December 31, 2018 , the Alpine Credit Facility would be deemed to be Level 3, as defined in Note 4.





As of September 30, 2019 and December 31, 2018 , the financing costs of $1,315,495 and $2,041,192 related to the Alpine Credit Facility has been capitalized and is being amortized over the respective terms, respectively. The following table shows additional information about the interest and financing costs related to the Alpine Credit Facility for the three and nine months ended September 30, 2019 and 2018 :





For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Interest expense related to the Alpine Credit Facility$3,277,956$3,181,772.8$10,017,295$9,071,488Financing expenses related to the Alpine Credit Facility244,557244,557725,697725,697Total Interest and financing expenses related to the Alpine Credit Facility$3,522,513$3,426,330$10,742,992$9,797,185Weighted average outstanding debt balance of the Alpine Credit Facility$240,000,000$240,000,000$240,000,000$240,904,762Weighted average interest rate of the Alpine Credit Facility (annualized)5.3%5.2%5.5%5.0%








Note 7. Agreements


Investment Advisory Agreement


On April 5, 2012, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with SIC Advisors to manage the Company’s investment activities. The Investment Advisory Agreement became effective as of April 17, 2012, the date that the Company met its minimum offering requirement. Pursuant to the 1940 Act, the initial term of the Investment Advisory Agreement was for two years from its effective date, with one-year renewals subject to approval by the Company’s board of directors, a majority of whom must be independent directors. On April 4, 2019 , the Company’s board of directors approved the renewal of the Investment Advisory Agreement for an additional one-year term at an in-person meeting. Pursuant to the Investment Advisory Agreement, SIC Advisors implements the Company’s business strategy on a day-to-day basis and performs certain services for the Company, subject to oversight by the Company’s board of directors. SIC Advisors is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investment transactions, asset sales, financings and performing asset management duties. Under the Investment Advisory Agreement, the Company has agreed to pay SIC Advisors a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.





The base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets payable quarterly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. "Gross assets" also includes any cash collateral posted with respect to the TRS, adjusted for realized and unrealized appreciation. The base management fee is calculated based on the gross assets at the end of each completed calendar quarter. Base management fees for any partial quarter are appropriately pro-rated. For the three and nine months ended September 30, 2019 , the Company recorded an expense for base management fees of $4,180,333 and $12,957,961 , respectively. For the three and nine months ended September 30, 2018 , the Company recorded an expense for base management fees of $4,681,915 and 14,520,226 , respectively. As of September 30, 2019 and December 31, 2018 , the Company recorded a base management fee payable of $4,180,333 and $4,491,234 , respectively.





The incentive fee consists of the following two parts:





An incentive fee on net investment income (“Subordinated Incentive Fee on Income”) is calculated and payable quarterly in arrears and is based upon pre-incentive fee net investment income for the immediately preceding quarter. No Subordinated Incentive Fee on Income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed a quarterly return to stockholders of 1.75% per quarter on the Company’s net assets at the end of the immediately preceding fiscal quarter (the “Preferred Quarterly Return”). All pre-incentive fee net investment income, if any, that exceeds the Preferred Quarterly Return, but is less than or equal to 2.1875% of net assets at the end of the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. The Company refers to this portion of its Subordinated Incentive Fee on Income as the “Catch Up”. It is intended to provide an incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which the Company’s pre-incentive





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fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the Subordinated Incentive Fee on Income shall equal 20% of the amount of pre-incentive fee net investment income, because the Preferred Quarterly Return and Catch Up will have been achieved. There is no incentive fee on net investment income earned on the TRS.





For the three and nine months ended September 30, 2019 and 2018 , the Company recorded $176,061 and $446,703 of incentive fees. As of September 30, 2019 and December 31, 2018 , the Company recorded no incentive fees payable.





A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the Investment Advisory Agreement is in effect. If the Investment Advisory Agreement is terminated, the fee will also become payable as of the effective date of such termination. The fee equals 20% of the realized capital gains, less the aggregate amount of any previously paid capital gains incentive fees. The incentive fee on capital gains is equal to realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis.





Under GAAP, the Company calculates capital gains incentive fees as if the Company had realized all assets at their fair values and liabilities at their settlement amounts as of the reporting date. GAAP requires that the capital gains incentive fee accrual assume the cumulative aggregate unrealized capital appreciation is realized, even though such unrealized capital appreciation is not payable under the Investment Advisory Agreement. Accordingly, the Company accrues a provisional capital gains incentive fee taking into account any unrealized gains or losses. There can be no assurance that such unrealized capital appreciation will be realized in the future and that the provisional capital gains incentive fee will become payable.





For the three and nine months ended September 30, 2019 and 2018 , the Company recorded no capital gains incentive fee. As of September 30, 2019 and December 31, 2018 , the Company recorded no capital gains incentive fee payable.





In the event that other organizational and offering expenses exceed 5.25% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering or other organizational and offering expenses, together with selling commissions, dealer manager fees and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of the Company’s common stock pursuant to its public offering or one or more private offerings at the time of the completion of the offering, then SIC Advisors shall be required to pay without reimbursement from the Company, or, if already paid by the Company, reimburse the Company, for amounts exceeding such 5.25% and 15% limit, as appropriate.





Administration Agreement


On April 5, 2012, the Company entered into an administration agreement (the “Administration Agreement”) with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes the Company with administrative services necessary to conduct its day-to-day operations. On February 28, 2013, Medley Capital LLC entered into a Sub-Administration Agreement with State Street Bank Global Fund Accounting and Custody to perform certain financial, accounting, administrative and other services on behalf of the Company. On April 4, 2019 , the Company’s board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on the Company’s behalf in performing its obligations. Such costs are reasonably allocated to the Company on the basis of assets, revenues, time records or other reasonable methods. The Company does not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. For the three and nine months ended September 30, 2019 , the Company recorded administrator expenses of $998,134 and $2,156,557 , respectively.  For the three and nine months ended September 30, 2018 , the Company recorded administrator expenses of $527,752 and $2,009,465 , respectively. As of September 30, 2019 and December 31, 2018 , the Company had administrator fees payable of $998,134 and $689,711 , respectively.





Expense Support and Reimbursement Agreement


From June 29, 2012 through December 31, 2016, the Company was party to an Expense Support and Reimbursement Agreement with SIC Advisors (the “Expense Support Agreement”). During the term of the Expense Support Agreement, SIC Advisors reimbursed the Company for operating expenses in an amount equal to the difference between the Company’s distributions paid to its stockholders in each month, less the sum of the Company’s net investment income, net realized capital gains and dividends paid to the Company from its portfolio companies, not included in net income and net realized capital gains, during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions were paid to the Company’s stockholders in any given month, then the Expense Support Reimbursement for such month was equal to such amount necessary in order for available operating funds for the month to equal zero. From April 1, 2016 until the expiration of the Expense Support Agreement on December 31, 2016, SIC Advisors made expense support payments on a discretionary basis by making an election on the last day of each month to fund an expense support payment in an amount equal to the difference between the Company’s distributions paid to stockholders during such





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month less the sum of the Company’s net investment income, net realized capital gains and dividends paid to the Company from its portfolio companies, not included in net income and net realized capital gains during such period.





The purpose of the Expense Support Agreement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes and to reduce operating expenses until the Company had raised sufficient capital to be able to absorb such expenses. The Expense Support Agreement expired on December 31, 2016.





Pursuant to the Expense Support Agreement, the Company will reimburse SIC Advisors for expense support payments it previously made following any calendar quarter for which the Company received net investment income, net realized capital gains and dividends from its portfolio companies (not included in net income and net realized capital gains) in excess of the distributions paid to the Company’s stockholders during such calendar quarter (the “Excess Operating Funds”). Any such reimbursement will be made within three years of the date that the expense support payment obligation was incurred by SIC Advisors, subject to the conditions described below. The amount of the reimbursement during any calendar quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been reimbursed. In addition, the Company will only make reimbursement payments to the extent its current annualized “operating expense ratio” (as described in footnote 1 to the table below) is equal to or less than its operating expense ratio for the quarter during which the corresponding expense obligation was incurred and to the extent the annualized rate of its regular cash dividends to the Company’s stockholders for the month is equal to or greater than the annualized rate of the Company’s regular cash distributions to stockholders for the month during which the corresponding expense payment was incurred.





Repayments of amounts paid by SIC Advisors to the Company under the Expense Support Agreement will be accrued as they become probable and estimable. The Company refers to Expense Support Reimbursements that are eligible for reimbursement to SIC Advisors by virtue of having satisfied the conditions described above as a “Crystalized Reimbursement.” As of September 30, 2019 and December 31, 2018 , the Company did not record any Crystalized Reimbursements. As of September 30, 2019 and December 31, 2018 , the total remaining amount eligible for reimbursement of the Company to SIC Advisors, net of Crystalized Reimbursements, was $0 and $16,228,913 , respectively.





The following table provides information regarding liabilities incurred by SIC Advisors pursuant to the Expense Support Agreement as well as other information relating to the Company’s ability to reimburse SIC Advisors for such payments:





Quarter EndedAmount of Expense Payment ObligationAmount Repaid to SIC AdvisorsOperating Expense Ratio(1)Annualized Distribution Rate(2)Eligible to beRepaid ThroughMarch 31, 2015(3)1,993,518—0.43%8.00%March 31, 2018June 30, 2015(3)2,148,462—0.31%8.00%June 30, 2018September 30, 2015(3)627,752—0.32%8.25%September 30, 2018December 31, 2015(3)3,974,895—0.40%8.65%December 31, 2018March 31, 2016(3)5,204,896—0.37%8.89%March 31, 2019June 30, 2016(3)5,634,390—0.29%8.89%June 30, 2019September 30, 2016(3)5,389,627—0.45%8.84%September 30, 2019





|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | “Operating Expense Ratio” is as of the date the expense support payment obligation was incurred by the Company’s Advisor and includes all expenses borne by the Company, except for organizational and offering expenses, base management and incentive fees owed to SIC Advisors, and interest expense, as a percentage of net assets.

|    |                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | “Annualized Distribution Rate” equals the annualized rate of distributions paid to stockholders based on the amount of the regular cash distribution paid immediately prior to the date the expense support payment obligation was incurred by SIC Advisors. “Annualized Distribution Rate” does not include special cash or stock distributions paid to stockholders.

|    |                                                                     
|--- | --------------------------------------------------------------------
|(3) | The unreimbursed part of the expense payment obligation has expired.







Note 8. Related Party Transactions


On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represented $9.025 per share.





On April 17, 2012, SIC Advisors purchased 1,108,033.24 shares of our common stock for aggregate gross proceeds of $10,000,000. The consideration represented $9.025 per share.





We have entered into an Investment Advisory Agreement with SIC Advisors in which our senior management holds an equity interest and were party to the Expense Support Agreement through December 31, 2016. Members of our senior management also serve as





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principals of other investment managers affiliated with SIC Advisors that do, and may in the future, manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.





We have entered into an Administration Agreement with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. Medley Capital LLC is an affiliate of SIC Advisors.





The dealer manager agreement that we entered into with SC Distributors, LLC in connection with our offering was terminated pursuant to its terms in connection with the termination of our offering, effective as of July 31, 2018.





On July 29, 2019, the Company entered into the Amended MCC Merger Agreement, by and between MCC and the Company, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock, other than shares of MCC’s common stock held by MCC, the Company or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of the Company’s common  stock if the Plaintiff Attorney Fees are less than or equal to $10,000,000, (ii) 0.66 shares of the Company’s common  stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of the Company’s common  stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000; provided that cash will be paid in lieu of fractional shares of the Company’s common  stock issuable in the MCC Merger.





In addition, on July 29, 2019, the Company entered into the Amended MDLY Merger Agreement, by and among MDLY, the Company, and Merger Sub, pursuant to which MDLY will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A Common Stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than the Excluded MDLY Shares and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger effective time, by any person other than a Medley LLC Unitholder, will be exchanged for (i) 0.2668 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.96 per share. In addition, in the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger effective time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger effective time, by the Medley LLC Unitholders will be exchanged for (i) 0.2072 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.66 per share.





As a result of the foregoing, the investment management function relating to the operation of the Combined Company will be internalized. Pursuant to the terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If the Mergers are, or only the MDLY Merger is consummated, the Company’s common stock will be listed on the New York Stock Exchange under the symbol "SRA, with such listing expected to be effective as of the closing date of the Mergers or only the MDLY Merger, as applicable. If the MCC Merger is also consummated, the Company’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the Mergers.





Set forth below is a description of the Decision (as defined below), which should be read in the context of the impact that the Decision and corresponding Settlement (as defined below).





On February 11, 2019, a purported stockholder class action was commenced in the Delaware Court of Chancery by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, the Company, MCC, MCC Advisors LLC, Medley Group LLC, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC’s stockholders in connection with the MCC Merger, and that MDLY, the Company, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the MCC Merger Agreement. The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The





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Delaware Court of Chancery denied FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that the Company aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC’s stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Delaware Court of Chancery, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Delaware Court of Chancery granted a stipulation consolidating the MCC Stockholder Action and the Altman Action, designating the amended complaint in the MCC Stockholder Action as the operative complaint, and designating the plaintiffs in the MCC Stockholder Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.





On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the MCC Stockholder Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019, MDLY entered into a Stipulation of Settlement (and, as amended, on August 8, 2019, the “Stipulation”) by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the MCC Stockholder Action.





The Stipulation provides for the settlement of all claims brought against the Medley Parties in the MCC Stockholder Action. Under the Stipulation, MCC agreed to seek to obtain the agreement and/or consent of the Company to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of the Company’s stock, with the number of shares of the Company’s stock to be calculated using the pro forma NAV reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain actions, including consenting to certain amendments to the Merger Agreements That have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.





The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the MCC Stockholder Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the MCC Stockholder Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.





The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision.





