UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


(Mark One)


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


For the quarterly period ended September 30, 2018


or


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


For the transition period from _____________ to _______________





Commission file number: 814-00672


OHA Investment Corporation(Exact name of registrant as specified in its charter)Maryland20-1371499(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)1114 Avenue of the Americas,27thFloor10036New York, New York(Zip Code)(Address of principal executiveoffices)


(212) 852-1900


(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No  ̈


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ̈ No  ̈


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


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


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


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


As of November 14, 2018 , there were 20,172,392 shares of the registrant’s common stock outstanding.





---










Table of Contents





PART I – FINANCIAL INFORMATIONItem 1. Financial Statements3Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations26Item 3. Quantitative and Qualitative Disclosures About Market Risk36Item 4. Controls and Procedures36PART II – OTHER INFORMATIONItem 1. Legal Proceedings38Item 1A. Risk Factors38Item 2. Unregistered Sales of Equity Securities and Use of Proceeds38Item 3. Defaults Upon Senior Securities38Item 4. Mine Safety Disclosures38Item 5. Other information38Item 6. Exhibits38SIGNATURES39








---










PART I – FINANCIAL INFORMATION





Item 1. Financial Statements








OHA INVESTMENT CORPORATION


CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share amounts)


September 30, 2018December 31, 2017(unaudited)AssetsInvestments in portfolio securities at fair valueAffiliate investments  (cost: $26,028 and $23,263, respectively)$10,880$18,179Non-affiliate investments  (cost: $81,670 and $132,429, respectively)58,20946,751Total portfolio investments  (cost: $107,698 and $155,692, respectively)69,08964,930Investments in U.S. Treasury Bills at fair value  (cost: $21,993 and $19,994, respectively)21,99319,994Total investments91,08284,924Cash and cash equivalents3,71819,939Accounts receivable and other current assets7—Interest receivable405632Other prepaid assets2521Deferred tax asset593632Total current assets4,74821,224Total assets$95,830$106,148LiabilitiesCurrent liabilitiesDistributions payable$403$403Accounts payable and accrued expenses1,1171,585Due to affiliate (Note 4)128562Management and incentive fees payable (Note 4)397426Income taxes payable4424Repurchase agreement21,55219,592Short-term debt, net of debt issuance costs—35,785Total current liabilities23,64158,377Long-term debt, net of debt issuance costs28,837—Total liabilities52,47858,377Commitments and Contingencies  (Note 6)Net assetsCommon stock, $.001 par value, 250,000,000 shares authorized; 20,172,392 and 20,172,392 shares issued and outstanding, respectively2020Paid-in capital in excess of par234,553234,553Total distributable earnings (loss)(191,221)(186,802)Total net assets43,35247,771Total liabilities and net assets$95,830$106,148Net asset value per share$2.15$2.37


(See accompanying notes to consolidated financial statements)





3


---










OHA INVESTMENT CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)


(unaudited) For the three months ended September 30,For the nine months ended September 30,2018201720182017Investment income:Interest income:Affiliate investments$(209)$115$43$326Payment-in-kind from affiliate investments6688942,7222,527Non-affiliate investments1,3601,7353,8074,760Money market interest50—190—Other income1773468Total investment income1,8862,7516,7967,681Operating expenses:Interest expense and bank fees7671,0122,3912,970Management fees (Note 4)3974401,1811,506Incentive fees (Note 4)61046104Costs related to strategic alternatives review——75—Professional fees2543941,2061,066Other general and administrative expenses3444101,0861,169Directors fees6161184184Total operating expenses1,8292,4216,1296,999Waived incentive fees (Note 4)(6)—(6)—Income tax benefit (provision), net774521Net investment income (loss)56323628661Realized and unrealized gain (loss) on investments:Net realized capital gain (loss) on investmentsControl investments———1Non-affiliate investments—1,004(55,952)(11,561)Provision for taxes3—(39)—Total net realized capital gain (loss) on investments31,004(55,991)(11,560)Net unrealized appreciation (depreciation) on investmentsAffiliate investments(7,812)(1,004)(10,064)(1,466)Non-affiliate investments1,804(8,508)62,218(19,807)Total net unrealized appreciation (depreciation) on investments(6,008)(9,512)52,154(21,273)Net increase (decrease) in net assets resulting from operations$(5,949)$(8,185)$(3,209)$(32,172)Net increase (decrease) in net assets resulting from operations per common share$(0.29)$(0.40)$(0.16)$(1.59)Distributions declared per common share$0.02$0.02$0.06$0.06Weighted average shares outstanding - basic and diluted20,17220,17220,17220,172





(See accompanying notes to consolidated financial statements)





4


---










OHA INVESTMENT CORPORATION


CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS


(in thousands, except per share data)


(unaudited)





For the nine months ended September 30,20182017Increase (decrease) in net assets from operationsNet investment income$628$661Net realized capital gain (loss) on investments(55,991)(11,560)Net unrealized appreciation (depreciation) on investments52,154(21,273)Net increase (decrease) in net assets resulting from operations(3,209)(32,172)Distributions to common stockholdersDistributions from net investment income(1,210)(1,210)Net decrease in net assets from distributions(1,210)(1,210)Net increase (decrease) in net assets(4,419)(33,382)Net assets, beginning of period47,77180,493Net assets, end of period$43,352$47,111Net asset value per common share at end of period$2.15$2.34Common shares outstanding at end of period20,17220,172





(See accompanying notes to consolidated financial statements)





5


---










OHA INVESTMENT CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


(unaudited)


For the nine months ended September 30,20182017Cash flows from operating activities:Net decrease in net assets resulting from operations$(3,209)$(32,172)Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by (used in) operating activities:Payment-in-kind interest(3,550)(3,180)Net amortization of premiums, discounts and fees(371)(676)Net realized capital loss on investments55,95211,560Net unrealized depreciation (appreciation) on investments(52,153)21,273Purchase of investments in portfolio securities(25,599)(21,941)Proceeds from redemption or sale of investments in portfolio securities21,54619,260Proceeds from revolving loans, net16—Purchase of investments in U.S. Treasury Bills(52,000)(120,000)Proceeds from redemption of investments in U.S. Treasury Bills50,001125,002Amortization of debt issuance costs on Credit Facility226876Effects of changes in operating assets and liabilities:Accounts receivable and other current assets(7)2Interest receivable227976Prepaid assets(4)(11)Payables and accrued expenses(477)(184)Deferred tax asset39—Due to broker—6,386Due to affiliate(434)(174)Net cash provided by (used in) operating activities(9,797)6,997Cash flows from financing activities:Borrowings under credit facilities——Borrowings under repurchase agreement50,942117,593Debt issuance cost paid(174)—Repayments on Credit Facility(7,000)—Repayments on repurchase agreement(48,982)(122,493)Acquisition of common stock under repurchase plan——Distributions to common stockholders(1,210)(2,017)Net cash used in financing activities(6,424)(6,917)Net change in cash and cash equivalents(16,221)80Cash and cash equivalents, beginning of period19,93916,533Cash and cash equivalents, end of period$3,718$16,613





(See accompanying notes to consolidated financial statements)








6


---










OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


September 30, 2018


(in thousands, except share amounts and percentages)


(unaudited)


Portfolio CompanyIndustrySegmentInvestment(1)PrincipalCostFair Value(2)Affiliate Investments - (5% to 25% owned)OCI Holdings, LLCHome Health ServicesSubordinated Note (Libor+ 12.0% cash with a 1.0% floor plus 3.0% PIK), 21.10%, due 8/31/2019(6)$24,356$23,528$10,880OCI Holdings, LLCHome Health Services100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(8)2,500—Subtotal Affiliate Investments - (5% to 25% owned)$26,028$10,880Non-affiliate Investments - (Less than 5% owned)Equinox Holdings, Inc.Leisure Goods, Activities, MoviesSecond Lien Term Loan(Libor+7.0% with a 1.0% floor), 9.24%, due 9/6/2024(3)7,0006,9567,184PAE Holding CorporationAerospace and DefenseSecond Lien Term Loan(Libor+9.50% with a 1.0% floor), 11.89%, due 10/20/2023(3)6,8886,7446,923Ministry Brands, LLCBusiness ServicesSecond Lien Term Loan (Libor +8.00% with a 1.0% floor), 10.50%, due 6/2/2023(2)6,0005,9436,000Avantor Performance Materials, Inc.ChemicalsSenior Unsecured Notes9.00% due 10/1/2025(3)5,0005,0005,162CVS Holdings I, LP (MyEyeDr)RetailSecond Lien Term Loan(Libor+6.75% with a 1.0% floor), 9.00%, due 2/6/2026(3)5,0004,9764,987PowerSchoolBusiness ServicesSecond Lien Term Loan(Libor+6.75%), 8.85%, due 6/11/2026(3)3,8003,7623,838WASH Multifamily Acquisition, Inc.Industrials - Laundry EquipmentSecond Lien Term Loan (Libor + 7.00% with a 1.0% floor), 9.24%, due 5/14/2023(3)3,4043,3873,353DexKo Global, Inc.AutomotiveSecond Lien Term Loan (Libor+8.25% with a 1.0% floor), 10.64%, due 7/24/2025(3)3,0002,9793,060TIBCO Software, Inc.SoftwareSenior Unsecured Notes, 11.38%, due 12/1/2021(3)2,1001,9882,242ATP Oil & Gas Corporation/Bennu Oil & Gas, LLCOil & Natural GasProduction and DevelopmentLimited Term Royalty Interest(notional rate of 13.2%)(7)—26,9852,173Hayward Industries, Inc.Consumer GoodsSecond Lien Term Loan (Libor+8.25%), 10.49%, due 8/4/2025(3)2,1592,1632,170CentralSquare TechnologiesSoftwareSecond Lien Term Loan(Libor+7.50%), 9.74%, due 8/31/2026(3)2,0001,9492,020EnsonoTelecommunicationsSecond Lien Term Loan (Libor+9.25%), 11.49%, due 4/26/2026(3)1,7001,6331,666MW Industries (Helix Acquisition)IndustrialsSecond Lien Term Loan (Libor+8.00%), 10.39%, due 9/27/2025(3)1,4001,3871,419


(See accompanying notes to consolidated financial statements)





7


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


September 30, 2018


(in thousands, except share amounts and percentages)


(unaudited — continued)


Portfolio CompanyIndustry SegmentInvestment(1)PrincipalCostFair Value(2)Non-affiliate Investments - (Less than 5% owned) - ContinuedAllied Universal Holdco, LLCBusiness ServicesSecond Lien Term Loan(Libor+8.50% with a 1.0% floor), 10.79%, due 7/28/2023(3)1,2501,2501,241Vertafore, Inc.Business ServicesSecond Lien Term Loan(Libor+7.25%), 9.49%, due 7/2/2026(3)900891909Safe Fleet Holdings, LLCIndustrialsSecond Lien Term Loan(Libor+6.75% with a 1.0% floor), 8.86%, due 2/1/2026(3)700697695Coinamatic Canada, Inc.(5)Industrials - Laundry EquipmentSecond Lien Term Loan (Libor + 7.00% with a 1.0% floor), 9.24%, due 5/14/2023(3)596593587MedRisk, LLCHealthcareSecond Lien Term Loan(Libor+6.75%), 8.99%, due 12/25/2025(3)500498497ClearChoice (CC Dental Implants Intermediate)HealthcareFirst Lien Term Loan (Last Out) (Libor+6.50% with a 1.0% floor), 8.86%, due 1/2/2023(10)500495495NAVEXSoftwareSecond Lien Term Loan(Libor+7.00%), 9.12%, due 9/5/2026(3)400396403FirstLight FiberTelecommunicationsSecond Lien Term Loan(Libor+7.50%), 9.84%, due 6/7/2026(3)400396398Edelman Financial Services, LLCFinancial ServicesSecond Lien Term Loan(Libor+6.75%), 9.09%, due 3/28/2026(3)300299307EaglePicher Technologies, LLCAerospace and DefenseSecond Lien Term Loan(Libor+7.25%), 9.49% due 3/28/2026(3)300298300Gramercy Park CLO Ltd.(5)Financial ServicesSubordinated Notes, Residual Interest, 13.46% based on cost, due 7/17/20239,00019195ClearChoice (CC Dental Implants Intermediate)HealthcareFirst Lien Revolver (Last Out) (Funded: Libor+6.50% with a 1.0% floor), 8.95%, due 1/2/2023(9)(10)—(14)(15)Subtotal Non-affiliate Investments - (Less than 5% owned)$81,670$58,209Subtotal Portfolio Investments (75.9% of total investments)$107,698$69,089GOVERNMENT SECURITIESU.S. Treasury Bills(4)$22,000$21,993$21,993Subtotal Government Securities (24.1% of total investments)$21,993$21,993TOTAL INVESTMENTS$129,691$91,082





(See accompanying notes to consolidated financial statements)





8


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


September 30, 2018


(in thousands, except share amounts and percentages)


(unaudited — continued)





NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS





|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. Percentages represent interest rates in effect as ofSeptember 30, 2018, and due dates represent the contractual maturity dates. Common stock and units are non-income producing securities, unless otherwise stated.

|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its Libor+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default. During 2017, we executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its Libor+12% cash interest during 2017. Through June 30, 2018, we have allowed the company to continue to PIK its 12% cash interest while paying the 2% default interest in cash. In June 2018, we executed an amendment to our note purchase and security agreement with OCI to extend its maturity date to August 31, 2019.  In September 2018, we executed an amendment to our note purchase and security agreement whereby we exchanged $217,625 of cash default interest previously paid to us by the company in 2018 for PIK interest, which was added to the principal outstanding balance of the note, on and as of the date the default interest payment was originally made.  This amendment also allows the company to PIK its default interest through December 31, 2018.

|    |                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Effective April 1, 2018, we discontinued income recognition on this investment and it remains on non-accrual status. Previously, ATP was on non-accrual status where income was recognized to the extent production payments were received. For more information on ATP, refer to the discussion of the ATP litigation in Note 6 and Note 7 to the Consolidated Financial Statements.

|    |                                      
|--- | -------------------------------------
|(8) | Non-income producing equity security.

|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Represents a revolving line of credit of which $1.6 million of the $1.6 million total commitment is unfunded at September 30, 2018. The revolving line of credit includes a 0.75% unused fee applied to the unfunded amount.

|     |                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------
|(10) | Investment is entitled to skim interest which results in a higher interest rate spread of approximately 28 basis points.




(See accompanying notes to consolidated financial statements)








9


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


December 31, 2017


(in thousands, except share amounts and percentages)





Portfolio CompanyIndustrySegmentInvestment(1)PrincipalCostFair Value(2)Affiliate Investments - (5% to 25% owned)OCI Holdings, LLCHome Health ServicesSubordinated Note (Libor+ 12.0% cash with a 1.0% floor plus 3.0% PIK), 20.56%, due 8/15/2018(7)$20,806$20,763$18,015OCI Holdings, LLCHome Health Services100% of Class A Units in OHA/OCI Investments, LLC representing 20.8% diluted ownership of OCI Holdings, LLC(11)2,500164Subtotal Affiliate Investments - (5% to 25% owned)$23,263$18,179Non-affiliate Investments - (Less than 5% owned)Talos Production, LLCOil & Natural GasProduction and DevelopmentSenior Unsecured Notes9.75%, due 2/15/2018(3)$11,536$11,534$8,652Equinox Holdings, Inc.Leisure Goods, Activities, MoviesSecond Lien Term Loan(Libor+7.0% with a 1.0% floor), 8.57%, due 9/6/2024(3)7,0006,9517,245PAE Holding CorporationAerospace and DefenseSecond Lien Term Loan(Libor+9.50% with a 1.0% floor), 11.12%, due 10/20/2023(3)6,8886,7296,931Berlin PackagingPackagingSecond Lien Term Loan (Libor +6.75% with a 1.0% floor), 8.12%, due 10/1/2022(3)6,7056,4476,780Avantor Performance Materials, Inc.ChemicalsSenior Unsecured Notes, 9.0%, due 10/1/2025(3)5,0005,0004,925WASH Multifamily Acquisition, Inc.Industrials - Laundry EquipmentSecond Lien Term Loan (Libor + 7.0% with a 1.0% floor), 8.57%, due 5/14/2023(3)3,4043,3853,387DexKo Global, Inc.AutomotiveSecond Lien Term Loan (Libor+8.25% with a 1.0% floor), 9.94%, due 7/24/2025(3)3,0002,9773,038TIBCO Software, Inc.SoftwareSenior Unsecured Notes, 11.38%, due 12/1/2021(3)2,1001,9682,286MW Industries (Helix Acquisition)IndustrialsSecond Lien Term Loan (Libor+8.0%), 9.69%, due 9/27/2025(3)1,4001,3861,409Hayward Industries, Inc.Consumer GoodsSecond Lien Term Loan (Libor+8.25%), 9.82%, due 8/04/2025(3)1,3021,2801,296





(See accompanying notes to consolidated financial statements)





10


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


December 31, 2017


(in thousands, except share amounts and percentages)


(continued)


Portfolio CompanyIndustry SegmentInvestment(1)PrincipalCostFair Value(2)Non-affiliate Investments - (Less than 5% owned) - ContinuedCoinamatic Canada, Inc.(5)Industrials - Laundry EquipmentSecond Lien Term Loan (Libor + 7.0% with a 1.0% floor), 8.57%, due 5/14/2023(3)$596$593$593Gramercy Park CLO Ltd.(5)Financial ServicesSubordinated Notes, Residual Interest, 13.46% based on cost, due 7/17/20239,00019209Castex Energy 2005, LPOil & Natural GasProduction and DevelopmentRedeemable Preferred LP Units (current pay 8.0% cash or 10.0% PIK)(6)(8)62,52956,315—ATP Oil & Gas Corporation/Bennu Oil & Gas, LLCOil & Natural GasProduction and DevelopmentLimited Term Royalty Interest(notional rate of 13.2%)(9)—27,845—Globe BG, LLCCoal ProductionContingent earn-out related to July 2011 sale of royalty interests in Alden Resources, LLC(10)———Subtotal Non-affiliate Investments - (Less than 5% owned)$132,429$46,751Subtotal Portfolio Investments (76.5% of total investments)$155,692$64,930GOVERNMENT SECURITIESU.S. Treasury Bills(4)$20,000$19,994$19,994Subtotal Government Securities (23.5% of total investments)$19,994$19,994TOTAL INVESTMENTS$175,686$84,924





(See accompanying notes to consolidated financial statements)











11


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


December 31, 2017


(in thousands, except share amounts and percentages)


(continued)








NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We pledged all of our portfolio investments, except our investments in U.S. Treasury Bills, as collateral for obligations under our Credit Facility. See Note 3 to Consolidated Financial Statements. Percentages represent interest rates in effect as of December 31, 2017, and due dates represent the contractual maturity dates. Common stock, units and earn-outs are non-income producing securities, unless otherwise stated.

|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The Audit Committee recommends fair values of each asset to our Board of Directors, which in good faith determines the final fair value for each investment. Fair value is determined using unobservable inputs (Level 3 hierarchy), unless otherwise stated. See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Fair value is determined using prices with observable market inputs (Level 2 hierarchy). See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Fair value is determined using prices for identical securities in active markets (Level 1 hierarchy). See Note 7 to the Consolidated Financial Statements.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | We have determined that this investment is not a “qualifying asset” under Section 55(a) of the Investment Company Act of 1940, or the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act is subject to change. We monitor the status of these assets on an ongoing basis.

|    |                                                                     
|--- | --------------------------------------------------------------------
|(6) | Investment on non-accrual status and therefore non-income producing.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | During the fourth quarter of 2016, we executed a series of amendments to our note purchase and security agreement with OCI Holdings, LLC, or OCI, to allow the company to PIK its Libor+12% cash interest for November and December 2016. Also, default interest of $0.1 million and current unpaid interest of $0.4 million was added to the principal balance in the fourth quarter 2016. OCI remains in financial covenant default and while in default, we are earning an additional 2% cash interest and 2% PIK interest. In 2017, we have executed a number of amendments to our note purchase and security agreement with OCI that allows the company to continue to PIK its Libor +12% cash interest through December 31, 2017.

|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(8) | By the terms of our original investment, upon redemption, we were due the outstanding face amount of $50 million, any

unpaid and accrued dividends, plus an option to elect to receive either: a) a cash payment resulting in a total 12% return or


make-whole (inclusive of the 8% cash distributions even if not paid), or b) our pro rata share of 2% of the outstanding regular limited partner interests in Castex Energy 2005, LP, or Castex (0.67% net to us). Amounts shown for principal and cost include PIK dividends that have been added to the principal balance. Please refer to footnote 8 in the December 31, 2016 Consolidated Schedule of Investments for additional information about our investment in Castex and the put process.





During the first quarter of 2017, we placed our investment in Castex on non-accrual status based on our March 31, 2017


valuation, which reflected a determination that future payments received from this investment would no longer be sufficient to cover all of the contractual principal and dividend amounts on this investment. On October 16, 2017, Castex announced that it (together with certain affiliates) has filed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. According to the filing, Castex and its affiliates in bankruptcy entered into a restructuring support agreement ("RSA") with pre-petition lenders holding approximately 86% in principal amount of claims under the pre-petition credit facility. On February 26, 2018, we agreed to a settlement and agreed to withdraw our confirmation objections to the Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy code in exchange for the potential to receive some amount of cash and warrants in the reorganized company. This agreement was approved on February 27, 2018. At this time we are unable to determine the value of a recovery, if any, resulting from the settlement which will be dependent upon the ultimate pool of unsecured claims. Therefore, until we are in a position to determine the value and likelihood of a recovery, we are estimating $0 fair market value of our investment in Castex at December 31, 2017 for financial statement purposes.


|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Effective July 1, 2015, ATP was placed on non-accrual status based on estimated future production payments and income is recognized to the extent cash received. For more information on ATP, refer to the discussion of the ATP litigation in Note 6 to the Consolidated Financial Statements.