The Stipulation is subject to the approval of the Delaware Court of Chancery. On September 26, 2019, FrontFour filed a motion seeking an order approving the Stipulation, and also moved for the Delaware Court of Chancery to award plaintiffs’ counsel attorneys’ fees in the amount of $22 million and expenses in the amount of $420,334.97 (the “Fee Application”).  The Delaware Court of Chancery held  a hearing to consider the Stipulation and the Fee Application on October 24, 2019.  The parties submitted supplemental briefing with respect to the Stipulation on October 31, 2019.  To date, the Delaware Court of Chancery has not issued a decision with respect to approval of the Stipulation or the Fee Application.





We have entered into a license agreement with SIC Advisors under which SIC Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Sierra” for specified purposes in our business. Under this agreement, we will have a right to use the “Sierra” name, subject to certain conditions, for so long as SIC Advisors or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Sierra” name.








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Opportunities for co-investments may arise when SIC Advisors or an affiliated adviser becomes aware of investment opportunities that may be appropriate for the Company and other clients or affiliated funds. The Company obtained an exemptive order from the SEC on November 25, 2013 (the “Prior Exemptive Order”). On March 29, 2017, the Company, SIC Advisors and certain other affiliated funds and investment advisers received an exemptive order (the "Exemptive Order") that supersedes the Prior Exemptive Order and allows affiliated registered investment companies to participate in co-investment transactions with us that would otherwise have been prohibited under Section 17(d) and 57(a)(4) and Rule 17d-1. On October 4, 2017, the Company, SIC Advisors and certain of our affiliates received an exemptive order that supersedes the Exemptive Order (the “Current Exemptive Order”) and allows, in addition to the entities already covered by the Exemptive Order, Medley LLC and its subsidiary, Medley Capital LLC, to the extent they hold financial assets in a principal capacity, and any direct or indirect, wholly- or majority-owned subsidiary of Medley LLC that is formed in the future, to participate in co-investment transactions with us that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. If the Mergers are successfully consummated, the Company and certain of its affiliates will not be able to rely on the Current Exemptive Order. In this regard, on November 19, 2018, the Company and certain of its affiliates submitted an exemptive application to the SEC for an exemptive order that would supersede the Current Exemptive Order (the “Superseding Exemptive Order”) and would permit the Company to participate in negotiated co-investment transactions with certain affiliates that would otherwise be prohibited by either or both of Sections 17(d) and 57(a)(4) of the 1940 Act. There can be no assurance if and when the Company will receive the Superseding Exemptive Order. The terms of the Superseding Exemptive Order, if received, would be substantially similar to the Current Exemptive Order. Co-investment under the Superseding Exemptive Order is subject to certain conditions therein, including the condition that, in the case of each co-investment transaction, the board of directors determines that it would be in the Company’s best interest to participate in the transaction. The Current Exemptive Order will remain in effect unless and until the Mergers are completed and the Superseding Exemptive Order is granted by the SEC. However, neither we nor the affiliated funds are obligated to invest or co-invest when investment opportunities are referred to us or them. Please see the footnotes to the consolidated schedule of investments as of September 30, 2019 and December 31, 2018 for disclosures regarding securities also held by affiliated funds.








Note 9. Directors Fees


Effective January 1, 2017, each independent director will be compensated as follows: (i) an annual retainer of $85,000; (ii) a fee of $3,000 for each in-person board meeting in which they participate; (iii) a fee of $1,000 for each telephonic board meeting in which they participate; (iv) a fee of $2,500 for each in-person audit committee meeting in which they participate; (v) a fee $1,000 for each telephonic audit committee meeting in which they participate; (vi) a fee of $2,000 for each in-person nominating and corporate governance committee meeting in which they participate; and (vii) a fee of $1,000 for each telephonic nominating and corporate governance committee meeting in which they participate. In addition, each independent director will be reimbursed for reasonable and documented out-of-pocket expenses incurred in connection with attending each board or committee meeting. In addition, the Chair of the audit committee receives an annual retainer of $15,000, while the Chair of any other committee receives an annual retainer of $5,000. The Lead Independent Director receives an annual retainer of $10,000.





Prior to January 1, 2017, each independent director received an annual retainer fee of $50,000, and further received a fee of $4,000 ($2,000 for telephonic attendance) for each regularly scheduled board meeting attended, a fee of $2,000 for each special board meeting and all committee meetings attended, as well as reimbursement of reasonable and documented out-of-pocket expenses incurred in connection with attending each board or committee meeting.





In addition, the Board established a special committee, which is comprised solely of its independent directors (the “Sierra Special Committee”), for the purpose of assessing the merits of various proposed strategic transactions. On January 26, 2018, as compensation for serving on the Special Committee, the Board approved (i) a one-time retainer of $25,000, (ii) a monthly fee of $15,000 payable to the Chairman of the Sierra Special Committee, (iii) a monthly fee of $10,000 payable to each of the other members of the Sierra Special Committee, and (iv) reimbursement for all out-of-pocket expenses incurred by the members of the Sierra Special Committee in connection with his or her services as a member of the Special Committee consistent with the Company’s policies for reimbursement of members of the Board. On July 2, 2018, the Board approved an increase in (i) the monthly fee payable to the Chariman of the Special Committee from $15,000 to $20,000 and (ii) the monthly fee payable to each of the other members of the Sierra Special Committee from $10,000 to $15,000.





For the three and nine months ended September 30, 2019 and 2018 , the Company recorded directors' fees expenses in General and Administrative expenses on the consolidated statement of operations of $246,750 and $783,750 and $258,750 and $719,169 , respectively.








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Note 10. Earnings Per Share


In accordance with the provisions of ASC Topic 260 - Earnings per Share , basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.





The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations for the three and nine months ended September 30, 2019 and 2018 :


For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Net increase/(decrease) in net assets from operations$(18,812,388)$(5,706,104)$(20,953,094)$(12,046,454)Weighted average common shares outstanding101,035,42097,047,494100,116,49397,142,433Weighted average basic and diluted earnings per common share$(0.19)$(0.06)$(0.21)$(0.12)








Note 11. Commitments


As of September 30, 2019 and December 31, 2018 , the Company had $26,758,742 and $49,555,687 , respectively, of unfunded commitments under loan and financing agreements. These amounts are primarily composed of commitments for senior secured term loans, revolvers, and additional capital contributions for the Sierra JV. The unrealized gain or loss associated with unfunded commitments is recorded in the financial statements and reflected as an adjustment to the valuation of the related security in the Consolidated Schedule of Investments. The par amount of the unfunded commitments are not recognized by the Company until the commitment is funded.


As ofSeptember 30, 2019December 31, 20181888 Industrial Services, LLC$—$566,007AAAHI Acquisition Corporation1,586,9821,597,633Access Media Holdings, LLC88,20088,200Alpine SG, LLC1,000,0001,000,000Barry's Bootcamp Holdings, LLC—3,668,571Black Angus Steakhouses, LLC2,232,1434,352,679Central States Dermatology Services, LLC—314,351Charming Charlie LLC1,217,4482,252,279DataOnline Corp.1,180,0001,180,000Dynamic Energy Services International LLC1,713,1041,753,323Isola USA Corp.1,138,2771,138,277Kemmerer Operations, Inc.908,475—Manna Pro Products, LLC—325,000Offen, Inc.1,061,947—Path Medical, LLC—393,600PT Network, LLC—4,437,433Redwood Services Group, LLC1,437,5001,725,000RMS Holding Company, LLC—264,454SavATree, LLC—158,889SFP Holding, Inc.2,150,0002,863,985Sierra Senior Loan Strategy JV I LLC4,200,0004,200,000Simplified Logistics, LLC5,000,0005,000,000Smile Doctors LLC1,844,6664,305,655Elite Comfort Solutions LLC—2,499,293SRS Software, LLC—5,000,000TwentyEighty, Inc.—471,058Total Commitments$26,758,742$49,555,687








Note 12. Fee Income





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Fee income consists of origination fees, amendment fees, prepayment fees, administrative agent fees and other miscellaneous fees. Origination fees, prepayment fees, amendment fees, and other similar fees are non-recurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income. The following table shows the Company’s fee income for the three and nine months ended September 30, 2019 and 2018 :


For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Origination fees$4,703$1,199,833$52,793$2,278,772Prepayment fees192,215—2,704,751329,104Amendment fees110,580122,414420,435231,803Administrative agent fees24,33754,52982,927118,135Other fees7,78612,0188,60123,121Fee income$339,621$1,388,794$3,269,507$2,980,935








Note 13. Distributions and Share Repurchase Program Distributions


Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Company’s board of directors.





The Company has adopted an “opt in” distribution reinvestment plan (“DRIP”) pursuant to which the Company’s common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of the Company’s common stock. On June 30, 2017, the Board approved an amendment to the DRIP, pursuant to which the number of newly-issued shares of the Company’s common stock to be issued to a participating stockholder shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by a price equal to 94.5%, rather than 90%, of the Company’s then current offering price. The Company amended the DRIP as a result of the Company’s revised fee structure, which went into effect on June 16, 2017. Under the Company’s revised fee structure the upfront selling commission was reduced from 7.00% of gross proceeds to up to 3.00% of gross proceeds and the dealer manager fee was reduced from 2.75% of gross proceeds to up to 2.50% of gross proceeds. If the Company declares a cash dividend or other distribution, each stockholder that has “opted in” to the DRIP will have their distributions automatically reinvested in additional shares of the Company’s common stock rather than receiving cash distributions. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions. For the nine months ended September 30, 2019 , the Company distributed a total of $47,902,108 , of which $29,596,806 was in cash and $18,305,302 was in the form of common stock associated with the DRIP. For the nine months ended September 30, 2018 , the Company distributed a total of $46,592,535 , of which $27,043,560 , was in cash and $19,548,975 was in the form of common stock associated with the DRIP.





The following table reflects the cash distributions per share that the Company has declared or paid to its stockholders during 2019 and 2018 . Stockholders of record as of each respective record date were entitled to receive the distribution.








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Record DatePayment DateAmount per shareJanuary 15 and 31, 2018January 31, 20180.02667February 15 and 28, 2018February 28, 20180.02667March 15 and 30, 2018March 30, 20180.02667April 13 and 30, 2018April 30, 20180.02667May 15 and 31, 2018May 31, 20180.02667June 15 and 29, 2018June 29, 20180.02667July 13 and 31, 2018July 31, 20180.02667August 15 and 31, 2018August 31, 20180.02667September 14 and 28, 2018September 28, 20180.02667October 15 and 31, 2018October 31, 20180.02667November 15 and 30, 2018November 30, 20180.02667December 14 and 31, 2018December 31, 20180.02667January 25, 2019January 31, 20190.05334February 11, 2019February 28, 20190.05334March 11, 2019March 29, 20190.05334April 29, 2019April 30, 20190.05334May 30, 2019May 31, 20190.05334June 27, 2019June 28, 20190.05334July 30, 2019July 31, 20190.05334August 29, 2019August 30, 20190.05334September 27, 2019September 30, 20190.05334





The Company’s distributions may be funded from offering proceeds or borrowings, which may constitute a return of capital and reduce the amount of capital available to the Company for investment. Any capital returned to stockholders through distributions will be distributed after payment of fees and expenses.





The Company’s previous distributions to stockholders may have been funded from temporary Expense Support Reimbursements that may be subject to repayment to SIC Advisors. The portion of these distributions derived from temporary Expense Support Reimbursements were not based on the Company's investment performance and may not continue in the future. If SIC Advisors had not agreed to make Expense Support Reimbursements, these distributions would have come from paid-in-capital. The repayments of eligible reimbursements owed to SIC Advisors will reduce the future distributions to which stockholders would otherwise be entitled. The Expense Support Agreement expired on December 31, 2016. The Company's contingent obligation to repay eligible reimbursements to SIC Advisors expired on September 30, 2019. See Note 7 for more information.





The determination of the tax attributes (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution) of distributions is made annually as of the end of the Company’s fiscal year based upon its taxable income earned and distributions paid during the fiscal year.





Share Repurchase Program


In June 2013, the Company commenced a share repurchase program pursuant to which it conducted quarterly share repurchases of up to 2.5% of the weighted average number of outstanding shares of its common stock in the prior four calendar quarters or 10% of the weighted average number of outstanding shares in the prior 12-month period.  In connection with the Mergers, the Company suspended the Share Repurchase Program. The purpose of the share repurchase program was to allow stockholders to sell their shares back to the Company at a price equal to the most recently disclosed NAV per share of the Company's common stock immediately prior to the date of repurchase. Shares were purchased from stockholders participating in the program on a pro-rata basis. Unless the Company's board of directors determined otherwise, the number of shares repurchased during any calendar year were limited to the proceeds received in association with the sale of shares of common stock under the distribution reinvestment plan.








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The following table reflects activity under the Company’s Share Repurchase Program: Offer DateQuantity OfferedPrice per ShareRepurchase DateRepurchase Quantity6/4/201316,652$9.18——8/8/201332,6279.139/27/20133,64211/7/201360,9669.1412/19/20135,8263/12/2014120,8169.184/25/20149,8355/6/2014199,4769.206/13/201417,7778/5/2014294,0689.259/12/201435,88711/5/2014411,8949.2212/24/2014411,8943/4/2015535,5718.974/24/201568,4725/6/2015620,4208.986/24/201590,9168/5/2015727,6548.969/29/2015328,35311/3/2015853,6888.5612/23/2015285,5593/2/2016959,4368.164/29/2016959,4365/5/20161,005,4478.046/30/2016855,2158/4/20161,048,4128.119/28/20161,048,40711/25/20161,077,3708.1412/27/20161,077,3524/4/2017871,8158.175/4/2017871,8065/23/2017876,2778.106/23/2017876,2548/24/2017870,3608.029/25/2017870,33711/22/2017873,9747.8912/22/2017873,9323/27/2018895,0707.665/8/2018895,0365/21/2018890,0897.496/29/2018890,048


In the event of the death or disability of a stockholder, the Company will repurchase the shares held by such stockholder at a price equal to the NAV per share of our shares as disclosed in the periodic report the Company files with the SEC immediately following the date of the death or disability of such stockholder. The Company's board of directors has the right to suspend or terminate repurchases due to death or disability to the extent that it determines that it is in the Company's best interest to do so. In connection with the Mergers, the Company suspended repurchases due to death or disability. During the three and nine months ended September 30, 2019 , the Company repurchased 144,356 and 144,356 , respectively, of  certain shareholders due to death or disability.  During the three and nine months ended September 30, 2018 , the Company repurchased 168,845 and 263,737 shares, respectively, of certain shareholders due to death or disability.