12


---







OHA INVESTMENT CORPORATION


CONSOLIDATED SCHEDULE OF INVESTMENTS


December 31, 2017


(in thousands, except share amounts and percentages)


(continued)





NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS - Continued





|     |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Contingent payment of up to $6.8 million is dependent upon Alden Resources, LLC’s achievement of certain sales volume and operating efficiency levels during the three-year period ended July 2014. The reporting and review mechanism to conclude the ultimate value of the earn-out has not yet been completed. Globe BG, LLC has informally advised us that the company’s relative cost of production has not improved since July 2011.

|     |                                      
|---- | -------------------------------------
|(11) | Non-income producing equity security.







(See accompanying notes to consolidated financial statements)











13


---










OHA INVESTMENT CORPORATION


CONSOLIDATED FINANCIAL HIGHLIGHTS


(unaudited)


For the nine months ended September 30,Per Share Data(1)20182017Net asset value, beginning of period$2.37$3.99Net investment income, net of tax0.030.03Net realized and unrealized gain (loss) on investments(2)(0.19)(1.62)Net decrease in net assets resulting from operations(0.16)(1.59)Distributions to common stockholdersDistributions from net investment income(0.06)(0.06)Net decrease in net assets from distributions(0.06)(0.06)Net asset value, end of period2.152.34Market value, beginning of period$1.15$1.72Market value, end of period$1.53$1.25Market value return(3)(4)38.0%(24.9)%Ratios and Supplemental Data($ and shares in thousands)Net assets, end of period$43,352$47,111Average net assets$48,462$64,280Common shares outstanding, end of period20,17220,172Total operating expenses and taxes/average net assets, before waived incentive fees(5)17.0%14.5%Total operating expenses and taxes/average net assets, net of waived incentive fees(5)17.0%14.5%Net investment income/average net assets, before waived incentive fees(5)1.7%1.4%Net investment income/average net assets, net of waived incentive fees(5)1.7%1.4%Portfolio turnover rate32.9%19.9%Expense Ratios (as a percentage of average net assets)(5)Interest expense and bank fees6.6%6.1%Management fees3.2%3.3%Incentive fees—%—%Incentive fees, net of waived incentive fees—%—%Costs related to strategic alternatives review0.2%—%Other operating expenses, including provision for income taxes7.0%5.1%Total operating expenses, including provision for income taxes, before waived incentive fees17.0%14.5%Total operating expenses, including provision for income taxes, net of waived incentive fees17.0%14.5%


|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Per share data is based on weighted average number of common shares outstanding for the period.

|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | May include a balancing amount necessary to reconcile the change in net asset value per share with other per share information presented due to rounding.

|    |                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Total return is based on the change in market price per share during the respective periods.  Total return calculations take into account distributions, if any, reinvested in accordance with the Company's distribution reinvestment plan and do not reflect brokerage commissions.

|    |                
|--- | ---------------
|(4) | Not annualized.

|    |            
|--- | -----------
|(5) | Annualized.

(See accompanying notes to consolidated financial statements)





14


---










OHA INVESTMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2018


(unaudited)








Note 1: Organization


These consolidated financial statements present the financial position, results of operations and cash flows of OHA Investment Corporation and its consolidated subsidiaries (collectively “we,” “us,” “our” and “OHAI”). We are a specialty finance company that was organized in July 2004 as a Maryland corporation. Our investment objective is to generate both current income and capital appreciation primarily through debt investments, some of which include equity components. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company, or a BDC, under the 1940 Act. For federal income tax purposes we operate so as to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. We have several direct and indirect subsidiaries that are single-member limited liability companies and wholly-owned limited partnerships established to hold certain portfolio investments or provide services to us in accordance with specific rules prescribed for a company operating as a RIC. We consolidate the financial results of our wholly-owned subsidiaries for financial reporting purposes, and we do not consolidate the financial results of our portfolio companies (subject to the discussion in Note 2 below).


On September 30, 2014, our stockholders approved the appointment of Oak Hill Advisors, L.P., or OHA, as our investment advisor, replacing NGP Investment Advisor, LP, which had been our investment advisor since our inception. In connection with this change in investment advisor, we changed our name from NGP Capital Resources Company to OHA Investment Corporation. OHA is a registered investment adviser under the Investment Advisers Act of 1940, or the Advisers Act. OHA acts as our investment advisor and administrator pursuant to an investment advisory agreement and an administration agreement, respectively, each dated as of September 30, 2014, which we refer to as the Investment Advisory Agreement and the Administration Agreement, respectively. See Note 4.








Note 2: Basis of Presentation


These interim unaudited consolidated financial statements include the accounts of OHAI and its consolidated subsidiaries. The effects of all intercompany transactions between OHAI and its subsidiaries have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current period presentation.


We prepare the interim consolidated financial statements in accordance with accounting principles generally accepted in United States of America ("GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Company is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, Financial Services - Investment Company ("ASC 946"). Under the investment company rules and regulations pursuant to Article 6 of Regulation S-X and ASC 946, the Company is precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company. An exception to the general principle occurs if the Company holds a controlling interest in an operating company that provides all or substantially all of its services directly to the Company or to its portfolio companies. None of the portfolio investments made by the Company qualify for this exception. Therefore, the Company's investment portfolio is carried on the Consolidated Balance Sheets at fair value.


We omit certain information and footnote disclosures normally included in audited financial statements prepared in accordance with GAAP pursuant to such rules and regulations. We believe we include all adjustments which are of a normal recurring nature, so that these financial statements fairly present our financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or any other interim period. You should read these unaudited consolidated financial statements in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017 .


Preparing interim consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes thereto, including the estimated fair values of our investment portfolio discussed in Note 7. Although we believe our estimates and assumptions are reasonable, actual results could differ materially from these estimates.


Cash and Cash Equivalents


Cash and cash equivalents consist of bank demand deposits and investments in money market funds. The Company considers cash and cash equivalents to include money market funds and may invest in money market funds as part of its cash management activities. As of September 30, 2018 , the Company held $2.3 million in bank demand deposits and $1.4 million in money market funds.





15


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





Payment-in-Kind Interest and Dividends


We occasionally have investments in our portfolio that contain payment-in-kind, or PIK, interest or dividend provisions. We compute PIK interest income or PIK dividend income at the contractual rate specified in each investment agreement, and we add that amount to the principal balance of the investment. For investments with PIK interest or PIK dividends, we calculate our income accruals on the principal balance plus any PIK amounts. If the portfolio company’s projected cash flows, further supported by estimated total enterprise value, are not sufficient to cover the contractual principal and interest or dividend amounts, as applicable, we either reserve a portion of PIK income or we do not accrue PIK interest income or PIK dividend income on the investment. To maintain our RIC status, we must pay out this non-cash income to stockholders in the form of distributions, even though we have not yet collected the cash. We recorded net PIK interest income of $0.7 million and $0.9 million in the three months ended  September 30, 2018 and 2017 , respectively, and $2.7 million and $2.5 million in the nine months ended  September 30, 2018 and 2017 . For the three months ended September 30, 2018, we accrued 45% of the contractual PIK interest amount from our investment in the OCI note as PIK interest income from affiliates which is based on the fair value of the note as a percentage of the principal amount outstanding at September 30, 2018.  As a result, we reserved $0.8 million of the $1.4 million contractual PIK interest amount for the three months end September 30, 2018. Prior to the third quarter 2018, we recorded the full contractual PIK interest amount from our investment in the OCI note as PIK interest income from affiliates.


We did not record PIK dividend income from our investment in Castex Energy 2005, LP. for the three months ended September 30, 2018 , and 2017 , or for the nine months ended  September 30, 2018 , and 2017 . During the first quarter of 2017, we placed our investment in Castex on non-accrual status based on our March 31, 2017 valuation.


Recent Accounting Pronouncements


In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”)  to improve the effectiveness of fair value measurement disclosures. This amendment modifies the disclosure requirements of fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting- Chapter 8: Notes to Financial Statements . ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and early adoption is permitted.Management has adopted the amendments in ASU 2018-13 as of September 30, 2018. The adoption did not have a material impact on the Company’s consolidated financial statements and disclosures.


Distributions


We record distributions to stockholders on the ex-dividend date. We currently intend that our distributions each year will be sufficient to maintain our status as a RIC for federal income tax purposes and to eliminate federal excise tax liability. We currently intend to make distributions to stockholders on a quarterly basis so that substantially all of our net taxable income is distributed on an annual basis. We also intend to make distributions of net realized capital gains, if any, at least annually. However, we may in the future decide to retain such capital gains for investment and designate such retained amounts as deemed distributions. Each quarter, we estimate our annual taxable earnings. The Board of Directors considers this estimate and determines the distribution amount, if any. We generally declare our distributions each quarter and pay them shortly thereafter. The following table summarizes our recent distribution history:


Declaration DatePer ShareAmountRecord DatePayment DateJune 16, 2017$0.02June 30, 2017July 10, 2017September 18, 20170.02September 30, 2017October 9, 2017December 12, 20170.02December 31, 2017January 9, 2018March 14, 20180.02March 31, 2018April 9, 2018May 8, 20180.02June 30, 2018July 9, 2018September 13, 20180.02September 30, 2018October 9, 2018








Note 3: Credit Facilities and Borrowings


We are party to a Credit Agreement (the "Credit Facility"), dated September 9, 2016, with MidCap Financial Trust, as administrative agent, which replaced our prior Third Amended and Restated Revolving Credit Agreement, as amended, with SunTrust Bank, as administrative agent (the "Investment Facility"). The initial size of the Credit Facility was $56.5 million with a maturity date





16


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





of March 9, 2018, with an option to extend for a six-month period, subject to certain conditions. The initial proceeds of $40.5 million from the Credit Facility were used to pay off the $38.5 million outstanding balance on the Investment Facility, pay transaction expenses and provide balance sheet cash. The remaining $16.0 million consisted of a delayed draw term loan and was committed for one year.


On November 10, 2017, we entered into an amendment to the Credit Facility whereby we agreed to make a voluntary principal prepayment in the amount of $4.5 million, reducing the total principal amount outstanding to $36.0 million, and the lenders agreed not to test certain covenants at certain determination dates.


On February 2, 2018, we exercised the option to extend the Credit Facility through September 9, 2018.


On September 7, 2018 we entered into an amendment to extend the maturity date of the Credit Facility to September 9, 2019, which can be extended for an additional six-month period at the Company's option. In connection with the extension, the Company made a repayment of principal of $7.0 million of its Credit Facility, reducing the principal amount outstanding to $29.0 million.  The $7.0 million principal repayment is available to the Company to be re-borrowed as a delayed draw term loan, which is committed until September 9, 2019.  In addition, the interest rate for the borrowings under the Credit Facility was reduced to Libor plus 4.95% for Eurodollar Loans and prime plus 3.95% for Base Rate Loans. Certain financial covenants were also amended.