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Note 14. Financial Highlights


The following is a schedule of financial highlights of the Company for the nine months ended September 30, 2019 and 2018 : 20192018Per Share Data:(1)Net asset value at beginning of period$6.72$7.66Net investment income0.260.37Net realized gains/(losses) on investments and total return swap(0.35)(0.51)Net unrealized appreciation/(depreciation) on investments and total return swap(0.12)0.01Net increase/(decrease) in net assets$(0.21)$(0.13)Distributions from return of capital——Distributions declared from net investment income(2)(0.48)(0.48)Distributions from net realized capital gains——Total distributions to shareholders$(0.48)$(0.48)Issuance of common shares above net asset value(3)——Net asset value at end of period$6.03$7.05Total return based on net asset value(4)(5)(3.11)%(1.73)%Portfolio turnover rate(5)22.82%18.12%Shares outstanding at end of period101,330,75797,546,600Net assets at end of period$610,610,747$687,862,214Ratio/Supplemental Data (annualized):Ratio of net investment income to average net assets5.45%6.75%Ratio of net expenses (including incentive fees) to average net assets7.54%7.03%Ratio of incentive fees to average net assets(5)0.03%0.06%Supplemental Data (annualized):Asset coverage ratio per unit(6)$2,861$2,407Percentage of non-recurring fee income(7)6.76%5.19%Ratio of net expenses (excluding incentive fees) to average net assets7.52%6.96%Ratio of interest and financing related expenses to average net assets3.25%2.96%Total Debt Outstanding:(8)(9)Revolving Credit Facility$328,100,000$370,000,000Total Return Swap(10)$—$126,316,942





|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The per share data was derived by using the weighted average shares outstanding during thenine months ended September 30, 2019and2018, which were100,116,493and97,142,433respectively.

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|--- | ------------------------------------------------------------------------------------------------------------
|(2) | The per share data for distributions is the actual amount of paid distributions per share during the period.

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|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Shares issued under the DRIP (see Note 13) as well as the continuous issuance of common shares may cause on incremental increase/decrease in NAV per share due to the effect of issuing shares at amounts that differ from the prevailing NAV at each issuance.

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|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Total annual returns are historical and assume reinvestments of all dividends and distributions at prices obtained under the Company’s DRIP, and no sales charge.

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|--- | ---------------
|(5) | Not annualized.

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|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Asset coverage per unit is the ratio of the carrying value of the Company's total consolidated assets for regulatory purposes, which includes the underlying fair value of net TRS, less all liabilities and indebtedness not represented by senior securities to the aggregate amount of Senior Securities representing indebtedness and the implied leverage on the TRS. Asset coverage per unit is expressed in terms of dollars per $1,000 of indebtedness. As ofSeptember 30, 2019and2018, the Company's Asset Coverage Per Unit including unfunded commitments was$2,645and$2,119, respectively.

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|--- | -------------------------------------------------------------------------
|(7) | Represents the impact of non-recurring fees over total investment income.

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|--- | -------------------------------------------------------------------------------------------------------------------
|(8) | Total amount of each class of senior securities outstanding at the end of the period excluding debt issuance costs.

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|--- | ---------------------------------------------------------------------------------------------------------------------
|(9) | Average market value per unit is not applicable as these classes of securities are not registered for public trading.

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|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | The TRS amount is comprised of the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by Arbor under the TRS.







Note 15. Subsequent Events


Management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the nine months ended September 30, 2019 , except as disclosed below.














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On October 29, 2019 , our board of directors declared a series of monthly distributions for October, November and December 2019 in the amount of $0.05334 per share. Stockholders of record as of each respective monthly record date will be entitled to receive the distribution. Below are the details for each respective distribution:





Record DatePayment DateAmount per shareOctober 30, 2019October 31, 2019$0.05334November 28, 2019November 29, 20190.05334December 30, 2019December 31, 20190.05334








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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.


The following discussion and analysis should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q.





Except as otherwise specified, references to “we,” “us,” “our,” or the “Company,” refers to Sierra Income Corporation. “SIC Advisors” or “Adviser” refers to SIC Advisors LLC, our investment adviser. SIC Advisors is a wholly owned subsidiary of Medley LLC, which is controlled by Medley Management Inc., a publicly traded asset management firm, which in turn is controlled by Medley Group LLC, an entity wholly-owned by the senior professionals of Medley LLC. “Medley” refers, collectively, to the activities and operations of Medley Capital LLC, Medley LLC, Medley Management Inc., Medley Group LLC, SIC Advisors, associated investment funds and their respective affiliates.





Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including, but not limited to, statements as to:





|  |                              
|- | -----------------------------
|• | our future operating results;

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|• | our business prospects and the prospects of our portfolio companies;

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|• | changes in the economy;

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|• | risks associated with possible disruptions in our operations or the economy generally;

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|• | the effect of investments that we expect to make;

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|• | our contractual arrangements and relationships with third parties;

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|• | actual and potential conflicts of interest with SIC Advisors and its affiliates;

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|• | the dependence of our future success on the general economy and its effect on the industries in which we invest;

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|• | the ability of our portfolio companies to achieve their objectives;

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|• | the use of borrowed money to finance a portion of our investments;

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|- | ----------------------------------------------------------
|• | the adequacy of our financing sources and working capital;

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|- | ---------------------------------------------------------------------------------
|• | the timing of cash flows, if any, from the operations of our portfolio companies;

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|- | ----------------------------------------------------------------------------------------------------------------
|• | the ability of SIC Advisors to locate suitable investments for us and to monitor and administer our investments;

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|- | ---------------------------------------------------------------------------------------------------
|• | the ability of SIC Advisors and its affiliates to attract and retain highly talented professionals;

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|- | --------------------------------------------------------------------
|• | our ability to maintain our qualification as a RIC and as a BDC; and

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|- | ----------------------------------------------------------------------
|• | the effect of changes in laws or regulations affecting our operations.




This quarterly report on Form 10-Q also includes “forward-looking” statements regarding the proposed transactions. Because forward-looking statements, such as the date that the parties expect the proposed transactions to be completed and the expectation that the proposed transactions will provide improved liquidity for the Company, MCC, and MDLY’s stockholders and will be accretive to net investment income for both the Company and MCC, include risks and uncertainties, actual results may differ materially from those expressed or implied and include, but are not limited to, those discussed in each of the Company’s, MCC’s and MDLY’s filings with the SEC, and (i) the satisfaction or waiver of closing conditions relating to the proposed transactions described herein, including, but not limited to, the requisite approvals of the stockholders of each of the Company, MCC, and MDLY; the Company successfully taking all actions reasonably required with respect to certain outstanding indebtedness of MCC and MDLY to prevent any material adverse effect relating thereto; certain required approvals of the SEC (including necessary exemptive relief to consummate the merger transactions), approval by the Court of Chancery of the State of Delaware of the Stipulation of Settlement in connection with the consolidated actions under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, the necessary consents of certain third-party advisory clients of MDLY; and any applicable waiting period (and any extension thereof) applicable to the transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated; (ii) the parties’ ability to successfully consummate the proposed transactions, and the timing thereof; (iii) the results of the go-shop process that will be conducted by MCC’s special committee; and (iv) the possibility that competing offers or acquisition proposals related to the proposed transactions will be made and, if made, could be successful. Additional risks and uncertainties specific to the Company, MCC and MDLY include, but are not limited to, (i) the costs and expenses that the Company, MCC and MDLY have, and may incur, in connection with the proposed transactions (whether or not they are consummated); (ii) the impact that any litigation relating to the proposed transactions may have on any of the Company, MCC and MDLY; (iii) that projections with respect to distributions may prove to be incorrect; (iv) the Company’s ability to invest its portfolio of cash in a timely manner following the closing of the proposed transactions; (v) the market performance of the combined portfolio; (vi) the ability of portfolio companies to pay interest and principal in the future; (vii) the ability of MDLY to grow its fee earning assets under management; (viii) whether the Company, as the surviving company, will trade with more volume and perform better than MCC and MDLY prior to the proposed transactions;  and (ix) negative effects of entering into the proposed transactions on the trading volume and market price of MCC’s or MDLY’s common stock. There can be no assurance of the level of any distributions to be paid, if any, following consummation of the proposed transactions.





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Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “trend,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “potential,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The forward-looking statements contained in this quarterly report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including due to the factors set forth in “Risk Factors” in this quarterly report on Form 10-Q and in Item 1A “Risk Factors” in Part 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .





We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.





Overview


We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. We are externally managed by SIC Advisors, which is a registered investment adviser under the Advisers Act. SIC Advisors is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. In addition, we have elected, and intend to qualify annually to be treated, for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code.





Under our Investment Advisory Agreement, we pay SIC Advisors a base management fee as well as an incentive fee based on our investment performance. Also, under the Administration Agreement, we reimburse Medley for the allocable portion of overhead and other expenses incurred by Medley Capital LLC in performing its obligations under the Administration Agreement, including our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs.





We intend to meet our investment objective by primarily lending to, and investing in, the debt of privately owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $1 billion. We intend to focus primarily on making investments in first lien senior secured debt, second lien secured debt, and to a lesser extent, subordinated debt, of middle market companies in a broad range of industries. We expect that the majority of our debt investments will bear interest at floating interest rates, but our portfolio may also include fixed-rate investments. We will originate transactions sourced through SIC Advisors’ existing network, and, to a lesser extent, expect to acquire debt securities through the secondary market. We may make equity investments in companies that we believe will generate appropriate risk adjusted returns, although we do not expect such investments to be a substantial portion of our portfolio.





The level of our investment activity depends on many factors, including the amount of debt and equity capital available to prospective portfolio companies, the level of merger, acquisition and refinancing activity for such portfolio companies, the availability of credit to finance transactions, the general economic environment and the competitive environment for the types of investments we make. Based on prevailing market conditions, we anticipate that we will invest the proceeds from each subscription closing generally within 30-90 days. The precise timing will depend on the availability of investment opportunities that are consistent with our investment objectives and strategies.





As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if, pursuant to recent legislation, certain requirements under the 1940 Act are met) after such borrowing, with certain limited exceptions. To maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements. To be eligible for RIC tax treatment under Subchapter M for U.S. federal income tax purposes, we must distribute at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, for the taxable year.





Agreements and Plan of Mergers


On August 9, 2018, the Company entered into definitive agreements to acquire Medley Capital Corporation (NYSE/TASE: MCC, MCC) and Medley Management Inc. (NYSE:MDLY, "MDLY"). Pursuant to the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and the Company (the "MCC Merger Agreement"), MCC would, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company (the "Combined Company") in the merger (the "MCC Merger"). Under the MCC Merger, each share of MCC’s common stock issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC’s common stock held by MCC, the  Company or their respective wholly owned subsidiaries, would be converted into the right to receive 0.8050 shares of the Company’s common stock.





Simultaneously, pursuant to the Agreement and Plan of Merger (the "MDLY Merger Agreement" together with the MCC Merger Agreement, the “Merger Agreements”), dated as of August 9, 2018, by and among MDLY, the Company, and Sierra Management, Inc., a wholly owned subsidiary of the Company ("Merger Sub"), MDLY would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the Merger (the MDLY Merger together with the MCC Merger, the "Mergers"), and MDLY’s existing asset management business would continue to operate as a wholly owned subsidiary of the Combined Company. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A common stock held by MDLY, the Company or their respective wholly owned subsidiaries, would be converted into the right to receive (i) 0.3836 shares of our common stock; plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY's stockholders would have the right to receive certain dividends and/or other payments.





On July 29, 2019, the Company entered into amended and restated definitive agreements with MCC and MDLY.  Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and the Company, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock, other than shares of MCC’s common stock held by MCC, the Company or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of the Company’s common  stock if the attorneys’ fees of plaintiffs’ counsel and litigation expenses paid or incurred by plaintiffs’ counsel or advanced by plaintiffs in connection with the consolidated actions pending in the Court of Chancery of the State of Delaware (the “Delaware Court of Chancery”) under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM (the “MCC Stockholder Action” and such fees and expenses, the “Plaintiff Attorney Fees”) are less than or equal to $10,000,000, (ii) 0.66 shares of the Company’s common  stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of the Company’s common  stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000; provided that cash will be paid in lieu of fractional shares of the Company’s common  stock issuable in the MCC Merger.





Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among MDLY, the Company, and Merger Sub, pursuant to which MDLY will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A Common Stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than shares of MDLY Class A Common Stock held by MDLY, the Company or their respective wholly owned subsidiaries (the “Excluded MDLY Shares”) and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger effective time, by any person other than a Medley LLC Unitholder (as defined below), will be exchanged for (i) 0.2668 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.96 per share. In addition, in the MDLY Merger, each share of MDLY Class A Common Stock issued and outstanding immediately prior to the MDLY Merger effective time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger effective time, by holders of the issued and outstanding limited liability company interests of Medley LLC (the “Medley LLC Units” and, holders of the Medley LLC Units at any time on or after July 29, 2019, the “Medley LLC Unitholders”) will be exchanged for (i) 0.2072 shares of the Company’s common stock; provided that cash will be paid in lieu of fractional shares of the Company’s common stock; plus (ii) cash in an amount equal to $2.66 per share.