As of September 30, 2018 , the total amount outstanding under the Credit Facility was $29.0 million with $7.0 million available to draw.  As of December 31, 2017 , the total amount outstanding under the Credit Facility was $36.0 million with $0.0 million available to draw. The total amount outstanding on the Credit Facility is shown net of unamortized debt issuance costs of $0.2 million and $0.2 million on our Consolidated Balance Sheet as of September 30, 2018 and December 31, 2017, respectively. Substantially all of our assets, except our investments in U.S. Treasury Bills, are pledged as collateral for the obligations under the Credit Facility. The Credit Facility bears an interest rate of Adjusted Libor plus 4.95% for Eurodollar Loans, subject to a 1% Libor floor, and Base Rate plus 3.95% for Base Rate Loans. As of September 30, 2018 , the interest rate on our outstanding principal balance of $29.0 million was 7.07% .


The Credit Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants. We have complied with the covenants from the date of the Credit Agreement through September 30, 2018 , and had no existing defaults or events of default under the Credit Facility. The financial covenants, with terms as defined in the Credit Agreement, currently require us to:


|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|• | maintain a Debt to Tangible Net Worth Ratio of not more than 1.00:1.00 as determined on the last day of each calendar month,

|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|• | maintain at all times a minimum liquidity in the form of Cash or Cash Equivalents of at least $1.0 million,

|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|• | maintain a Debt to Fair Market Value Ratio of not more than 0.50:1.00 at any time, and

|  |                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | maintain the Fair Market Value of Liquid Portfolio Investments as a percentage of outstanding aggregate principal balance to not be less than 100% through September 9, 2019.




At the end of each quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which includes purchasing U.S. Treasury Bills, by utilizing repurchase agreements on a temporary basis. On September 27, 2018 , we purchased $22.0 million of U.S. Treasury Bills and contemporaneously entered into a $21.6 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $22.0 million of U.S. Treasury Bills and $0.4 million of cash as collateral under the repurchase agreement. We repaid the $21.6 million borrowed under the repurchase agreement, and was returned the $0.4 million cash collateral, net of a $8 thousand financing fee, upon maturity of the U.S. Treasury Bills on October 4, 2018 . We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability at September 30, 2018 .


On December 26, 2017, we purchased $20.0 million of U.S. Treasury Bills and contemporaneously entered into a $19.6 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $20.0 million of U.S. Treasury Bills and $0.4 million of cash as collateral under the repurchase agreement. We repaid the $19.6 million borrowed under the repurchase agreement, and was returned the $0.4 million cash collateral, net of a $8 thousand financing fee, upon maturity of the U.S. Treasury Bills on January 4, 2018. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability at December 31, 2017.





17


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)











Note 4: Investment Management


Investment Advisory Agreement


On September 30, 2014, we entered into the Investment Advisory Agreement with OHA, an investment adviser registered under the Investment Advisers Act of 1940, or Advisers Act, pursuant to which OHA replaced NGP Investment Advisor, LP as our investment advisor. The Investment Advisory Agreement was most recently approved by our Board of Directors, a majority of whom are not “interested” persons (as defined in the 1940 Act) of us, on August 2, 2018. Pursuant to the Investment Advisory Agreement, OHA implements our business strategy on a day-to-day basis and performs certain services for us subject to the supervision of our Board of Directors. Under the Investment Advisory Agreement, we pay OHA a fee consisting of two components — a base management fee and an incentive fee.


Base Management Fee: The base management fee is paid quarterly in arrears and is calculated by multiplying the average value of our total assets (excluding cash, cash equivalents and U.S. Treasury Bills that are purchased with borrowed funds solely for the purpose of satisfying quarter-end diversification requirements related to our election to be taxed as a RIC under the Code), as of the end of the two immediately prior fiscal quarters, by a rate of 1.75% per annum, with a 0.25% reduction in this 1.75% annual rate for the first year following September 30, 2014. For the three months ended September 30,  2018 and 2017 , we incurred $0.4 million and $0.4 million, respectively, in base management fees. For the nine months ended September 30, 2018 and 2017 , we incurred $1.2 million and $1.5 million, respectively, in base management fees.


Incentive Fee: The incentive fee consists of two parts. The first part, the investment income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the fiscal quarter for which the fee is being calculated. Pre-incentive fee net investment income means interest income, dividend income, royalty payments, net profits interest payments, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, monitoring and consulting fees or other fees that we receive from portfolio companies) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that we have not yet received in cash. Accordingly, we may pay an incentive fee based partly on accrued investment income, the collection of which is uncertain or deferred. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less liabilities at the end of the immediately preceding fiscal quarter) is compared to a “hurdle rate” of 1.75% per quarter (7% annualized). OHA receives no incentive fee for any fiscal quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate. OHA receives an incentive fee equal to 100% of our pre-incentive fee net investment income for any fiscal quarter in which our pre-incentive fee net investment income exceeds the hurdle rate but is less than 2.1875% (8.75% annualized) of net assets (also referred to as the “catch up” provision) plus 20% of our pre-incentive fee net investment income for such fiscal quarter greater than 2.1875% (8.75% annualized) of net assets. For the three months ended September 30,  2018 and 2017 , we did not incur any investment income incentive fees. For the nine months ended September 30, 2018 and 2017 , we did not incur any investment income incentive fees.


The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or, upon termination of the Investment Advisory Agreement, as of the termination date). The capital gains  incentive fee is equal to 20% of our cumulative aggregate realized capital gains from September 30, 2014 through the end of that fiscal year, computed net of our cumulative aggregate realized capital losses and cumulative aggregate unrealized depreciation on investments for the same time period. The aggregate amount of any previously paid capital gains incentive fees to OHA is subtracted from the capital gains incentive fee calculated. If such amount is negative, then there is no capital gains fee for such year. For the purposes of the capital gains fee, any gains and losses associated with our investment portfolio as of September 30, 2014 shall be excluded from the capital gains fee calculation. For the three months ended September 30,  2018 and 2017 , we accrued $6,000 in capital gains incentive fees, and $104,000, respectively, which are both subject to the Incentive Fee Waiver Agreement discussed in the following paragraph. For the nine months ended September 30, 2018 and 2017 , we accrued $6,000 in capital gains incentive fees, and $104,000, respectively which are both subject to the Incentive Fee Waiver Agreement.


On November 10, 2017, we entered into an Incentive Fee Waiver Agreement with OHA whereby OHA agreed to waive any incentive fees earned relating to fiscal years 2017 and 2018. Under the Incentive Fee Waiver Agreement, any capitalized gains fees that would have been earned and accrued during 2017 and 2018, which under our Investment Advisory Agreement would not have been paid until 2018 and 2019, respectively, will be waived.





18


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





The Investment Advisory Agreement may be terminated at any time, without the payment of any penalty, by a vote of our Board of Directors or a vote of the holders of at least a majority of our outstanding voting securities (within the meaning of the 1940 Act) on 60 days’ written notice to OHA, and would automatically terminate in the event of its “assignment” (within the meaning of the 1940 Act). OHA may terminate the Investment Advisory Agreement without penalty by providing us at least 60 days’ written notice. Pursuant to the Investment Advisory Agreement, OHA pays the compensation expense of its investment professionals, who provide management and investment advisory services to us. We bear all other costs and expenses of our operations and transactions.


Administration Agreement


Under the Administration Agreement, OHA furnishes us with certain administrative services, personnel and facilities. The Administration Agreement was most recently approved by our Board of Directors on August 2, 2018. Payments under the Administration Agreement are equal to our allocable portion of OHA’s overhead in performing its obligations under the Administration Agreement, including all administrative services necessary for our operation and the conduct of our business. The Administration Agreement may be terminated at any time, without penalty, by a vote of our Board of Directors or by OHA upon 60 days’ written notice to the other party.


We owed $0.1 million and $0.6 million to OHA under the Administration Agreement as of September 30, 2018 and December 31, 2017 , respectively, for expenses incurred on our behalf for the final month of the respective quarterly period. We include these amounts in due to affiliate on our Consolidated Balance Sheets.








Note 5: Federal Income Taxes


We operate so as to qualify, for tax purposes, as a RIC under Subchapter M of Chapter 1 of the Code. As a RIC, we are generally not subject to corporate-level U.S. federal income taxes on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to our stockholders. To qualify as a RIC, we are required, among other things, to distribute to our stockholders each year at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset-diversification requirements.


The Taxable Subsidiaries have elected to be taxed as corporations for federal income tax purposes. The Taxable Subsidiaries hold certain of our portfolio investments and are consolidated for financial reporting purposes, but not for income tax reporting purposes. These Taxable Subsidiaries permit us to hold equity investments in portfolio companies that are “pass through” entities for tax purposes, in order to comply with the “source-of-income” requirements that must be satisfied to maintain our qualification as a RIC. The Taxable Subsidiaries may generate net income tax expense or benefit, which is reflected on our Consolidated Statements of Operations.


On December 22, 2017, the U.S. government enacted significant tax legislation commonly referred to as the Tax Act and Job Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent, (2) repealing the Corporate Alternative Minimum Tax (AMT), (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (4) creating a new limitation on deductible interest expense, (5) changing rules related to the use and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 and (6) the requirement to pay a one-time transition tax on all undistributed earnings of foreign subsidiaries.


Recently, the SEC staff also issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimated in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.


In connection with our initial analysis of the impact of the Tax Act, we have recorded a net tax expense of approximately $12.2 million in the period ending December 31, 2017 which consists of a reduction of deferred tax assets previously valued at 34%. This tax expense and reduction in deferred tax assets was fully offset by a simultaneous reduction in our valuation allowance. The reduction in the U.S. federal corporate income tax rate is expected to positively impact our future U.S. after tax earnings.


At December 31, 2017, due to the Tax Act, we determined that we were eligible for a refund of our AMT credit carryforward. Accordingly, the valuation allowance related to this AMT credit carryforward has been released in the amount of $632,000, or $0.03 per share. The valuation allowance related to other net deferred tax assets remains. The initial determination of the AMT credit refund





19


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





was not adjusted for sequestration. Based on guidance the IRS published on March 28, 2018, the AMT tax refund is subject to sequestration (approximately 6.2%). Therefore, the associated deferred tax asset was reduced at March 31, 2018, by $42,000 for the sequestration. The provisional amount of $0.7 million at December 31, 2017 was based on our understanding of the impact of the Tax Act, which changed in the three months ended March 31, 2018 and may still change as as notices and regulations regarding the Tax Act are issued. We need more time and further guidance to more accurately account for the tax law changes under ASC 740. While we feel confident we have accounted for the other material changes in the tax law correctly, any future notices or regulations further clarifying the law could alter our analysis.


Our estimate of the impact of the Tax Act is based upon our analysis and interpretations of currently available information. Uncertainties remain regarding the impact of the Tax Act due to future regulatory and rule-making processes, prospects of additional corrective or supplemental legislation, and potential trade or other litigation. These uncertainties, along with our completion of the calculations and potential changes in our initial assumptions as new information becomes available, could cause the actual charge to ultimately differ materially from the provisional amount recorded in 2017 related to the enactment of the Tax Act.