As a result of the foregoing, the investment management function relating to the operation of the Combined Company will be internalized. Pursuant to the terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If the Mergers are, or only the MDLY Merger is consummated, the Company’s common stock will be listed on the New York Stock Exchange under the symbol "SRA, with such listing expected to be effective as of the closing date of the Mergers or only the MDLY Merger, as applicable. If the MCC Merger is also consummated, the Company’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the Mergers.





Set forth below is a description of the Decision (as defined below), which should be read in the context of the impact that the Decision and corresponding Settlement Term Sheet (as defined below) may have on the Company with respect to any potential amendment to the Merger Agreements.





Set forth below is a description of the Decision (as defined below), which should be read in the context of the impact that the Decision and corresponding Settlement (as defined below).





On February 11, 2019, a purported stockholder class action was commenced in the Delaware Court of Chancery by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, the Company, MCC, MCC Advisors LLC, Medley Group LLC, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC’s stockholders in connection with the MCC Merger, and that MDLY, the Company, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the MCC Merger Agreement. The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Delaware Court of Chancery denied FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that the Company aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC’s stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Delaware Court of Chancery, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Delaware Court of Chancery granted a stipulation consolidating the MCC Stockholder Action and the Altman Action, designating the amended complaint in the MCC Stockholder Action as the operative complaint, and designating the plaintiffs in the MCC Stockholder Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.





On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the MCC Stockholder Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019, MDLY entered into a Stipulation of Settlement (and, as amended, on August 8, 2019, the “Stipulation”) by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the MCC Stockholder Action.





The Stipulation provides for the settlement of all claims brought against the Medley Parties in the MCC Stockholder Action. Under the Stipulation, MCC agreed to seek to obtain the agreement and/or consent of the Company to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of the Company’s stock, with the number of shares of the Company’s stock to be calculated using the pro forma NAV reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain actions, including consenting to certain amendments to the Merger Agreements That have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.





The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the MCC Stockholder Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the MCC Stockholder Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.





The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision.





The Stipulation is subject to the approval of the Delaware Court of Chancery. On September 26, 2019, FrontFour filed a motion seeking an order approving the Stipulation, and also moved for the Delaware Court of Chancery to award plaintiffs’ counsel attorneys’ fees in the amount of $22 million and expenses in the amount of $420,334.97 (the “Fee Application”).  The Delaware Court of Chancery held  a hearing to consider the Stipulation and the Fee Application on October 24, 2019.  The parties submitted supplemental briefing with respect to the Stipulation on October 31, 2019.  To date, the Delaware Court of Chancery has not issued a decision with respect to approval of the Stipulation or the Fee Application.





Revenues


We generate revenue in the form of interest on the debt securities that we hold and distributions and capital gains on other interests that we acquire in our portfolio companies. We expect that the senior debt we invest in will generally have stated terms of three to ten years and that the subordinated debt we invest in will generally have stated terms of five to ten years. Our senior and subordinated debt investments bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semiannually. In addition, some of our investments provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid interest generally will become due at the maturity date. In addition, we may generate revenue in the form of commitment and other fees in connection with transactions. OIDs and market discounts or premiums will be capitalized, and we will accrete or amortize such amounts as interest income. We will record prepayment premiums on loans and debt securities as fee income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.





Expenses


Our primary annual operating expenses consist of the payment of advisory fees and the reimbursement of expenses under our Investment Advisory Agreement with SIC Advisors and our Administration Agreement with Medley Capital LLC. We bear other expenses, which include, among other things:





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|• | corporate, organizational and offering expenses relating to offerings of our common stock, subject to limitations included in our Investment Advisory Agreement;

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|• | the cost of calculating our NAV, including the related fees and cost of any third-party valuation services;

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|• | the cost of effecting sales and repurchases of shares of our common stock and other securities;

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|• | fees payable to third parties relating to, or associated with, monitoring our financial and legal affairs, making investments, and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

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|• | interest payable on debt, if any, incurred to finance our investments;

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|• | transfer agent and custodial fees;

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|• | fees and expenses associated with marketing efforts subject to limitations included in the Investment Advisory Agreement;

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|• | federal and state registration fees and any stock exchange listing fees;

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|• | federal, state and local taxes;

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|• | independent directors’ fees and expenses, including travel expenses;

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|• | costs of director and stockholder meetings, proxy statements, stockholders’ reports and notices;

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|• | costs of fidelity bonds, directors and officers/errors and omissions liability insurance and other types of insurance;

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|• | direct costs, including those relating to printing of stockholder reports and advertising or sales materials, mailing, long distance telephone and staff subject to limitations included in the Investment Advisory Agreement;

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|• | fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act of 2002, the 1940 Act and applicable federal and state securities laws;

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|• | brokerage commissions for our investments;

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|• | all other expenses incurred by us or SIC Advisors in connection with administering our investment portfolio, including expenses incurred by SIC Advisors in performing certain of its obligations under the Investment Advisory Agreement; and

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|• | the reimbursement of the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs, whose compensation is paid by Medley Capital LLC, to the extent that each such reimbursement amount is annually approved by our independent director committee and subject to the limitations included in our Administration Agreement.




Administrative Services


We reimburse Medley Capital LLC for the administrative expenses necessary for its performance of services to us. However, such reimbursement is made at an amount equal to the lower of Medley Capital LLC’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. Also, such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.





Portfolio and Investment Activity


The following table shows the amortized cost and the fair value of our investment portfolio as of September 30, 2019 :


Amortized CostPercentageFair ValuePercentageSenior secured first lien term loans$419,330,17850.1%$365,464,03249.5%Senior secured second lien term loans158,038,53918.8142,716,81019.4Senior secured first lien notes15,965,0001.915,095,0002.0Subordinated notes72,058,2588.662,478,0398.5Sierra Senior Loan Strategy JV I LLC92,050,00011.073,409,35910.0Equity/warrants80,168,1379.677,787,41710.6Total$837,610,112100.0%$736,950,657100.0%





As of September 30, 2019 , our income-bearing investment portfolio, which represented 90.3% of our total portfolio, had a weighted average yield based upon the cost of our investment portfolio of 9.4% , and 4.7% of our income-bearing portfolio bore interest based on fixed rates, while 95.3% of our income-bearing portfolio bore interest at floating rates, such as LIBOR.





For the three months ended September 30, 2019 , we invested $22.5 million of principal in directly originated transactions across eight portfolio companies and $7 million of principal in syndicated transactions across one portfolio companies. As of September 30, 2019 , the investment portfolio was comprised of $703.6 million of principal in directly originated transactions across 68 portfolio companies and $128.3 million of principal in syndicated transactions across 23 portfolio companies.





The following table shows the amortized cost and the fair value of our investment portfolio as of December 31, 2018 :


Amortized CostPercentageFair ValuePercentageSenior secured first lien term loans$532,302,57352.9%$479,593,27952.0%Senior secured second lien term loans174,258,97117.3169,923,54718.4Senior secured first lien notes37,930,3083.835,495,0933.8Subordinated notes77,930,0627.766,187,8577.2Sierra Senior Loan Strategy JV I LLC92,050,0009.282,515,8608.9Equity/warrants91,194,9489.189,765,1269.7Total$1,005,666,862100.0%$923,480,762100.0%





As of December 31, 2018 , our income-bearing investment portfolio, which represented 89.3% of our total portfolio, had a weighted average yield based upon the cost of our investment portfolio of approximately 9.7% , and 9.3% of our income-bearing portfolio bore interest based on fixed rates, while 90.7% of our income-bearing portfolio bore interest at floating rates, such as LIBOR.





The following table shows weighted average current yield to maturity, including the yield of cash collateral on the TRS, based on fair value as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018Percentageof TotalInvestmentsWeighted AverageCurrentYield for TotalInvestments(1)Percentageof TotalInvestmentsWeightedAverageCurrentYield for TotalInvestments(1)Senior secured first lien term loans49.5%10.6%50.5%10.3%Senior secured second lien term loans19.412.517.813.3Senior secured first lien notes2.014.93.713.3Subordinated notes8.510.37.07.2Sierra Senior Loan Strategy JV I LLC10.09.78.79.7Equity/warrants10.69.712.312.2Total100.0%11.0%100.0%10.8%





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|(1) | The weighted average current yield for total investments does not represent the total return to our stockholders.

The following table shows the portfolio composition by industry classification based on fair value as of September 30, 2019 :





Industry ClassificationInvestmentsat FairValuePercentageof TotalPortfolioMulti-Sector Holdings$134,674,30818.3%Services: Business101,604,64913.8%High Tech Industries88,034,98611.9%Healthcare & Pharmaceuticals56,763,8577.7%Banking, Finance, Insurance & Real Estate49,008,2356.7%Construction & Building41,879,4745.7%Aerospace & Defense34,492,1444.7%Wholesale28,872,4783.9%Automotive24,397,6603.3%Consumer Goods: Durable24,283,5773.3%Hotel, Gaming & Leisure21,310,7302.9%Capital Equipment17,221,8682.3%Containers, Packaging & Glass15,788,7472.1%Services:  Consumer15,575,0002.1%Transportation: Cargo13,754,0491.9%Chemicals, Plastics & Rubber10,979,0421.5%Media: Diversified & Production10,524,2911.4%Energy: Oil & Gas10,300,0821.4%Forest Products & Paper7,073,9321.0%Transportation: Consumer6,833,8050.9%Environmental Industries6,425,4920.9%Media: Advertising, Printing & Publishing5,116,7150.7%Consumer Goods: Non-durable4,682,1970.6%Metals & Mining3,467,1150.5%Media: Broadcasting & Subscription2,195,4530.3%Retail1,690,7710.2%Total$736,950,657100.0%








The following table shows the portfolio composition by industry classification, including the TRS underlying loans, based on fair value as of December 31, 2018 :


Industry ClassificationInvestmentsat FairValue(1)Percentageof TotalPortfolio(1)Value ofTRSUnderlyingLoansPercentageof TRSUnderlyingLoansTotalInvestmentsat Fair Valueincluding thevalue of TRSUnderlyingLoansPercentageof TotalPortfolioIncluding the value of TRSUnderlyingLoansServices:  Business$156,398,95716.9%$10,773,82115.0%$167,172,77816.9%Multi-Sector Holdings147,751,33716.0%——147,751,33714.8Healthcare & Pharmaceuticals75,750,1458.2%9,509,39513.285,259,5408.6High Tech Industries72,744,7127.9%4,421,9846.177,166,6967.8Banking, Finance, Insurance & Real Estate53,079,9835.7%3,004,3644.256,084,3475.6Aerospace & Defense55,177,3036.0%——55,177,3035.5Construction & Building50,606,6345.5%——50,606,6345.1Wholesale42,859,1214.6%——42,859,1214.3Hotel, Gaming & Leisure34,305,5633.7%——34,305,5633.4Transportation: Cargo25,736,2612.8%5,338,7207.431,074,9813.1Consumer Goods: Durable23,617,2932.6%7,386,96510.331,004,2583.1Automotive25,711,8382.8%1,708,5422.427,420,3802.8Capital Equipment11,187,5001.2%12,707,31717.623,894,8172.4Chemicals, Plastics & Rubber22,245,2362.4%——22,245,2362.2Media: Advertising, Printing & Publishing15,298,9161.7%5,509,3027.620,808,2182.1Energy: Oil & Gas14,779,3431.6%3,030,7894.217,810,1321.8Services: Consumer11,801,3891.3%4,469,7026.216,271,0911.6Containers, Packaging & Glass16,165,0411.8%——16,165,0411.6Media: Diversified & Production14,321,3991.6%——14,321,3991.4Retail8,605,1490.9%——8,605,1490.9Forest Products & Paper7,690,1170.8%——7,690,1170.8Consumer Goods: Non-Durable7,522,9880.8%——7,522,9880.8Transportation: Consumer7,402,3670.8%——7,402,3670.7Metals & Mining6,925,6150.7%——6,925,6150.7Environmental Industries5,164,0680.6%——5,164,0680.5Media: Broadcasting & Subscription5,053,5470.5%——5,053,5470.5Beverage & Food4,742,1000.5%——4,742,1000.5Utilities:  Electric——%4,165,6375.84,165,6370.4Telecommunications836,8400.1%——836,8400.1Total$923,480,762100.0%$72,026,538100.0%$995,507,300100.0%





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|(1) | Does not include TRS underlying loans

SIC Advisors regularly assesses the risk profile of our portfolio investments and rates each of them based on the categories set forth below, which we refer to as SIC Advisors’ investment credit rating. Investment credit ratings are assigned to each of the investments in our portfolio that are directly held by the Company, but exclude any off-balance sheet interests of the Company, such as the loans underlying the TRS:


InvestmentCredit RatingDefinition1Investments that are performing above expectations.2Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination or purchase. All new loans are rated ‘2’.3Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected. Companies rated ‘3’ may be out of compliance with financial covenants, however, loan payments are generally not past due.4Investments that are performing below expectations and for which risk has increased materially since origination or purchase. Some loss of interest or dividend is expected, but no loss of principal. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).5Investments that are performing substantially below expectations and whose risks have increased substantially since origination or purchase. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Some loss of principal is expected.