Tax years 2014 through 2017 with respect to the Company and our Taxable Subsidiaries are open to future IRS examination. Our Taxable Subsidiaries have federal net operating loss carryforwards of $80.9 million that expire in various years through 2037. Federal and state laws impose limitations on the utilization of capital losses and NOLs in the event of an "ownership" change for tax purposes, as defined by Sections 382 and 383 of the Internal Revenue Code. An ownership change at either the RIC entity or Taxable Subsidiary level, if one were to occur, would limit our ability to use pre-ownership change NOLs to offset post-ownership change taxable income. An ownership change would also limit our ability to use pre-ownership change capital losses to offset post-ownership change capital gains.








Note 6: Commitments and Contingencies


As of September 30, 2018 , we had investments in 25 active portfolio companies totaling $107.7 million . Of these 25 active portfolio companies, the Company had already funded investments in the amount of $107.7 million million and there were outstanding unfunded commitments of $1.6 million related to our investment in the ClearChoice revolving credit facility and $0.0 million due to broker for unsettled trades. As of December 31, 2017, we had investments in 14 active portfolio companies totaling $155.7 million. Of these 14 active portfolio companies, the Company had already funded investments in the amount of $155.7 million and there were no remaining outstanding unfunded commitments.


We have continuing obligations under the Investment Advisory Agreement and the Administration Agreement with OHA. See Note 4. The agreements provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, OHA and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with OHA will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of services under the agreements or otherwise as our investment advisor or administrator. The agreements also provide that OHA and its affiliates will not be liable to us or any stockholder for any error of judgment, mistake of law, any loss or damage with respect to any of our investments or any action taken or omitted to be taken by OHA in connection with the performance of any of its duties or obligations under the agreements or otherwise as investment advisor or administrator to us, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. In the normal course of business, we enter into a variety of undertakings containing a variety of representations that may expose us to some risk of loss. We do not expect significant losses, if any, from such undertakings.


In the second quarter ended June 30, 2018, we wrote off our investment in Castex Energy 2005, L.P., or Castex. Previously, Castex filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on October 16, 2017. According to the filing, Castex and its affiliates in bankruptcy entered into a restructuring support agreement with pre-petition lenders holding approximately 86% in principal amount of claims under the pre-petition credit facility. On February 26, 2018, we agreed to a settlement and agreed to withdraw our confirmation objections to the Debtors' Joint Plan of Reorganization under Chapter 11 of the Bankruptcy code in exchange for the potential to receive some amount of cash and warrants in the reorganized company. This agreement was approved by the Bankruptcy court on February 27, 2018. At this time we are unable to determine the value of a recovery, if any, resulting from the settlement which will be dependent upon the ultimate pool of unsecured claims.





20


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





Legal Proceedings


From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding, other than those described below, individually or in the aggregate, would be material to our business, financial condition or cash flows.


ATP Litigation . This matter is now concluded in our favor. As discussed extensively in prior reports, we filed a lawsuit against ATP Oil & Gas Corporation styled: OHA Investment Corporation v. ATP Oil and Gas Corporation , Adv. Proc. No. 10-03443, in the U.S. Bankruptcy Court for the Southern District of Texas. The claims asserted by the service companies or Statutory Lien Claimants were resolved in OHAI's favor by the United States Court of Appeals for the Fifth Circuit. The deadline for the Statutory Lien Claimants to file a petition for certiorari with the United States Supreme Court was September 4, 2018. No appeal was filed. Accordingly, we consider the matter concluded and the Fifth Circuit's decision final.


Status of Investment .  As of September 30, 2018 , our unrecovered investment was $38.8 million , and we had received aggregate royalty payments of $38.6 million since the date of ATP’s bankruptcy filing. As of September 30, 2018 , we had incurred legal and consulting fees totaling $6.5 million in connection with the enforcement of our rights under the ORRIs. On various occasions, we have provided notice that such legal expenses will be added to our unrecovered investment balance to the extent they are not reimbursed. To date, we have not received any payments on account of legal expenses aside from our receipt of regular monthly production payments. As a result, we add our legal expenses to the unrecovered investment balance in accordance with our transaction documents. As of September 30, 2018 , $5.4 million of the $6.5 million in legal and consulting fees have been added to, and are thus included in the unrecovered investment balance under the terms of our transaction documents. No legal expenses have been added to our unrecovered investment balance during the three months and nine months ended  September 30, 2018 . Please see our discussion regarding the history of the asset purchase by Bennu Oil & Gas LLC from ATP, and the Bennu Chapter 7 bankruptcy, in the Notes to our December 31, 2017 Consolidated Financial Statements. Production recommenced on the MC941 and MC 942 wells in April 2018. Previously, these wells ceased production in November 2016 as a result of the Bennu Chapter 7 bankruptcy. In August 2017, the bankruptcy court authorized the sale of certain assets including MC 941 and MC 942 to Equinor, formerly known as StatOil USA E&P, Inc. Equinor recommenced production on these wells in April 2018. Equinor disputes that legal fees are eligible to be included in our unrecovered investment balance, but given that current production is not expected to be sufficient to pay the primary sum and notional interest accruing (which Equinor does not dispute), this legal fee issue is not ripe for debate and efforts are not currently ongoing to resolve it.


Through September 30, 2018 , we received post-petition royalty payments from the Gomez properties and the Telemark properties in the amount of $8.3 million and $30.3 million , respectively.








Note 7: Fair Value


Our investments consisted of the following as of September 30, 2018 and December 31, 2017 :


September 30, 2018December 31, 2017(Dollar amounts in thousands)Cost% of totalFair Value% of totalCost% of totalFair Value% of totalPortfolio investmentsFirst lien secured debt$4950.4%$4950.5%$——%$——%Revolving loan facility(14)—%(15)—%——%——%Second lien debt47,19736.4%47,95752.7%29,74816.9%30,67936.2%Subordinated debt30,51623.5%18,28420.1%39,26522.4%33,87839.9%Limited term royalties26,98520.8%2,1732.4%27,84515.8%——%Redeemable preferred units——%——%56,31532.1%——%CLO residual interests19—%1950.2%19—%2090.2%Equity securities2,5001.9%——%2,5001.4%1640.2%Total portfolio investments107,69883.0%69,08975.9%155,69288.6%64,93076.5%Government securitiesU.S. Treasury Bills21,99317.0%21,99324.1%19,99411.4%19,99423.5%Total investments$129,691100.0%$91,082100.0%$175,686100.0%$84,924100.0%





21


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)








We account for all of the assets in our investment portfolio at fair value, following the provisions of the FASB ASC Fair Value Measurements , or ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.


On a quarterly basis, the investment team of our investment advisor prepares fair value recommendations for all of the assets in our portfolio in accordance with ASC 820 and presents them to the Audit Committee of our Board of Directors. The Audit Committee recommends fair values of each asset for which market quotations are not readily available to our Board of Directors, which in good faith determines the final fair value for each investment.


|  |                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|• | Investment Team Valuation.The investment professionals of our investment advisor prepare fair value recommendations for each investment.

|  |                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Investment Team Valuation Documentation.The investment team documents and discusses its preliminary fair value recommendations with the investment committee and senior management of our investment advisor.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Third Party Valuation Activity.We may, at our discretion, retain an independent valuation firm to review any or all of the valuation analyses and fair value recommendations provided by the investment team of our investment advisor.  Our general practice is that we have an independent valuation firm review all Level 3 investments (those whose value is determined using significant unobservable inputs) with recommended fair values in excess of $10 million on a quarterly basis, and review all Level 3 investments with recommended fair values greater than zero at least annually to provide positive assurance on our valuations.

|  |                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Presentation to Audit Committee. Our investment advisor and senior management present the valuation analyses and fair value recommendations to the Audit Committee of our Board of Directors.

|  |                                                                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Board of Directors and Audit Committee.The Board of Directors and the Audit Committee review and discuss the valuation analyses and fair value recommendations provided by the investment team of our investment advisor and the independent valuation firm, if applicable.

|  |                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Final Valuation Determination.Our Board of Directors discusses the fair values recommended by the Audit Committee and determines the fair value of each investment in our portfolio for which market quotations are not readily available, in good faith, based on the input of the investment team of our investment advisor, our Audit Committee and the independent valuation firm, if applicable.

ASC 820 defines fair value as the price that a seller would receive for an asset or pay to transfer a liability in an orderly transaction between independent, knowledgeable and willing market participants at the measurement date. The fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes the use of observable market inputs over unobservable entity-specific inputs. In accordance with ASC 820, we categorize our investments based on the inputs to our valuation methodologies as follows:


|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
|• | Level 1— Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 2— Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

|  |                                                                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 3— Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect our own assumptions regarding what market participants would use to price the asset or liability based on the best available information.

Fair value accounting classifies financial assets and liabilities in their entirety based on the lowest level of input that is significant to the estimated fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment that may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. We did not have any liabilities measured at fair value at September 30, 2018 or December 31, 2017 . Amounts outstanding under our Credit Facility are carried at amortized cost in the Consolidated Balance Sheets. As of September 30, 2018 , the estimated fair value of our Credit Facility approximated its carrying value of $28.8 million . As of December 31, 2017 , the fair value of our Credit Facility





22


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





approximated its carry value of $35.8 million . The estimated fair value of the Credit Facility is determined by discounting projected remaining payments using market interest rates for borrowings of the Company.