The following table shows the distribution of our investment portfolio, not including cash and cash equivalents, on the 1 to 5 investment credit rating scale at fair value as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018InvestmentCredit RatingInvestments atFair ValuePercentageInvestments atFair ValuePercentage1$83,983,46511.4%$36,018,9313.9%2459,337,68162.3701,419,81575.93161,030,10621.9140,325,00815.2424,494,3583.33,597,5280.458,105,0471.142,119,4804.6Total$736,950,657100.0%$923,480,762100.0%


Results of Operations


The following table shows operating results for the three and nine months ended September 30, 2019 and 2018 :


For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Total investment income$18,160,825$24,477,122$62,977,848$73,728,045Total expenses12,403,23912,119,75336,566,04137,695,619Net investment income5,757,58612,357,36926,411,80736,032,426Net realized gain/(loss) from investments and total return swap(19,721,169)(18,244,576)(34,973,608)(49,080,881)Net change in unrealized appreciation/(depreciation) on investments and total return swap(4,405,963)562,829(11,948,451)1,305,449Change in provision for deferred taxes on unrealized gain on investments(442,842)(381,726)(442,842)(303,448)Net increase/(decrease) in net assets resulting from operations$(18,812,388)$(5,706,104)$(20,953,094)$(12,046,454)





Investment Income


Total investment income decreased  $6,316,297 , or 25.8% , to $18,160,825 for the three months ended September 30, 2019 , compared to $24,477,122 for the three months ended September 30, 2018 . Total investment income consisted primarily of portfolio interest and dividends, which decreased  $5,565,308 , or 24.2% , to $17,409,350 for the three months ended September 30, 2019 , compared to $22,974,658 for the three months ended September 30, 2018 . This decrease was primarily due to a decrease in the size of the underlying portfolio due to our reduced leverage utilization. Fee income decreased  $1,049,173 , or 75.5% , to $339,621 for the three months ended September 30, 2019 , compared to $1,388,794 for the three months ended September 30, 2018 , primarily due to an decrease in fees associated with loan originations and loan prepayments.





Total investment income decreased  $10,750,197 , or 14.6% , to $62,977,848 for the nine months ended September 30, 2019 , compared to $73,728,045 for the nine months ended September 30, 2018 . Total investment income consisted primarily of portfolio interest and dividends, which decreased  $11,892,846 , or 16.9% , to $58,662,441 for the nine months ended September 30, 2019 , compared to $70,555,287 for the nine months ended September 30, 2018 . This decrease was primarily due to a decrease in the size of the underlying portfolio due to our reduced leverage utilization. Fee income increased  $288,572 , or 9.7% , to $3,269,507 for the nine months ended September 30, 2019 , compared to $2,980,935 for the nine months ended September 30, 2018 , primarily due to an increase in fees associated with loan originations and loan prepayments.


Operating Expenses


The following table shows operating expenses for the three and nine months ended September 30, 2019 and 2018 :





For the Three Months EndedSeptember 30,For the Nine Months EndedSeptember 30,2019201820192018Base management fees$4,180,333$4,681,915$12,957,961$14,520,226Interest and financing expenses5,078,7815,453,36515,744,24815,845,574Incentive fees176,061446,703176,061446,703General and administrative expenses1,556,5141,053,7994,076,5073,695,757Administrator expenses998,134527,7522,156,5572,009,465Offering costs6,322(655,352)42,158(184,366)Professional fees407,094611,5711,412,5491,362,260Total expenses$12,403,239$12,119,753$36,566,041$37,695,619





Total expenses increased  $283,486 , or 2.3% , to $12,403,239 for the three months ended September 30, 2019 , as compared to $12,119,753 for the three months ended September 30, 2018 , primarily due to an increase in general and administrative expenses and administrator expenses. Total expenses decreased  $1,129,578 , or 3.0% , to $36,566,041 for the nine months ended September 30, 2019 , as compared to $37,695,619 for the nine months ended September 30, 2018 , primarily due to a decrease in base management fees.





Base management fees decreased  $501,582 , or 10.7% , to $4,180,333 for the three months ended September 30, 2019 , as compared to $4,681,915 for the three months ended September 30, 2018 , primarily due to a decrease in our gross assets. Base management fees decreased  $1,562,265 , or 10.8% , to $12,957,961 for the nine months ended September 30, 2019 , as compared to $14,520,226 for the nine months ended September 30, 2018 , primarily due to a decrease in our gross assets.





Interest and financing expenses decreased  $374,584 , or 6.9% , to $5,078,781 for the three months ended September 30, 2019 , as compared to $5,453,365 for the three months ended September 30, 2018 , primarily due to a decrease in the average outstanding balance of our credit facilities. Interest and financing expenses decreased  $101,326 , or 0.6% , to $15,744,248 for the nine months ended September 30, 2019 , as compared to $15,845,574 for the nine months ended September 30, 2018 , primarily due to a decrease in the average outstanding balance of our credit facilities.





Expense Support and Reimbursement Agreement


From June 29, 2012 through December 31, 2016, we were party to an Expense Support and Reimbursement Agreement with SIC Advisors (the “Expense Support Agreement”). During the term of the Expense Support Agreement, SIC Advisors reimbursed us for operating expenses in an amount equal to the difference between our distributions paid to stockholders in each month, less the sum of our net investment income, net realized capital gains and dividends paid to us from our portfolio companies, not included in net income and net realized capital gains, during such period (“Expense Support Reimbursement”). To the extent that no dividends or other distributions were paid to our stockholders in any given month, then the Expense Support Reimbursement for such month was equal to such amount necessary in order for available operating funds for the month to equal zero. From April 1, 2016 until the expiration of the Expense Support Agreement on December 31, 2016, SIC Advisors made expense support payments on a discretionary basis by making an election on the last day of each month to fund an expense support payment in an amount equal to the difference between our distributions paid to stockholders during such month less the sum of our net investment income, net realized capital gains and dividends paid to us from our portfolio companies, not included in net income and net realized capital gains during such period.





The purpose of the Expense Support Agreement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes and to reduce operating expenses until we had raised sufficient capital to be able to absorb such expenses. The Expense Support Agreement expired on December 31, 2016.





Pursuant to the Expense Support Agreement, we will reimburse SIC Advisors for expense support payments it previously made following any calendar quarter for which we received net investment income, net realized capital gains and dividends from our portfolio companies (not included in net income and net realized capital gains) in excess of the distributions paid to our stockholders during such calendar quarter (the “Excess Operating Funds”). Any such reimbursement will be made within three years of the date that the expense support payment obligation was incurred by SIC Advisors, subject to the conditions described below. The amount of the reimbursement during any calendar quarter will equal the lesser of (i) the Excess Operating Funds received during the quarter and (ii) the aggregate amount of all expense payments made by SIC Advisors that have not yet been reimbursed. In addition, we will only make reimbursement payments to the extent our current annualized “operating expense ratio” is equal to or less than our operating expense ratio for the quarter during which the corresponding expense obligation was incurred and to the extent the annualized rate of its regular cash dividends to our stockholders for the month is equal to or greater than the annualized rate of our regular cash distributions to stockholders for the month during which the corresponding expense payment was incurred.





Net Realized Gains/Losses on Investments


We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of an investment, without regard to unrealized gains or losses previously recognized. For the three and nine months ended September 30, 2019 , we recognized net realized loss on investments of $19,721,169 and net realized loss on investments of $34,973,608 , respectively, primarily due to certain non-cash restructuring transactions and the wind-down of our TRS facility. For the three and nine months ended September 30, 2018 , we recognized net realized loss on investments of $18,244,576 and net realized loss on investments of $49,080,881 , respectively, primarily due to certain non-cash restructuring transactions.





Net Unrealized Appreciation/Depreciation on Investments


Net change in unrealized appreciation/depreciation on investments reflects the net change in the fair value of our investments including the TRS and provision for deferred taxes. For the three and nine months ended September 30, 2019 , we recorded a net change in unrealized depreciation of $4,848,805 and depreciation of $12,391,293 , respectively. For the three and nine months ended September 30, 2018 , we recorded a net change in unrealized appreciation of $181,103 and appreciation of $1,002,001 .





Changes in Net Assets from Operations


For the three and nine months ended September 30, 2019 , we recorded a net decrease of $ 18,812,388 and a net decrease of $20,953,094 , respectively, in net assets resulting from operations. Based on 101,035,420 and 100,116,493 weighted average common shares outstanding for the three and nine months ended September 30, 2019 , our per share net decrease in net assets resulting from operations was $ 0.19 and $0.21 , respectively. For the three and nine months ended September 30, 2018 , we recorded a net decrease of $ 5,706,104 and a net decrease of $12,046,454 , respectively, in net assets resulting from operations. Based on 97,047,494 and 97,142,433 weighted average common shares outstanding for the three and nine months ended September 30, 2018 , our per share net decrease in net assets resulting from operations was $ 0.06 and $0.12 , respectively.





Financial Condition, Liquidity and Capital Resources


As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. To fund growth, we have a number of alternatives available to increase capital; including raising equity, increasing debt, and funding from operational cash flow.





Our liquidity and capital resources historically have been generated primarily from the net proceeds of our public offering of common stock, use of our credit facilities and our TRS. Currently, our primary source of liquidity derived from the use of our credit facility.





As of September 30, 2019 and December 31, 2018 , we had $192,205,852 and $59,481,495 , respectively, in cash and cash equivalents. In the future, we may generate cash from future offerings of securities, future borrowings and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. Our primary use of funds is investments in our targeted asset classes, cash distributions to our stockholders, and other general corporate purposes.





In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders substantially all of our taxable income, but we may also elect to periodically spillover certain excess undistributed taxable income from one tax year into the next tax year. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if certain requirements under the 1940 Act are met). This requirement limits the amount that we may borrow.





The following table shows our net borrowings as of September 30, 2019 and December 31, 2018 :


September 30, 2019December 31, 2018TotalCommitmentBalanceOutstandingUnusedCommitmentTotalCommitmentBalanceOutstandingUnusedCommitmentING Credit Facility$215,000,000$88,100,000$126,900,000$220,000,000$115,000,000$105,000,000Alpine Credit Facility300,000,000240,000,00060,000,000300,000,000240,000,00060,000,000Total before deferred financing costs515,000,000328,100,000186,900,000520,000,000355,000,000165,000,000Unamortized deferred financing costs—(2,660,252)——(3,460,986)—Total borrowings outstanding, net$515,000,000$325,439,748$186,900,000$520,000,000$351,539,014$165,000,000





On August 12, 2016, we amended our ING Credit Facility pursuant to the Revolving Credit Agreement with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent. The ING Credit Facility matures on August 12, 2020 and is secured by substantially all of our assets, subject to certain exclusions as further set forth in the Security Agreement entered into in connection with the Revolving Credit Agreement, among us, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent. The ING Credit Facility also includes usual and customary representations, covenants and events of default for senior secured revolving credit facilities of this nature. On February 13, 2015, commitments to the ING credit facility were expanded from $150 million to $170 million. On August 12, 2016, commitments to the ING credit facility were expanded from $170 million to $175 million. On April 20, 2017, commitments to the ING Credit Facility were expanded from $175 million to $220 million. On February 8, 2019, we amended our ING Credit Facility, among other things, to permit the transactions contemplated by the MCC Merger Agreement and the MDLY Merger Agreement. On July 25, 2019, the Company entered into Amendment No. 2 to the Revolving Credit Agreement (the “Amendment”), with certain lenders party thereto, ING Capital LLC, as administrative agent (the “Administrative Agent”), and, solely with respect to Section 2.10 of the Amendment, SIC AAR LLC, SIC Investment Holdings LLC and Sierra Management, Inc., as subsidiary guarantors.  The Amendment amends certain provisions of the Revolving Credit Agreement (as amended by Amendment No. 1, the “Prior Facility” and, as further amended by Amendment No. 2, the “Facility”) to, among other things, (i) reduce the size of the commitments thereunder from $220.0 million to $215.0 million, (ii) extend the Revolver Termination Date (as defined in the Prior Facility) from August 12, 2019 to March 31, 2020 and (iii) extend the Maturity Date (as defined in the Prior Facility) from August 12, 2020 to March 31, 2021.





The ING Credit Facility allows for us, at our option, to borrow money at a rate of either (i) an alternate base rate plus 1.50% per annum or (ii) LIBOR plus 2.50% per annum. The interest rate margins are subject to certain step-downs upon the satisfaction of certain conditions described in the Revolving Credit Agreement. The alternate base rate will be the greatest of (i) the U.S. Prime Rate set forth in the Wall Street Journal, (ii) the federal funds effective rate plus 1/2 of 1%, and (iii) three month LIBOR plus 1%. As of September 30, 2019 the commitment under the ING Credit Facility was $215 million and as December 31, 2018 , the commitment under the ING Credit Facility was $220 million and includes an accordion feature that allows for potential future expansion of the ING Credit Facility up to a total of $500 million. Availability of loans under the ING Credit Facility is linked to the valuation of the collateral pursuant to a borrowing base mechanism.





We are also required to pay a commitment fee to the lenders based on the daily unused portion of the aggregate commitments under the ING Credit Facility. The commitment fee is (i) 1.50% if the used portion of the aggregate commitments is less than or equal to 40%, (ii) 0.75% if the used portion of the aggregate commitments is greater than 40% and less than or equal to 65% or (iii) 0.50% if the used portion of the aggregate commitments is greater than 65%. The ING Credit Facility provides that we may use the proceeds of the facility for general corporate purposes, including making investments in accordance with our investment objective and strategy. As of September 30, 2019 , our borrowings under the ING Facility totaled $88,100,000 and were recorded as part of revolving credit facility payable on our Consolidated Statements of Assets and Liabilities.





On September 29, 2017, the Company’s wholly-owned, special purpose financing subsidiary, Alpine, amended it's existing revolving credit facility (the “Alpine Credit Facility”) pursuant to an Amended and Restated Loan Agreement (the “Amendment”) with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender, the Financing Providers from time to time party thereto, SIC Advisors, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto (the “Loan Agreement”). The Loan Agreement was amended to, among other things, (i) extend the reinvestment period until December 29, 2020, (ii) extend the scheduled termination date until March 29, 2022, (iii) decrease the applicable margin for advances to 2.85% per annum and (iv) increase the compliance condition for net advances to 55% of net asset value. Alpine’s obligations to JPMorgan under the Alpine Credit Facility are secured by a first priority security interest in substantially all of the assets of Alpine, including its portfolio of loans. The obligations of Alpine under the Alpine Credit Facility are non-recourse to the Company.





Borrowings under the Alpine Credit Facility are subject to compliance with a NAV coverage ratio with respect to the current value of Alpine’s portfolio and various eligibility criteria must be satisfied with respect to the initial acquisition of each loan in Alpine’s portfolio. Any amounts borrowed under the Alpine Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 29, 2022. As of September 30, 2019 , Alpine’s borrowings under the Alpine Credit Facility totaled $240,000,000 and were recorded as part of revolving credit facility payable on our Consolidated Statements of Assets and Liabilities.





Contractual Obligations


The following table shows our payment obligations for repayment of debt, which total our contractual obligations at September 30, 2019 :


Payment Due By PeriodTotalLess than1 Year1 - 3 Years3 - 5 YearsMore than5 YearsING Credit Facility$88,100,000$—$88,100,000$—$—Alpine Credit Facility240,000,000—240,000,000—Total Contractual Obligations$328,100,000$—$328,100,000$—$—





We have entered into certain contracts under which we have material future commitments. On April 5, 2012, we entered into the Investment Advisory Agreement with SIC Advisors in accordance with the 1940 Act. The Investment Advisory Agreement became effective as of April 17, 2012, the date that we met the minimum offering requirement. Pursuant to the 1940 Act, the initial term of the Investment Advisory Agreement was for two years from its effective date, with one-year renewals subject to approval by our board of directors, a majority of whom must be independent directors. On April 4, 2019 , the board of directors approved the renewal of the Investment Advisory Agreement for an additional one-year term at an in-person meeting. SIC Advisors serves as our investment adviser in accordance with the terms of the Investment Advisory Agreement. Payments under our Investment Advisory Agreement in each reporting period consist of (i) a management fee equal to a percentage of the value of our gross assets and (ii) an incentive fee based on our performance.





On April 5, 2012, we entered into the Administration Agreement with Medley Capital LLC with an initial term of two years, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. On April 4, 2019 , the board of directors approved the renewal of the Administration Agreement for an additional one-year term at an in-person meeting. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such costs are reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC.





If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under the investment advisory agreement and administration agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.





Off-Balance Sheet Arrangements


On August 27, 2013, Arbor, a wholly-owned financing subsidiary of the Company, entered into a TRS with Citibank.





On September 29, 2017, Arbor entered into the Fifth Amended Confirmation Letter Agreement with Citibank. The Fifth Amended Confirmation Agreement reduced the maximum portfolio notional (determined at the time each such loan becomes subject to the TRS) from $300,000,000 to $180,000,000, through incremental reductions of $60,000,000 on October 3, 2017 and $20,000,000 on each of November 3, 2017, December 3, 2017 and January 3, 2018. The Fifth Amended Confirmation Agreement also decreased the interest rate payable to Citibank from LIBOR plus 1.65% per annum to LIBOR plus 1.60% per annum. Other than the foregoing, the Fifth Amended Confirmation Agreement did not change any of the other material terms of the TRS. On July 22, 2019 the TRS  with Citibank was terminated.





The TRS with Citibank enabled Arbor to obtain the economic benefit of the loans underlying the TRS, despite the fact that such loans were not directly held or otherwise owned by Arbor, in return for an interest-type payment to Citibank. Accordingly, the TRS is analogous to Arbor utilizing leverage to acquire loans and incurring an interest expense to a lender.





SIC Advisors acted as the investment manager of Arbor and had discretion over the composition of the basket of loans underlying the TRS. The terms of the TRS were governed by an ISDA 2002 Master Agreement, the Schedule thereto and Credit Support Annex to such Schedule, and the Confirmation exchanged thereunder, between Arbor and Citibank, which collectively established the TRS, and are collectively referred to herein as the “TRS Agreement”.





Transactions in TRS contracts during the three and nine months ended September 30, 2019 and 2018 were as follows:


Three Months EndedSeptember 30,Nine Months Ended September 30,2019201820192018Interest income and settlement from TRS portfolio$—$1,463,986$309,388$4,123,660Traded gains/(loss) on TRS loan sales—(364,450)(9,632,904)(2,589,178)Net realized gains/(loss) on TRS portfolio$—$1,099,536$(9,323,516)$1,534,482Net change in unrealized appreciation/(depreciation) on TRS portfolio$—$735,874$6,524,904$3,370,529








As of September 30, 2019 , there was no receivable due on the total return swap recorded on the Consolidated Statements of Assets and Liabilities.





The volume of the Company’s derivative transactions for the three and nine months ended September 30, 2019 and 2018 were as follows:


Three Months EndedSeptember 30,Nine Months EndedSeptember 30,2019201820192018Average notional amount of contracts(1)$—$168,753,875$12,225,430$170,174,081





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|(1) | Average notional amount is based on the average month end balances for thethree and nine months ended September 30, 2019and2018, which is representative of the volume of notional contract amounts held during each year.




On March 27, 2015, the Company and GALIC entered into a limited liability company operating agreement to co-manage Sierra JV. All portfolio and other material decisions regarding Sierra JV must be submitted to Sierra JV's board of managers, which is comprised of four members, two of whom are selected by the Company and the other two are selected by GALIC. The Company has concluded that it does not operationally control Sierra JV. As the Company does not operationally control Sierra JV, it does not consolidate the operations of Sierra JV within the consolidated financial statements. As a practical expedient, the Company uses NAV to determine the fair value of its investment in Sierra JV; therefore, this investment has been presented as a reconciling item within the fair value hierarchy (see Note 4). As of September 30, 2019 , there was $204.9 million outstanding under the JV Facility and the Sierra JV had total assets of $289.0 million . As of September 30, 2019 , Sierra JV’s portfolio was comprised of 100.0% of senior secured first lien term loans to 61 different portfolio companies with one portfolio company on non-accrual status. As of December 31, 2018 , Sierra JV’s portfolio was comprised of 100% of senior secured first lien term loans to 58 different portfolio companies with one portfolio company on non-accrual status.





As of September 30, 2019 and December 31, 2018 , Sierra JV had total capital commitments of $116 million, with the Company providing $101.5 million and GALIC providing $14.5 million. Approximately $105.2 million was funded as of September 30, 2019 and December 31, 2018 , relating to these commitments, of which $92.1 million was from the Company. The Company does not have the right to withdraw any of their respective capital commitment, unless in connection with a transfer of its membership interests. The Company may transfer full membership interests as long as it is approved by all members and transferred in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, or applicable state securities laws





On August 4, 2015, Sierra JV entered into a senior secured revolving credit facility the ("JV Facility") led by Credit Suisse, AG ("CS") with commitments of $100 million subject to certain leverage and borrowing base restrictions. On December 29, 2015, the JV Facility was amended and the total commitments were increased to $135 million. On March 30, 2017, the Company amended the JV Facility previously administered by CS and facilitated the assignment of all rights and obligations of CS under the JV Facility to Deutsche Bank AG, New York Branch, ("DB") and increased the total loan commitments to $240 million. On May 26, 2017 commitments to the JV facility were increased from $240 million to $250 million. On June 28, 2019, the JV Facility reinvestment period was further extended to October 28, 2019. On October 28, 2019, the JV Facility reinvestment period was further extended from October 28, 2019 to March 31, 2020 while the interest rate was modified from bearing an interest rate of LIBOR (with no minimum) + 2.50% per annum to LIBOR (with no minimum) + 2.75% per annum.The final maturity date is March 30, 2022 and is secured substantially by all of the SPV's assets, subject certain exclusions set forth in the Credit Facility.     As of September 30, 2019 and December 31, 2018 , there was $204.9 million outstanding under the JV Facility.





We have determined that the Sierra JV is an investment company under ASC 946, however in accordance with such guidance, we will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we do not consolidate our interest in the Sierra JV.





Distributions


We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code. To maintain RIC tax treatment, we must, among others things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders. In order to avoid certain U.S. federal excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year) and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax.





While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.


We currently intend to distribute net capital gains ( i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment and elect to treat such gains as deemed distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. We can offer no assurance that we will continue to achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.





Subject to our board of directors’ discretion and applicable legal restrictions, we expect to authorize and pay monthly distributions to our stockholders. Any distributions to our stockholders will be declared out of assets legally available for distribution. We expect to continue making monthly distributions unless our results of operations, our general financial condition, general economic conditions, or other factors prohibit us from doing so. From time to time, but not less than quarterly, we will review our accounts to determine whether distributions to our stockholders are appropriate. We have not established limits on the amount of funds we may use from available sources to make distributions. From the commencement of our offering through September 30, 2016, a portion of our distributions were comprised in part of expense support payments made by SIC Advisors that may be subject to repayment by us within three years of the date of such support payment. The purpose of this arrangement was to cover distributions to stockholders so as to ensure that the distributions did not constitute a return of capital for GAAP purposes. In the future, we may have distributions which could be characterized as a return of capital. Such distributions are not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or SIC Advisors elects to make expense support payments under an expense support agreement. Any future reimbursements to SIC Advisors will reduce the net investment income that may otherwise be available for distribution to stockholders. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all. SIC Advisors has no obligation to enter into a renewed expense support agreement.





Our distributions may exceed our earnings, which we refer to as a return of capital, especially during the period before we have invested substantially all of the proceeds of our offering. As a result, a portion of the distributions we make may represent a return of capital. Our use of the term “return of capital” merely means distributions in excess of our earnings and as such may constitute a return on your individual investments and does not mean a return on capital. Therefore stockholders are advised that they should be aware of the differences with our use of the term “return of capital” and “return on capital.”





The following table reflects the cash distributions per share that the Company has declared or paid to its stockholders during 2019 and 2018 . Stockholders of record as of each respective record date were entitled to receive the distribution.








Record DatePayment DateAmount per shareJanuary 15 and 31, 2018January 31, 20180.02667February 15 and 28, 2018February 28, 20180.02667March 15 and 30, 2018March 30, 20180.02667April 13 and 30, 2018April 30, 20180.02667May 15 and 31, 2018May 31, 20180.02667June 15 and 29, 2018June 29, 20180.02667July 13 and 31, 2018July 31, 20180.02667August 15 and 31, 2018August 31, 20180.02667September 14 and 28, 2018September 28, 20180.02667October 15 and 31, 2018October 31, 20180.02667November 15 and 30, 2018November 30, 20180.02667December 14 and 31, 2018December 31, 20180.02667January 25, 2019January 31, 20190.05334February 11, 2019February 28, 20190.05334March 11, 2019March 29, 20190.05334April 29, 2019April 30 20190.05334May 30, 2019May 31, 20190.05334June 27, 2019June 28, 20190.05334July 30, 2019July 31, 20190.05334August 29, 2019August 30, 20190.05334September 27, 2019September 30, 20190.05334


We have adopted an “opt in” distribution reinvestment plan pursuant to which common stockholders may elect to have the full amount of any cash distributions reinvested in additional shares of our common stock. As a result, if we declare a cash distribution, stockholders that have “opted in” to our distribution reinvestment plan will have their distribution automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same federal, state and local tax consequences as if they received cash distributions.





Each year a statement on Internal Revenue Service Form 1099-DIV (or such successor form) identifying the source of the distribution ( i.e., paid from ordinary income, paid from net capital gain on the sale of securities, or a return of capital) will be mailed to our stockholders. The tax basis of shares must be reduced by the amount of any return of capital distributions, which will result in an increase in the amount of any taxable gain (or a reduction in any deductible loss) on the sale of shares.





Related Party Transactions


On October 19, 2011, SIC Advisors entered into a subscription agreement to purchase 110.80 shares of common stock for cash consideration of $1,000. The consideration represented $9.025 per share.





On April 17, 2012, SIC Advisors purchased 1,108,033.24 shares of our common stock for aggregate gross proceeds of $10,000,000. The consideration represented $9.025 per share.





We have entered into an Investment Advisory Agreement with SIC Advisors in which our senior management holds an equity interest and were party to the Expense Support Agreement through December 31, 2016. Members of our senior management also serve as principals of other investment managers affiliated with SIC Advisors that do, and may in the future, manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.





We have entered into an Administration Agreement with Medley Capital LLC, pursuant to which Medley Capital LLC furnishes us with administrative services necessary to conduct our day-to-day operations. Medley Capital LLC is reimbursed for administrative expenses it incurs on our behalf. We do not reimburse Medley Capital LLC for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Medley Capital LLC. Medley Capital LLC is an affiliate of SIC Advisors.





The dealer manager agreement that we entered into with SC Distributors, LLC in connection with our offering was terminated pursuant to its terms in connection with the termination of our offering, effective as of July 31, 2018.





On August 9, 2018, the Company entered into the MCC Merger Agreement pursuant to which MCC will, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger Agreement. Under the MCC Merger, each share of MCC’s common stock issued and outstanding immediately prior to the MCC Merger effective time, other than shares of MCC common stock held by MCC, the Company or their respective wholly owned subsidiaries, will be converted into the right to receive 0.8050 shares of the Company’s common stock. In addition, on August 9, 2018, the Company entered into the MDLY Merger Agreement, pursuant to which MDLY will on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger Agreement. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A common stock held by MDLY, the Company or their respective wholly owned subsidiaries, will be converted into the right to receive (i) 0.3836 shares of the Company’s common stock; plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY’s stockholders will have the right to receive certain dividends and/or other payments. The Mergers will occur simultaneously and, as a result of the foregoing, the investment management function relating to the operation of the Company, as the surviving company in the Mergers, will be internalized.





The Mergers are subject to the satisfaction or waiver of closing conditions, including, but not limited to: (a) the approval of the MCC Merger and the MDLY Merger by the Company’s stockholders by the affirmative vote of at least a majority of all its stockholders, the approval of the adoption of the MCC Merger Agreement by MCC’s stockholders, and the approval of the adoption of the MDLY Merger Agreement by MDLY’s stockholders, voting separately at their respective special meetings; (b) the receipt of an exemptive order from the SEC, an exemptive application for which has been filed by the Company, MCC and MDLY and certain of their subsidiaries; and (c) the approval by the SBA relating to the transfer of MCC’s Small Business Investment Company license. No assurance can be given that such SEC exemptive order will be issued or SBA approval will be received or that any of the other closing conditions will be satisfied or waived.