The following tables set forth the fair value of our investments by level within the fair value hierarchy as of September 30, 2018 and December 31, 2017 (in thousands):


September 30, 2018TotalLevel 1Level 2Level 3Portfolio investmentsAffiliate investmentsSubordinated debt$10,880$—$—$10,880Equity securities————Total affiliate investments10,880——10,880Non-affiliate investmentsFirst lien secured debt495——495Second lien debt47,957—41,9576,000Subordinated debt7,404—7,404—Limited term royalties2,173——2,173Redeemable preferred units————CLO residual interests195——195Revolving loan facility(15)——(15)Total non-affiliate investments58,209—49,3618,848Total portfolio investments69,089—49,36119,728Government securitiesU.S. Treasury Bills21,99321,993——Total investments$91,082$21,993$49,361$19,728





December 31, 2017TotalLevel 1Level 2Level 3Portfolio investmentsAffiliate investmentsSubordinated debt$18,015$—$—$18,015Equity securities164——164Total affiliate investments18,179——18,179Non-affiliate investmentsFirst lien secured debt————Second lien debt30,679—30,679—Subordinated debt15,863—15,863—Limited term royalties————Redeemable preferred units————CLO residual interests209——209Total non-affiliate investments46,751—46,542209Total portfolio investments64,930—46,54218,388Government securitiesU.S. Treasury Bills19,99419,994——Total investments$84,924$19,994$46,542$18,388








23


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





The following tables present roll-forwards of the changes in fair value for all investments for which we determine fair value using unobservable (Level 3) factors for the periods indicated (in thousands):


FirstLien SecuredDebt andLimited TermRoyaltiesRevolving Loan FacilitySecondLien DebtSubordinatedDebt andRedeemablePreferred UnitsEquitySecuritiesCLO Residual InterestsTotalInvestmentsFor the three months ended September 30, 2018Fair value at June 30, 2018$1,875$360$5,940$18,015$—$181$26,371Total gains, (losses) and amortization:Net realized losses———————Net unrealized gains (losses)1,501(1)57(7,812)—14(6,241)Net amortization of premiums, discounts and fees(708)13(819)——(1,523)New investments, repayments and settlements, net:New investments—813————813PIK———1,496——1,496Repayments and settlements—(1,188)————(1,188)Fair value at September 30, 2018$2,668$(15)$6,000$10,880$—$195$19,728For the nine months ended September 30, 2018Fair value at December 31, 2017$—$—$—$18,015$164$209$18,388Total gains, (losses) and amortization:Net realized losses———(56,315)——(56,315)Net unrealized gains (losses)3,033(1)5746,415(164)(14)49,326Net amortization of premiums, discounts and fees(865)(14)(57)(785)——(1,721)New investments, repayments and settlements, net:New investments5001,8756,000———8,375PIK———3,550——3,550Repayments and settlements—(1,875)————(1,875)Fair value at September 30, 2018$2,668$(15)$6,000$10,880$—$195$19,728





24


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





FirstLien SecuredDebt andLimited TermRoyaltiesSecondLien DebtSubordinatedDebt andRedeemablePreferred UnitsEquitySecuritiesCLO EquityTotalInvestmentsFor the three months ended September 30, 2017Fair value at June 30, 2017$—$9,323$25,641$336$352$35,652Total gains, (losses) and amortization:Net realized gains (losses)——————Net unrealized gains (losses)—(6)(8,538)(93)23(8,614)Net amortization of premiums, discounts and fees—617——23New investments, repayments and settlements, net:New investments——————PIK——895——895Repayments and settlements———(41)(41)Fair value at September 30, 2017$—$9,323$18,015$243$334$27,915For the nine months ended September 30, 2017Fair value at December 31, 2016$—$9,137$49,340$686$1,773$60,936Total gains, (losses) and amortization:Net realized gains—(12,659)———(12,659)Net unrealized gains (losses)—12,830(34,552)(443)5(22,160)Net amortization of premiums, discounts and fees—1547——62New investments, repayments and settlements, net:New investments——————PIK——3,180——3,180Repayments and settlements————(1,444)(1,444)Fair value at September 30, 2017$—$9,323$18,015$243$334$27,915


During the three and nine months ended  September 30, 2018 and 2017 , none of our investments in portfolio companies changed among the categories of Control Investments, Affiliate Investments and Non-Affiliate Investments, and there were no transfers among Levels 3, 2 or 1.


We present net unrealized gains (losses) on our consolidated statements of operations as “Net unrealized appreciation (depreciation) on investments.”





25


---

OHA INVESTMENT CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
 September 30, 2018
 (unaudited)





The following table summarizes the significant unobservable inputs in the fair value measurements of our Level 3 investments by category of investment and valuation technique as of September 30, 2018 (dollars in thousands):


Type of InvestmentFair ValueValuation TechniqueSignificant Unobservable InputsRange of InputsWeighted AverageNon-Energy Investments:First lien debt$480Private transaction comparablesEBITDA multiples12.2x12.2xSecond lien debt6,000Private transaction comparablesMarket Yield8.7% - 11.0%11.0%Subordinated debt10,880Yield analysisMarket yield47.6%47.6%CLO residual interest195Net asset value with discount rateDiscount rate15.0%15.0%17,555Energy Investments:Limited term royalties(1)2,173Probability-weighted discounted cash flowDiscount rate15.0%15.0%2,173Total Level 3 investments$19,728


____________________________________


(1) Due to the lack of information currently being made available by Equinor, the current operator of the underlying wells on which we have our limited term royalty interests, the September 30, 2018 fair value is based on September production volumes over a 15 month period which have been probability-weighted using future commodity pricing curves and discounted back at a 15% discount rate. For the three months and nine months ended  September 30, 2018 , we received cash production payments in the amount of  $707 thousand  and  $860 thousand , respectively, from Equinor related to this investment.


As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of September 30, 2018 . The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market multiples would result in an increase or decrease, respectively in the fair value.








Note 8: Common Stock


On October 31, 2011, our Board of Directors approved a stock repurchase plan, pursuant to which we may, from time to time, repurchase up to $10.0 million of our common stock in the open market at prices not to exceed the net asset value of our shares. During 2012 and 2013, we repurchased an aggregate of 1,129,014 shares of our common stock in the open market at an average price of $6.71 per share, totaling $7.6 million, in accordance with the stock repurchase plan. These repurchases were made at approximate discounts to our most recently published net asset value of 30%, 26% and 28% in May and November 2012 and May 2013, respectively.


In March 2015, our Board of Directors authorized the Company to repurchase up to the remaining $ 2.4 million available to be repurchased under this plan. As of July 14, 2015, we completed the stock repurchases under the stock repurchase plan.  During 2015, we repurchased a total of 444,030 shares for $ 2.4 million at a weighted average price of $ 5.46 per share, a 27% discount to net asset value at December 31, 2014. Repurchases initiated after March 31, 2015 were made pursuant to a plan executed in accordance with Rule 10 b5-1 under the Securities Exchange Act of 1934. Our Credit Facility does not allow us to repurchase common stock.





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





You should read the following analysis of our financial condition and results of operations in conjunction with management’s discussion and analysis contained in our 2017 Annual Report on Form 10-K, as well as our consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q. The terms “we,” “us,” “our” and “OHAI” refer to OHA Investment Corporation and its consolidated subsidiaries. The term "OHA" refers to Oak Hill Advisors, L.P., our investment adviser.








Forward-Looking Statements


Certain statements in this Quarterly Report on Form 10-Q that relate to estimates or expectations of our future performance or financial condition may constitute “forward-looking statements.” These forward-looking statements are subject to various risks and uncertainties, which could cause actual results and conditions to differ materially from those projected, including, but not limited to:


• uncertainties associated with the timing and likelihood of investment transaction closings;


|  |                           
|- | --------------------------
|• | changes in interest rates;

|  |                                                                                                       
|- | ------------------------------------------------------------------------------------------------------
|• | the future operating results of our portfolio companies and their ability to achieve their objectives;

|  |                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------
|• | changes in regional, national or international economic conditions and their impact on the industries in which we invest;

|  |                                               
|- | ----------------------------------------------
|• | disruptions in the credit and capital markets;

|  |                                                                
|- | ---------------------------------------------------------------
|• | changes in the conditions of the industries in which we invest;

|  |                                                        
|- | -------------------------------------------------------
|• | the adequacy of our cash resources and working capital;

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

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

|  |                                                          
|- | ---------------------------------------------------------
|• | other factors enumerated in our filings with the SEC; and

|  |                                            
|- | -------------------------------------------
|• | effects of current and pending legislation.

We may use words such as “anticipates,” “believes,” “intends,” “plans,” “expects,” “projects,” “estimates,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. These forward-looking statements are subject to various risks and uncertainties. Certain factors could cause actual results and conditions to differ materially from those projected and our historical experience. You should not place undue reliance on such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update our forward-looking statements made herein, unless required by law.





Overview


We are a specialty finance company with an investment objective to generate both current income and capital appreciation primarily through debt investments, some of which include equity components. We focus primarily on providing creative direct lending solutions to middle market private companies across industry sectors. Our investment activities are managed by OHA and supervised by our Board of Directors, the majority of whose members are independent of OHA and its affiliates.


We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. For federal income tax purposes, we operate so as to be treated as a RIC, under Subchapter M of the Code. As a BDC and a RIC, we are required to comply with certain investment diversification and other regulatory requirements.


On September 30, 2014, our stockholders approved the appointment of OHA as our investment advisor, replacing NGP Investment Advisor, LP, which had been our investment advisor since our inception. In connection with this change in investment advisor, we changed our name from NGP Capital Resources Company to OHA Investment Corporation. OHA is a registered investment adviser under the Advisers Act. OHA acts as our investment advisor and administrator pursuant to the Investment Advisory Agreement and the Administration Agreement.





26


---







OHA seeks to leverage the firm's strong reputation and deep relationships, that it has developed over more than 25 years with financial sponsors, company management teams, bankers, attorneys, consultants, and other industry participants to be a partner of choice and source of attractive investment opportunities. We are advantaged by OHA's integrated approach to investing, which means that all relevant industry analysts and OHA's broad team of U.S. portfolio managers and traders participate, as warranted, in the origination, selection and monitoring of investments for our portfolio. In addition, because services are provided across a larger investment platform, we benefit from the back-office infrastructure of OHA that is utilized across OHA's client base.


The aggregate fair value of our investment portfolio at September 30, 2018 was $69.1 million , with such value comprised of 25 active portfolio investments. Under our previous investment advisor, we focused our investments primarily on small and mid-size companies engaged in the upstream sector of the energy industry, which includes businesses that find, develop and extract energy resources, such as natural gas, crude oil and coal.


Part of OHA's investment strategy has been to reduce our historical portfolio concentration in the energy industry and to diversify our portfolio with investments in debt securities of U.S. private and small public middle market companies across industry sectors. The exposure of our investment portfolio to the energy sector was 3% at September 30, 2018 compared to 74% at September 30, 2014, on a fair value basis.


Our level of investment activity can and does vary substantially from period to period depending on many factors. Some of these factors are the amount of debt and equity capital available to middle market companies, the level of acquisition and divestiture activity for such companies, the general economic environment and the competitive environment for the types of investments we make, and our own ability to raise capital to fund our investments, both through the issuance of debt and equity securities. If a substantial portion of our investment portfolio were to be realized in the near term, OHA may not be able to source sufficient appropriate investments for us to timely replace the investment income from the realized investments.


On April 11, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, the Company’s asset coverage requirements for senior securities will be changed from 200% to 150%, effective one year after the date of the Board of Directors’ approval; or April 11, 2019. Under the current 200% asset coverage standard, we may borrow debt or issue senior securities in the amount of $1.00 for every $1.00 of equity in the Company. Starting from April 11, 2019, under the 150% asset coverage standard, we may borrow debt or issue senior securities in the amount of $2.00 for every $1.00 of equity in the Company. Notwithstanding the modified asset coverage requirement under the 1940 Act described above, we are separately subject to a Debt to Tangible Net Worth Ratio of not more than 0.80:1.00 (225% minimum asset coverage) with respect to certain provisions of our Credit Facility.








Portfolio and 2018 Investment Activity


In January 2018, we purchased $0.7 million of second lien term loan in Safe Fleet Holdings, LLC, or Safe Fleet, a provider of safety products for fleet vehicles worldwide. The Safe Fleet second lien term loan was purchased at a 0.50% discount to par, earns interest payable in cash at a rate of Libor+6.75% with a 1% floor and matures in February 2026.