We have entered into a license agreement with SIC Advisors under which SIC Advisors has agreed to grant us a non-exclusive, royalty-free license to use the name “Sierra” for specified purposes in our business. Under the license agreement, we will have a right to use the “Sierra” name, subject to certain conditions, for so long as SIC Advisors or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Sierra” name.





Management Fee


We pay SIC Advisors a fee for its services under the Investment Advisory Agreement. The fee consists of two components: a base management fee and an incentive fee.





The base management fee is calculated at an annual rate of 1.75% of our gross assets and is payable quarterly in arrears. The incentive fee consists of:





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|• | An incentive fee on net investment income (“subordinated incentive fee on income”) is calculated and payable quarterly in arrears and is based upon pre-incentive fee net investment income for the immediately preceding quarter. No subordinated incentive fee on income is payable in any calendar quarter in which pre-incentive fee net investment income does not exceed a quarterly return to stockholders of 1.75% per quarter on our net assets at the end of the immediately preceding fiscal quarter, or the preferred quarterly return. All pre-incentive fee net investment income, if any, that exceeds the preferred quarterly return, but is less than or equal to 2.1875% of net assets at the end of the immediately preceding fiscal quarter in any quarter, will be payable to SIC Advisors. We refer to this portion of our subordinated incentive fee on income as the catch up. It is intended to provide an incentive fee of 20% on pre-incentive fee net investment income when pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter in any quarter. For any quarter in which our pre-incentive fee net investment income exceeds 2.1875% of net assets at the end of the immediately preceding quarter, the subordinated incentive fee on income shall equal 20% of the amount of pre-incentive fee net investment income, because the preferred return and catch up will have been achieved.

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|• | A capital gains incentive fee will be earned on realized investments and shall be payable in arrears as of the end of each calendar year during which the Investment Advisory Agreement is in effect. If the Investment Advisory Agreement is terminated, the fee will become payable as of the effective date of such termination. The capital gains incentive fee is based on our realized capital gains on a cumulative basis from inception, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, which we refer to as “net realized capital gains.” The capital gains incentive fee equals 20% of net realized capital gains, less the aggregate amount of any previously paid capital gains incentive fee.




Under the terms of the Investment Advisory Agreement, SIC Advisors bears all organizational and offering expenses on our behalf. Since June 2, 2014, the date that we raised $300 million in gross proceeds in connection with the sale of shares of our common stock, SIC Advisors was no longer obligated to bear, pay or otherwise be responsible for any ongoing organizational and offering expenses on our behalf, and we have been responsible for paying or otherwise incurring all such organizational and offering expenses. Pursuant to the terms of the Investment Advisory Agreement, we have agreed to reimburse SIC Advisors for any such organizational and offering expenses incurred by SIC Advisors not to exceed 1.25% of the gross subscriptions raised by us over the course of the offering period, which was initially scheduled to terminate two years from the initial offering date, unless extended. On July 2, 2018, the Company’s board of directors determined to terminate the Company’s offering effective as of July 31, 2018. Notwithstanding the foregoing, in the event that organizational and offering expenses, together with sales commissions, the dealer manager fee and any discounts paid to members of the Financial Industry Regulatory Authority, exceed 15% of the gross proceeds from the sale of shares of our common stock pursuant to our registration statement or otherwise at the time of the completion of our offering, then SIC Advisors shall be required to pay or, if already paid by us, reimburse us for amounts exceeding such 15% limit.





Critical Accounting Policies


This discussion of our expected operating plans is based upon our expected consolidated financial statements, which will be prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these consolidated financial statements will require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future consolidated financial statements.





Valuation of Investments


We apply fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, we have categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as identified below and discussed in Note 4.





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|• | Level 1 — Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and publicly listed derivatives will be included in Level 1. In addition, securities sold, but not yet purchased and call options will be included in Level 1. We will not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.

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|• | Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from an orderly transaction between market participants provided by reputable dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments which are generally expected to be included in this category include corporate bonds and loans, convertible debt indexed to publicly listed securities, and certain over-the-counter derivatives.

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|• | Level 3 — Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments that are expected to be included in this category are our private portfolio companies.




Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.





Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. We weight the use of third-party broker quotes, if any, in determining fair value based on our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by our board of directors based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.





We use third-party valuation firms to assist the board of directors in the valuation of its portfolio investments. The valuation reports generated by the third-party valuation firms consider the evaluation of financing and sale transactions with third parties, expected cash flows and market based information, including comparable transactions, performance multiples, and movement in yields of debt instruments, among other factors. Based on market data obtained from the third-party valuation firms, we use a combined market yield analysis and an enterprise model of valuation. In applying the market yield analysis, the value of our loans are determined based upon inputs such as the coupon rate, current market yield, interest rate spreads of similar securities, the stated value of the loan, and the length to maturity. In applying the enterprise model, we use a waterfall analysis which takes into account the specific capital structure of the borrower and the related seniority of the instruments within the borrower’s capital structure into consideration. To estimate the enterprise value of the portfolio company, we weigh some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing investments may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, considering offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing investments, we may estimate the liquidation or collateral value of the portfolio company’s assets and liabilities using an expected recovery model. We may estimate the fair value of warrants based on a model such as the Black-Scholes model or simulation models or a combination thereof.





We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:





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|• | our quarterly valuation process begins with each portfolio investment being initially valued by the valuation professionals;

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|• | conclusions are then documented and discussed with senior management; and

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|• | an independent valuation firm engaged by our board of directors prepares an independent valuation report for approximately one third of the portfolio investments each quarter on a rotating quarterly basis on non fiscal year-end quarters, such that each of these investments will be valued by an independent valuation firm at least twice per annum when combined with the fiscal year-end review of all the investments by independent valuation firms, exclusive of the TRS underlying portfolio.




In addition, all of our investments are subject to the following valuation process:





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|• | management reviews preliminary valuations and their own independent assessment;

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|• | the audit committee of our board of directors reviews the preliminary valuations of senior management and independent valuation firms; and

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|• | our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of SIC Advisors, the respective independent valuation firms and the audit committee.




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 readily available market value existed for such investments, and the differences could be material.





The valuation procedures described are generally applied to the loans underlying the TRS, except that such assets are not reviewed by independent third party valuation firms. We will value the TRS in accordance with the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS will be based on the increase or decrease in the value of the assets underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The assets underlying the TRS will be valued by Citibank. Citibank will base its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to us for review and testing. Our board of directors will review and approve the value of the TRS, as well as the value of the assets underlying the TRS, on a quarterly basis as part of their quarterly determination of NAV. To the extent our board of directors has any questions or concerns regarding the valuation of the assets underlying the TRS, such valuation will be discussed or challenged pursuant to the terms of the TRS. For additional disclosures on the TRS, see “Off-Balance Sheet Arrangements.”








Our investments in subordinated notes are carried at fair value, which is based on a discounted cash flow model. The discounted cash flow model models both the underlying collateral (“assets”) and the liabilities of the CLO capital structure. The discounted cash flow model uses a set of assumptions including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated cash flows of the assets. The discounted cash flow model distributes the asset cash flows to the liability structure based on the payment priorities and discounts them back using appropriate market discount rates based on discount rates for comparable CLOs. The assumptions are based on available market data as well as management estimates. Additional data is used to validate the results from the discounted cash flow method, such as analysis of relevant data observed in the CLO market, review of quotes, where available, recent acquisitions and observable transactions in the subordinated notes, among other factors.





Revenue Recognition


We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities or accounting purposes if we have reason to doubt our ability to collect such interest. Original issue discounts, market discounts, or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as fee income. Dividend income, if any, is recognized on an accrual basis to the extent that we expect to collect such amount.





Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation


We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.





Payment-in-Kind Interest


We have investments in our portfolio that contain a PIK interest provision. Any PIK interest is added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our tax treatment as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even if we have not collected any cash.





Organizational and Offering Expenses


We have been responsible for all ongoing organizational and offering expenses since June 2, 2014 until the termination of the  Company's offering effective as of July 31, 2018.





U.S. Federal Income Taxes


We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders from our tax earnings and profits. To obtain and maintain our RIC tax treatment, we must, among other things, meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.





Recent Developments


On October 29, 2019 , our board of directors declared a series of monthly distributions for October, November and December 2019 in the amount of $0.05334 per share. Stockholders of record as of each respective monthly record date will be entitled to receive the distribution. Below are the details for each respective distribution:





Record DatePayment DateAmount per shareOctober 30, 2019October 31, 2019$0.05334November 28, 2019November 29, 20190.05334December 30, 2019December 31, 20190.05334











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Item 3.     Quantitative and Qualitative Disclosures About Market Risk


We are subject to financial market risks, including changes in interest rates. As of September 30, 2019 , 95.3% of our portfolio investments (based on fair value) paid floating interest rates, while 4.7% paid fixed interest rates and 9.7% were non-income producing investments while 90.3% were income producing investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. In addition, a rise in interest rates may increase the likelihood that a portfolio company defaults on a loan. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income under the Investment Advisory Agreement we have entered into with SIC Advisors, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to SIC Advisors with respect to our increased pre-incentive fee net investment income.





Our interest expense will also be affected by changes in the published LIBOR rate in connection with our credit facilities. We expect any future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries may enter into will also be based on a floating interest rate. As a result, we are subject to risks relating to changes in market interest rates. In periods of rising interest rates, when we or our subsidiaries have debt outstanding or financing arrangements in effect, our cost of funds would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.





In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved.





Based on our Consolidated Statement of Assets and Liabilities as of September 30, 2019 , the following table shows the approximate annual impact on the change in net interest income of hypothetical base rate changes in interest rates, assuming no changes in our investment portfolio and capital structure:


Change inBasis point increase/(decrease)InterestIncome(1)InterestExpenseNet Interest Income300$17,505,047$9,843,000$7,662,04720011,670,0316,562,0005,108,0311005,835,0163,281,0002,554,016(100)(5,835,016)(3,281,000)(2,554,016)(200)(6,121,137)(6,562,000)440,863(300)(6,121,137)(6,613,282)492,145





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




We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the three months ended September 30, 2019 , we did not engage in interest rate hedging activities.





In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies-Valuation of Investments” and “Item 1A. Risk Factors.”





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Item 4.    Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Control Over Financial Reporting


There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-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, our internal control over financial reporting.








PART II. Other Information





Item 1.     Legal Proceedings


From time to time, we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us. Except as described below, we are not currently party to any material legal proceedings.





On January 25, 2019, two purported class actions were commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint are Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., MCC, MDLY, the Company and Merger Sub. The complaints in each of the New York Actions allege that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into the Company, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts are sought. On February 27, 2019, the Court entered a stipulated scheduling order requiring that defendants respond to the complaints 45 days following the later of (a) the stockholder vote on the proposed merger and (b) plaintiffs’ filing of a consolidated, amended complaint. A preliminary conference is scheduled to take place on November 19, 2019. The defendants believe the claims asserted in the New York Actions are without merit and they intend to defend these lawsuits vigorously. At this time, we are unable to determine whether an unfavorable outcome from these matters is probable or remote or to estimate the amount or range of potential loss, if any.





Set forth below is a description of the Decision (as defined below), which should be read in the context of the impact that the Decision and corresponding Settlement (as defined below).





On February 11, 2019, a purported stockholder class action was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned In re Medley Capital Corporation Stockholder Litigation, C.A. 2019-0100-KSJM (the “FrontFour Action”), against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, the Company, MCC, MCC Advisors LLC, Medley Group LLC, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC stockholders in connection with the MCC Merger, and that MDLY, the Company, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the MCC Merger Agreement. The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Court denied the  FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that the Company aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Court of Chancery of the State of Delaware, captioned Altman v. Taube, Case No. 2019-0219 (the





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“Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Court granted a stipulation consolidating the FrontFour Action and the Altman Action, designating the amended complaint in the FrontFour Action as the operative complaint, and designating the plaintiffs in the FrontFour Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.





On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the FrontFour Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019, MCC entered into a Stipulation of Settlement (and, as amended, on August 8, 2019, the “Stipulation”) by and among Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the FrontFour Action.





The Stipulation provides for the settlement of all claims brought against the Medley Parties in the FrontFour Action. Under the Stipulation, MCC agreed to seek the agreement and/or consent of the Company to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the amended and restated Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of the Company's stock, with the number of shares of the Company's stock to be calculated using the pro forma net asset value reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain amendments to the Merger Agreements that have been reflected in the amended and restated Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger under the Amended MCC Merger Agreement at a meeting of stockholders to approve the Amended MCC Merger Agreement.





The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the FrontFour Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the FrontFour Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.





The Stipulation further provides that  MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision. The Stipulation is subject to the approval of the Court. On September 26, 2019, FrontFour filed a motion seeking an order approving the Stipulation, and also moved for the Court to award plaintiffs’ counsel attorneys’ fees in the amount of $22 million and expenses in the amount of $420,334.97 (the “Fee Application”). The Court held a hearing to consider the Stipulation and the Fee Application on October 24, 2019. The parties submitted supplemental briefing with respect to the Stipulation on October 31, 2019. To date, the Court has not issued a decision with respect to the approval of the Stipulation or the Fee Application.





On April 5, 2019, a purported stockholder class action was commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Sierra Income Corporation, captioned Roger Anderson et al. v. Stephen R. Byers et al., Index No. 652006/2019.  Named as defendants are Stephen R. Byers, Oliver T. Kane, Valerie Lancaster-Beal, Brook Taube, Seth Taube, Sierra Income Corporation, and Sierra Management, Inc.  The complaint alleges that the individuals named as defendants breached their fiduciary duties to stockholders of Sierra Income Corporation in connection with the proposed mergers of Medley Capital Corporation with and into Sierra Income Corporation and Medley Management Inc. with and into Sierra Management, Inc., and that Brook Taube, Seth Taube, Sierra Income Corporation, and Sierra Management, Inc. aided and abetted those alleged breaches of fiduciary duties. The complaint seeks to enjoin the proposed mergers or, in the alternative, to recover money damages in an unspecified amount.  On October 9, 2019, the Court entered a stipulated scheduling order, which provides that the plaintiff shall file an amended complaint by November 8, 2019, and that the defendants’ time to respond to the amended complaint will be sixty days following the filing of the amended complaint. On November 8, 2019, pursuant to the scheduling order, the plaintiffs filed an amended complaint that reiterated the allegations of the original complaint and added allegations concerning the new mergers, including that the new mergers are “even more financially unfavorable to Sierra” than the old mergers and that under the new mergers, and that “Sierra would actually be paying more for MDLY . . . when all consideration is taken into account,” based on the erroneous allegation that Sierra is the party responsible for bearing the cost of the MCC settlement fund. Plaintiffs also allege that Brook Taube and Seth Taube





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exercised control over Sierra and breached fiduciary duties owed to Sierra in that capacity. A preliminary conference is currently scheduled for November 19, 2019.  The defendants believe the claims asserted in the action are without merit and they intend to defend the lawsuit vigorously.








Item 1A.     Risk Factors


In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2018 , filed with the SEC on April 1, 2019, which could materially affect our business, financial condition and/or operating results. Other than the items disclosed below, there have been no material changes during the nine months ended September 30, 2019 to the risk factors discussed in “Item 1A. Risk Factors” of our annual report on Form 10-K. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.





Risks Relating to the Mergers





On August 9, 2018, the Company entered into the MCC Merger Agreement pursuant to which MCC would, on the terms and subject to the conditions set forth in the MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger (the "Combined Company"). In addition, on August 9, 2018, the Company entered into the MDLY Merger Agreement, pursuant to which MDLY would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger, and MDLY’s existing asset management business would continue to operate as a wholly owned subsidiary of the Combined Company. On July 29, 2019, the Company entered into the Amended MCC Merger Agreement, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into the Company, with the Company as the surviving company in the MCC Merger. In addition, on July 29, 2019, the Company entered into the Amended MDLY Merger Agreement, pursuant to which the Company will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. For more information, please refer to the Registration Statement on Form N-14 that includes a joint proxy statement of the Company, MCC, and MDLY and, with respect to the Company, constitutes a prospectus, which was first mailed or otherwise delivered to stockholders of the Company, MCC, and MDLY on or about December 21, 2018 (the “Joint Proxy Statement/Prospectus”), as well as the amendment to the Joint Proxy Statement/Prospectus that the Company, MCC, and MDLY intends to file with the SEC and mail to their respective stockholders.





The completion of the Mergers is subject to several conditions, including, with respect to the MCC Merger, court approval of the Settlement.There can be no assurances when or if the Mergers will be completed.





Although the Company, MCC and MDLY expect to complete the Mergers or the MDLY Merger, as applicable, as early as the fourth quarter of 2019, there can be no assurances as to the exact timing of completion of MCC Merger and/or the MDLY Merger, as applicable, or that the Mergers will be completed at all. The completion of the Mergers or the MDLY Merger, as applicable, is subject to numerous conditions, including, among others, the continued effectiveness of the Registration Statement on Form N-14; the approval of our common stock (including the Settlement Shares and the shares of our common stock to be issued in the Mergers or the MDLY Merger, as applicable) for listing on the NYSE; receipt of requisite approvals of each of our stockholders, MCC’s stockholders, and MDLY’s stockholders; receipt of required regulatory approvals, including from the SEC (including necessary exemptive relief to consummate the Mergers or the MDLY Merger, as applicable), approval by the Court of Chancery of the State of Delaware of the Stipulation of Settlement in connection with the consolidated actions under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, any necessary approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, amended, and, if applicable, state securities regulators; here having been no rescission of the receipt of confirmation that Merger Sub, as the survving company in the MDLY Merger, be treated as a portfolio investment of the Combined Company or the Sierra/MDLY Company, as applicable, and reflected in the Company’s consolidated financial statements at fair value for accounting purposes (i.e., not consolidated into the financial statements of the Combined Company or the Sierra/MDLY Company, as applicable); the relevant parties having taken all actions reasonably required in order to keep existing indebtedness outstanding following the Mergers; receipt of necessary consents relating to joint ventures of the Company and MCC; receipt of a specified level of consents from third-party advisory clients of MDLY; with respect to the MCC Merger, satisfaction (or appropriate waiver) of the conditions to closing of the MDLY Merger; and other customary closing conditions.





The Company, MCC and MDLY cannot assure their respective stockholders that the conditions required to complete the Mergers or the MDLY Merger, as applicable, will be satisfied or waived on the anticipated schedule, or at all. If the Mergers or the MDLY Merger, as applicable, are not completed, the resulting failure of the Mergers or the MDLY Merger, as applicable, could have a material adverse impact on the Company’s, MCC’s, and MDLY’s financial condition, results of operations, assets or business. In addition, if the Mergers are not completed, the Company, MCC, and MDLY will have incurred substantial expenses for which no ultimate benefit will have been received, and if the MDLY Merger is completed and the MCC Merger is not consummated, MCC





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will have incurred substantial expenses for which no ultimate benefit will have been received. See “- If the Mergers do not close, we will benefit from the expenses incurred in its pursuit” in the section entitled “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2018. Moreover, if either the Amended MCC Merger Agreement or the Amended MDLY Merger Agreement is terminated under certain circumstances, the Company, MCC or MDLY may be obligated to pay the other party to the applicable merger agreement a termination fee. See “- Under certain circumstances, the Company, MCC or MDLY may be obligated to pay a termination fee upon termination of the Amended MCC Merger Agreement or the Amended MDLY Merger Agreement.” Any decision that our stockholders, MCC’s stockholders, and MDLY’s stockholder make should be made with the understanding that the completion of the Mergers may not happen as scheduled, or at all.





If the Mergers are or the MDLY Merger is, as applicable, completed, certain additional risks regarding the Combined Company  or the Sierra/MDLY Company following the Mergers or the MDLY Merger, as applicable, may be presented.





We have been named as defendants in various securities class actions and derivative lawsuits and may be named in additional ones in the future, which has resulted in, and which may result in the future in, substantial costs and may delay or prevent the completion of the Mergers or the MDLY Merger, as applicable.





The Company is currently a defendant in the New York Actions, the Class Actions, and a purported stockholder class action in the Supreme Court of the State of New York, County of New York  captioned Roger Anderson et al. v. Stephen R. Byers et al. The Company may be a target of additional securities class action and derivative lawsuits. Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements in an effort to enjoin the merger or seek monetary relief from such companies. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. We cannot predict the outcome of these lawsuits, or others, if any, nor can we predict the amount of time and expense that will be required to resolve any such litigation. An unfavorable resolution of any such litigation surrounding the Mergers could delay or prevent their consummation. In addition, the costs defending the litigation, even if resolved in our favor, could be substantial and such litigation could distract us from pursuing the consummation of the Mergers and other potentially beneficial business opportunities.





Under certain circumstances, we may be obligated to pay a termination fee upon termination of the Amended MCC Merger Agreement or the Amended MDLY Merger Agreement.





The Amended MCC Merger Agreement provides for the payment by the Company or MCC to the other party a termination fee of $6,000,000 in cash if the Amended MCC Merger Agreement is terminated by the Company or MCC under certain circumstances. The Amended MDLY Merger Agreement provides for the payment by the Company or MDLY to the other party a termination fee of $3,000,000 in cash if the Amended MDLY Merger Agreement is terminated by the Company or MDLY under certain circumstances.





The Amended MCC Merger Agreement limits our ability to actively pursue alternatives to the MCC Merger and to accept a superior proposal.





The Amended MCC Merger Agreement contains provisions that limit our ability to actively solicit, discuss or negotiate competing third-party proposals for strategic transactions. Although these provisions, which are customary for transactions of this type, allows us to engage in negotiations regarding, and to ultimately accept, a “Superior Proposal” (as such term is defined in the Amended MCC Merger Agreement), in certain circumstances, subject to the payment of a termination fee, such provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of us from considering or proposing a “Superior Proposal” to us, or might result in a potential competing acquiror proposing to pay a lower price to acquire us than it might otherwise have proposed to pay.





The Amended MDLY Merger Agreement limits each of our ability to actively pursue alternatives to the MDLY Merger and to accept a superior proposal.





The Amended MDLY Merger Agreement contains provisions that limit our ability to actively solicit, discuss or negotiate competing third-party proposals for strategic transactions. Although these provisions, which are customary for transactions of this type, allow us to engage in negotiations regarding, and to ultimately accept, a “Superior Proposal” (as such term is defined in the Amended MDLY Merger Agreement) in certain circumstances, subject to the payment of a termination fee, such provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of us from considering or proposing a  “Superior Proposal” to us, or might result in a potential competing acquiror proposing to pay a lower price to acquire us than it might otherwise have proposed to pay.








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Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds


In June 2013, we commenced a share repurchase program pursuant to which we conducted quarterly share repurchases, of up to 2.5% of the weighted average number of outstanding shares in any 3-month period or 10% of the weighted average number of outstanding shares in any 12-month period. The purpose of the share repurchase program was to allow stockholders to sell their shares back to us at a price equal to the most recently disclosed NAV per share of our common stock immediately prior to the date of repurchase. Shares were purchased from stockholders participating in the program on a pro rata basis. Unless our board of directors determined otherwise, the number of shares to be repurchased during any calendar year were limited to the proceeds received in association with the sale of shares of common stock under the distribution reinvestment plan. Notwithstanding the suspension of the share repurchase program and, in connection with the Amended MCC Merger Agreement, our board of directors approved the repurchase of shares of our common stock from our stockholders who have requested repurchases in connection with such stockholder’s death or disability. See Note 13 to our consolidated financial statements for more information.








Item 3.     Defaults Upon Senior Securities


None.








Item 4.     Mine Safety Disclosures


Not Applicable.








Item 5.     Other Information


None.








Item 6.     Exhibits


3.1Articles of Incorporation of the Registrant3.2Articles of Amendment of the Registrant3.3Articles of Amendment and Restatement of the Registrant3.4Second Articles of Amendment and Restatement of the Registrant3.5Form of Articles Supplementary Electing to be Subject to Subtitle 8 of the Maryland General Corporation Law3.6Form of Bylaws of the Registrant10.1Form of Subscription Agreements10.2Second Amended and Restated Distribution Reinvestment Plan10.3Investment Advisory Agreement10.4Form of Second Amended and Restated Dealer Manager Agreement10.5First Amendment to Second Amended and Restated Dealer Manager Agreement10.6Form of Participating Broker-Dealer Agreement (Included as Exhibit A to the Form of Amended and Restated Dealer Manager Agreement)10.7Custody Agreement10.8Form of Administration Agreement10.9Form of License Agreement10.10Form of Escrow Agreement10.11ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 27, 2013, by and between Arbor Funding LLC and Citibank, N.A.10.12Amended and Restated Loan Agreement, dated as of September 29, 2017, by and among Alpine Funding LLC as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto10.13Fifth Amended and Restated Confirmation Letter Agreement, dated as of September 29, 2017, by and between Arbor Funding LLC and Citibank, N.A.10.14Amended and Restated Senior Secured Revolving Credit Agreement among the Company as borrower, the Lenders party thereto, and ING Capital LLC, as Administrative Agent, dated as of August 12, 2016





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10.15Amendment No. 1 to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of February 8, 2019, by and among the Borrower, the lenders from time to time party thereto, the Administrative Agent and, solely for the purposes of Section 2.10 thereof, subsidiary guarantors party thereto10.16Amendment No. 2 to Amended and Restated Senior Secured Revolving Credit Agreement, dated as of July 25, 2019, by and among the Borrower, the lenders from time to time party thereto, the Administrative Agent and, solely for purposes of Section 2.10 thereof, subsidiary guarantors thereto10.17Guarantee, Pledge and Security Agreement among the Company, the Subsidiary Guarantors party thereto, ING Capital LLC, as Administrative Agent, each Financial Agent and Designated Indebtedness Holder party thereto and ING Capital LLC, as Collateral Agent, dated December 4, 201310.18Control Agreement among the Company, ING Capital LLC, as collateral agent, and State Street Bank and Trust Company, as the Company’s Custodian, dated December 4, 201310.19Loan Agreement, dated as of July 23, 2014, by and among Alpine Funding LLC, as company, JPMorgan Chase Bank, National Association, as administrative agent, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto10.20Sale and Contribution Agreement, dated as of July 23, 2014, by and between Sierra Income Corporation, as seller, and Alpine Funding LLC, as purchaser10.21Portfolio Management Agreement, dated as of July 23, 2014, by and between Alpine Funding LLC, as borrower and SIC Advisors LLC, as portfolio manager10.22Amendment No. 1 to the Loan Agreement, dated as of July 23, 2014, by and among Alpine Funding LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the Financing Providers from time to time party thereto, SIC Advisors LLC, as the portfolio manager, and the Collateral Administrator, Collateral Agent and Securities Intermediary party thereto10.23Limited Liability Company Operating Agreement of Sierra Senior Loan Strategy JV I LLC, dated March 27, 201510.24Agreement and Plan of Merger, dated as of August 9, 2018, by and between Medley Capital Corporation and Sierra Income Corporation10.25Agreement and Plan of Merger, dated as of August 9, 2018, by and among Medley Management Inc., Sierra Income Corporation and Sierra Management, Inc.10.26Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019, by and between Medley Capital Corporation and Sierra Income Corporation10.27Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019, by and among Medley Management Inc., Sierra Income Corporation and Sierra Management, Inc.11Computation of Per Share Earnings (included in the notes to the financial statements contained in this report) *12Computation of Ratio of Earnings to Fixed Charges (included in the notes to the financial statements contained in this report) *31.1Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*


* Filed herewith.

















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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Dated: November 14, 2019Sierra Income CorporationBy/s/ Seth TaubeSeth TaubeChief Executive Officer(Principal Executive Officer)By/s/ Richard T. Allorto, Jr.Richard T. Allorto, Jr.Chief Financial Officer(Principal Accounting and Financial Officer)














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