Also in January 2018, we purchased $0.5 million of second lien term loan in MedRisk, LLC., or MedRisk, a leading provider of managed care services for the workers' compensation industry and related market sectors. The MedRisk second lien term loan was purchased at a 0.50% discount to par, earns interest payable in cash at a rate of Libor+6.75% and matures in December 2025.


In February 2018, our remaining position in Talos of $11.5 million was redeemed at par. This legacy energy investment was initiated in February 2013 and generated a gross unlevered internal rate of return of 9.95% and a return on investment of 1.30x.


In February 2018, we purchased $7.0 million of second lien term loan in CVS Holdings, I, LP., or MyEyeDr., a provider of vision care services, prescription eyeglasses and sunglasses, and contact lenses. The MyEyeDr second lien term loan was purchased at a 0.50% discount to par, earns interest payable in cash at a rate of Libor+6.75% with a 1% floor and matures in February 2026. Subsequently, in February 2018, we sold $2.0 million of the second lien term loan at par resulting in a realized capital gain of $10,000.


Also in February 2018, we purchased $0.3 million of second lien term loan in EaglePicher Technologies, LLC., or EaglePicher, a leading provider of mission-critical power solutions for high-value applications within the defense, aerospace and medical end-markets. The EaglePicher second lien term loan was purchased at a 0.75% discount to par, earns interest payable in cash at a rate of Libor+7.25% and matures in March 2026.


In March 2018, we purchased $1.3 million of second lien term loan in AlliedUniversal HoldCo LLC., or AlliedUniversal, a provider of contract security services in the United States. The AlliedUniversal second lien term loan was purchased at par, earns interest payable in cash at a rate of Libor+8.50% with a 1% floor and matures in July 2023.


Also in March 2018, we purchased $1.6 million of first lien last out revolver and $0.5 million of first lien last out term loan to ClearChoice (CC Dental Implants Intermediate), or ClearChoice, a provider of full-mouth dental restoration and dental implant





27


---







services throughout the United States. The ClearChoice first lien last out revolver was purchased at a 1% discount to par, earns interest at a rate of Libor+6.50% on amount drawn, earns 0.75% fee on unfunded portion and matures in January 2023. At September 30, 2018, the funded portion balance of the ClearChoice revolver was $0.0 million. The ClearChoice first lien last out term loan was purchased at a 1% discount to par, earns interest payable in cash at a rate of Libor+6.50% and matures in January 2023. Both the first lien last out revolver and term loan are entitled to skim interest on the first lien first out term loan which will initially increase the interest rate spread by approximately 28 basis points.


In May 2018, Berlin Packaging, or Berlin, repaid its second lien term loan in the amount of $6.7 million. We recorded previously unamortized discount of $0.2 million as additional interest income as a result of this repayment. This investment was initiated in December 2015 and generated a gross unlevered internal rate of return of 11.2% and a return on investment of 1.25x.


Also in May 2018, we purchased $1.7 million of second lien term loan in  Ensono, LP., or Ensono, a leading hybrid IT managed service provider focused on mission critical workloads for enterprise customers in the US and Europe. The Ensono second lien term loan was purchased at a 4.0% discount to par, earns interest payable in cash at a rate of Libor+9.25%, and matures in April 2026.


In June 2018, we purchased $6.0 million of second lien term loan in Ministry Brands, LLC., or Ministry Brands, a provider of member management and financial planning software as well as payment processing technology solutions for association and member-based organizations, non-profit organizations, and private schools (K-12). The Ministry Brands second lien term loan was purchased at 1.0% discount to par and earns interest payable in cash at a rate of Libor+8.0% with a 1% floor, and matures in June 2023.


Also in June 2018, we purchased $3.8 million of second lien term loan in PowerSchool, a provider of software solutions catered to K-12 schools in the United States and Canada. The PowerSchool second lien term loan was purchased at a 1.0% discount to par, earns interest payable in cash at a rate of Libor+6.75%, and matures in June 2026.


Also in June 2018, we purchased $0.9 million of second lien term loan in Vertafore, Inc., or Vertafore, a leading provider of software and services for the property and casualty insurance distribution market. The Vertafore second lien term loan was purchased at a 1.0% discount to par, earns interest payable in cash at a rate of Libor+7.25%, and matures in July 2026.


Also in June 2018, we purchased $0.4 million of second lien term loan in FirstLight Fiber, or FirstLight, a leading independent bandwidth infrastructure provider across New York and northern New England. The FirstLight second lien term loan was purchased at a 1.0% discount to par, earns interest payable in cash at a rate of Libor+7.50%, and matures in June 2026.


Also in June 2018, we purchased $0.3 million of second lien term loan in Edelman Financial, or Edelman, a provider of independent, technology-enabled financial advisory services and investment advice to employer-sponsored defined contribution plans and retail investors. The Edelman second lien term loan was purchased at a 0.5% discount to par, earns interest payable in cash at a rate of Libor+6.75%, and matures in June 2026.


In July 2018, we purchased $1.7 million of second lien term loan in Hayward Industries, Inc., or Hayward, adding to our $1.4 million position which was previously acquired in July 2017. The $1.7 million Hayward loan was purchased at a 0.625% premium to par, earns interest payable in cash at a rate of Libor+8.25%, and matures in August 2025.


In August 2018, we purchased $0.4 million of second lien term loan in NAVEX Global, Inc., or NAVEX, a  provider of an ethics and compliance software platform. The NAVEX second lien term loan was purchased at a 1.0% discount to par, earns interest payable in cash at a rate of Libor+7.00%, and matures in September 2026.


Also in August 2018, we purchased $2.0 million of second lien term loan in CentralSquare Technologies, or CentralSquare,  a leading provider of software and services to public, government, and nonprofit agencies. The CentralSquare second lien term loan was purchased at a 2.57% discount to par, earns interest payable in cash at a rate of Libor+7.50%, and matures in August 2026.


In September 2018, Hayward repaid $0.8 million of its second lien term loan at par plus a 1% call premium. We recorded previously unamortized discount of $13,000 as additional interest income as a result of this repayment.


The table below shows our portfolio investments by type for the periods indicated. We compute yields on investments using interest rates as of the balance sheet date and include amortization of original issue discount and market premium or discount, royalty income and other similar investment income, weighted by their respective costs when averaged. Such weighted average yields are not necessarily indicative of expected total returns on a portfolio.








28


---







September 30, 2018December 31, 2017WeightedAverageYields(2)WeightedAverageYields(2)Percentage of Portfolio(1)Percentage of Portfolio(1)CostFair ValueCostFair ValueFirst lien secured debt9.1%0.6%0.7%—%—%—%Second lien debt10.3%60.4%71.7%9.7%43.1%47.4%Subordinated debt9.9%39.0%27.3%15.8%56.9%52.3%CLO residual interests(3)13.5%—%0.3%13.5%—%0.3%Total portfolio investments(1)10.1%100.0%100.0%13.2%100.0%100.0%


(1) Yielding investment portfolio.


(2) Weighted average yield based on cost and excludes non-yielding assets. Yields are based on the most current interest rates in effect at the end of the period.


(3) Yields from investments in CLO residual interests represent the implied internal rate of return calculation expected from cash flows.





As of September 30, 2018 and December 31, 2017 , the total fair value of our portfolio investments was $69.1 million and $64.9 million , respectively. Of those fair value totals, approximately $19.7 million , or 28.6% , as of September 30, 2018 , and $18.4 million, or 28.3%, as of December 31, 2017 are determined using significant unobservable (i.e., Level 3) inputs.








Results of Operations








Investment Income





Investment income includes interest on our investments and dividend income. Dividend income is income we receive from certain of our equity investments. Other income includes prepayment fees and modification fees we receive in connection with certain of our investments. These fees are recognized as earned.


Investment IncomeFor the three months ended September 30,For the nine months ended September 30,(in thousands)2018201720182017Interest income$1,819$2,744$6,572$7,613Dividend income————Other income67722468Total investment income$1,886$2,751$6,796$7,681


For the three months ended September 30, 2018 , total investment income was $1.9 million , a 31%  decrease from $2.8 million of total investment income for the three months ended September 30, 2017 . The decrease in investment income was primarily attributable to the $0.5 million decrease in affiliate investment interest income and PIK interest income from affiliate investments. Also, a decrease of $0.4 million in non-affiliate investment interest income.


For the nine months ended September 30, 2018 , total investment income was $6.8 million , a 11.5%  decrease from $7.7 million of total investment income for the nine months ended September 30,  2017 primarily related to the $1.0 million decrease in non-affiliate interest income.








Operating Expenses


Operating expenses include interest expense and our allocable portion of operating expenses incurred on our behalf by our investment advisor and our administrator. Other general and administrative expenses include our allocated share of employee, facilities, and stockholder services incurred by our administrator.





29


---







Operating ExpensesFor the three months ended September 30,For the nine months ended September 30,(in thousands)2018201720182017Interest expense and bank fees$767$1,012$2,391$2,970Management fees3974401,1811,506Incentive fees61046104Costs related to strategic alternatives review——75—Professional fees2543941,2061,066Other general and administrative expenses3444101,0861,169Directors fees6161184184Operating expenses before incentive fee waiver$1,829$2,421$6,129$6,999Incentive fee waiver(6)—(6)—Total operating expenses, net of incentive fee waiver$1,823$2,421$6,123$6,999


For the three months ended September 30, 2018 , operating expenses decreased by 24.5% to $1.8 million from $2.4 million compared to the three months ended September 30, 2017 . The decrease in operating expenses is due to interest expense and bank fees decreased by 24.2% to $0.8 million from $1.0 million compared to the same period in the prior year largely due to lower amount outstanding on our Credit Facility as a result of a $4.5 million and a $7.0 million principal repayments in December 2017, and September 2018, respectively, as well as lower amortization of debt issuance cost. Management fees decreased by 9.8% to $0.4 million from $0.4 million due to lower average asset base subject to the base management fee. Professional fees decreased by 35.5% to $0.3 million from $0.4 million primarily due to lower legal costs. Other general and administrative expenses decreased by 16.1% to $0.3 million from $0.4 million .


For the nine months ended September 30,  2018 , operating expenses decreased by 12.4% to $6.1 million from $7.0 million compared to the nine months ended  September 30 , 2017 . The decrease in operating expenses is due to interest expense and bank fees decreased by 19.5% to $2.4 million from $3.0 million compared to the same period in the prior year largely due to lower amount outstanding on our Credit Facility on as the result of $4.5 million and $7.0 million principal repayments in December 2017, and September 2018, respectively. As well as lower amortization of debt issuance cost. Management fees decreased by 21.6% to $1.2 million from $1.5 million due to lower average asset base subject to the base management fee. Professional fees increased by 13.1% to $1.2 million from $1.1 million primarily due to an increase in legal expenses related to our Castex and ATP investments. Other general and administrative expenses decreased by 7.1% to $1.1 million from $1.2 million .


Under the Investment Advisory Agreement, the investment income incentive fee is calculated quarterly at a rate of 20% of quarterly net investment income above a “hurdle rate” of 1.75% per quarter (7% annualized) with a “catch up” provision. For the three months ended September 30, 2018 and September 30,  2017 , we did not incur any investment income incentive fees. For the nine months ended September 30,  2018 and nine months ended September 30,  2017 , we did not incur any investment income incentive fees.


The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or, upon termination of the Investment Advisory Agreement, as of the termination date). The capital gains  incentive fee is equal to 20% of our cumulative aggregate realized capital gains from September 30, 2014 through the end of that fiscal year, computed net of our cumulative aggregate realized capital losses and cumulative aggregate unrealized depreciation on investments for the same time period. The aggregate amount of any previously paid capital gains incentive fees to OHA is subtracted from the capital gains incentive fee calculated. If such amount is negative, then there is no capital gains fee for such year. For the purposes of the capital gains fee, any gains and losses associated with our investment portfolio as of September 30, 2014 shall be excluded from the capital gains fee calculation. For the three months ended September 30,  2018 and 2017 , we accrued $6,000 in capital gains incentive fees, and $104,000, respectively.   For the nine months ended  September 30 , 2018 and 2017 , we accrued $6,000 in capital gains incentive fees, and $104,000, respectively.


On November 10, 2017, we entered into an Incentive Fee Waiver Agreement with OHA whereby OHA agreed to waive any incentive fees earned relating to fiscal years 2017 and 2018. Under the Incentive Fee Waiver Agreement, any capitalized gains fees that would have been earned and accrued during 2017 and 2018, which under our investment advisory agreement would not have been paid until 2018 and 2019, respectively, will be waived.








30


---










Net Investment IncomeFor the three months ended September 30,For the nine months ended September 30,(in thousands, except per share data)2018201720182017Net investment income$56$323$628$661Net investment income per common share$—$0.02$0.03$0.03


During the three month period ended September 30, 2018 , the decrease in net investment income compared to the three month period ended September 30, 2017 was driven by a decrease in operating expenses partially offset by lower investment income.


During the nine month period ended September 30, 2018 , the decrease in net investment income compared to the nine month period ended September 30, 2017 was driven by lower operating expenses partially offset by lower investment income.





Net Realized Gains and Losses


Net realized gains and losses is the difference between the net proceeds received from dispositions of portfolio investments and their stated costs. Realized losses may also be recorded in connection with our determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.


Net Realized Gains and LossesFor the three months ended September 30,For the nine months ended September 30,(in thousands, except per share data)2018201720182017Net realized capital gain (loss) on investments$—$1,004$(55,952)$(11,560)Provision for taxes on realized loss3—(39)—Net realized capital gains (losses)$3$1,004$(55,991)$(11,560)Net realized capital gains (losses) per common share$—$0.05$(2.78)$(0.57)


For the three months ended September 30, 2018 , we did not realize a capital gain or loss on our investments. For the three month s ended September 30, 2017 , we realized a capital gain of $1.0 million related to our investment in TIBCO Software, Inc., or TIBCO, unsecured notes.


For the nine months ended  September 30 , 2018 , we realized a capital loss of $56.3 million related to our investment in Castex, partially offset by realized capital gains of $0.4 million related to a sales price adjustment from the 2011 disposal of our investments in Alden Resources (or Globe BG, LLC), sale of our partial investment in MyEyeDr second lien term loan, and sale of our investment in SMG Holdings, Inc. second lien term loan. For the nine months ended  September 30 , 2017 , we realized a capital loss of $12.7 million related to our investment in Shoreline Energy, LLC second lien term loan.





Net Unrealized Appreciation (Depreciation) on Investments


Net unrealized appreciation or depreciation is the net change in the fair value of our investments during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.


Net Unrealized Appreciation (Depreciation) on InvestmentsFor the three months ended September 30,For the nine months ended September 30,(in thousands, except per share data)2018201720182017Affiliate investments$(7,812)$(1,004)$(10,064)$(1,466)Non-affiliate investments1,804(8,508)62,218(19,807)Net unrealized appreciation (depreciation) on investments$(6,008)$(9,512)$52,154$(21,273)Net unrealized appreciation (depreciation) on investments per common share$(0.30)$(0.47)$2.59$(1.05)








31


---







Affiliate Investments


For the three months ended September 30, 2018 and 2017 , the net unrealized depreciation on our affiliate investments was attributable to unrealized depreciation of our investments in OCI.


For the nine months ended  September 30 , 2018 and 2017 , the net unrealized depreciation on our affiliate investments was attributable to unrealized depreciation of our investments in OCI.


Non-Affiliate Investments


For the three months ended September 30, 2018 , the net unrealized appreciation on our non-affiliate investments was primarily attributable to the unrealized appreciation on our investments in ATP Oil & Gas Corporation, Ministry Brands, LLC, Dexko Global, Inc., and Ensono partially offset in unrealized depreciation in other various investments. For the three months ended September 30,  2017 , the increase in net unrealized depreciation on our non-affiliate investments was primarily attributable to $7.6 million write down of our investment in Castex and the reversal of $1.0 million unrealized depreciation, due to realization, of our investment in TIBCO.


For the nine months ended  September 30 , 2018 , the net unrealized appreciation on our non-affiliate investments was primarily attributable to $2.9 million unrealized appreciation in Talos Production, LLC, senior unsecured note upon it's maturity and repayment and the reversal of $56.3 million unrealized depreciation, due to realization of our investment in Castex as well as unrealized appreciation on our investment in ATP Oil & Gas Corporation. For the nine months ended  September 30,  2017 , the increase in net unrealized depreciation on our non-affiliate investments was primarily attributable to a decrease in the fair value of our investments in Castex of $33.5 million and by the reversal of $1.0 million unrealized appreciation of our investment in TIBCO. This was partially offset by the reversal of $12.7 million unrealized depreciation, due to realization, of our investment in Shoreline.


Net Increase (Decrease) in Net Assets Resulting from OperationsFor the three months ended September 30,For the nine months ended September 30,(in thousands, except per share data)2018201720182017Net increase (decrease) in net assets resulting from operations$(5,949)$(8,185)$(3,209)$(32,172)Net increase (decrease) in net assets resulting from operations per common share$(0.29)$(0.40)$(0.16)$(1.59)


For the three months ended September 30, 2018 , the net decrease in net assets resulting from operations compared to the three months ended September 30, 2017 is attributable to a decrease in unrealized depreciation on investments totaling $3.5 million, a decrease in net realized gain of $1.0 million, and a decrease in net investment income of $0.3 million .


For the nine months ended  September 30,  2018 , the net increase in net assets resulting from operations compared to the nine months ended  September 30,  2017 primarily is attributable net realized loss and unrealized appreciation on investments totaling $29.0 million.








Financial Condition, Liquidity and Capital Resources


We expect to fund our investments and our operations in 2018 from available cash, proceeds from realizations of existing investments and from borrowings under the Credit Facility. In the future, we may also fund a portion of our investments with issuances of equity or senior debt securities. We expect our primary use of funds to be investments in portfolio companies, cash distributions to holders of our common stock and payment of fees, debt service, and other operating expenses.


Cash Flows


At September 30, 2018 and September 30, 2017 , we had cash and cash equivalents totaling $3.7 million and $16.6 million , respectively.


Our portfolio may consist of a combination of temporary investments in U.S. Treasury Bills, repurchase agreements, money market funds or repurchase agreement-like treasury securities. These temporary investments with original maturities of 90 days or less are deemed cash equivalents and are included in the Consolidated Schedule of Investments. At the end of each fiscal quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which is dependent upon the composition of our total assets at quarter-end. We may accomplish this in several ways, including purchasing U.S. Treasury Bills and closing out positions on a net cash basis after quarter-end, or utilizing repurchase agreements or other balance sheet transactions as are deemed appropriate for this purpose. These amounts are excluded from adjusted gross assets for purposes of computing the Investment Adviser's base management fee.


During the nine months ended  September 30, 2018 , we experienced a net decrease in cash and cash equivalents in the amount of $16.2 million . During the period, our operating activities used $9.8 million in cash, consisting of $21.5 million provided by proceeds





32


---







from redemptions of investments in portfolio securities and $2.0 million of net proceeds from redemption of investments in U.S. Treasury bills, partially offset by $23.1 million in purchases of new investments in portfolio securities, financing activities used cash of $6.4 million , consisting of net borrowings under repurchase agreement of $(2.0) million , cash distributions paid to our stockholders in the amount of $1.2 million , and debt issuance cost paid in the amount of $0.2 million .


During nine months ended  September 30, 2017 , we experienced a net decrease in cash and cash equivalents in the amount of $1.0 million. During the period, our operating activities provided $7.0 million in cash, consisting of $22.0 million purchases of new investments in portfolio securities of which,$6.4 million was not yet settled at September 30, 2017, partially offset by $19.3 million provided by proceeds from redemptions of investments in portfolio securities. Financing activities used cash of $6.9 million, consisting of net borrowings under repurchase agreement of $4.9 million partially offset by cash distributions paid to our stockholders in the amount of $2.0 million.


Distributions to Stockholders


For the three months ended September 30,  2018 , we paid cash distributions totaling $0.4 million, or $0.02 per share, to our common stockholders compared to $0.4 million, or $0.02 per share, during the three months ended September 30,  2017 . For the nine months ended September 30,  2018 , we paid cash distributions totaling $1.2 million, or $0.06 per share, to our common stockholders compared to $1.2 million, or $0.06 per share, during the nine months ended September 30,  2017 . We currently intend to continue to distribute, out of assets legally available for distribution and as determined by our Board of Directors, in the form of quarterly distributions, a minimum of 90% of our annual investment company taxable income to our stockholders.


Credit Facility


We are party to a Credit Agreement (the "Credit Facility"),with MidCap Financial Trust, as administrative agent. The initial amount we could borrow under the Credit Facility was $56.5 million and had a maturity date of March 9, 2018, with an option to extend for a six-month period, subject to certain conditions. The initial proceeds of $40.5 million from the Credit Facility were used to pay off the $38.5 million outstanding balance on the Investment Facility, pay transaction expenses and provide balance sheet cash. The remaining $16.0 million consisted of a delayed draw term loan, which was committed for one year.


On November 10, 2017, we entered into an amendment to the Credit Facility whereby we agreed to make a voluntary principal prepayment in the amount of $4.5 million, reducing the total principal amount outstanding to $36.0 million, and the lenders agreed not to test certain covenants at certain determination dates.


On February 2, 2018, we exercised the option to extend the Credit Facility to September 9, 2018, as permitted in our existing Credit Agreement.


On September 7, 2018 we entered into an amendment to extend the maturity date of the Credit Facility to September 9, 2019, which can be extended for an additional six-month period at the Company's option. In connection with the extension, the Company made a repayment of principal of $7.0 million of its Credit Facility, reducing the principal amount outstanding to $29.0 million.  The $7.0 million principal repayment is available to the Company to be re-borrowed as a delayed draw term loan, which is committed until September 9, 2019.  In addition, the interest rate for the borrowings under the Credit Facility was reduced to Libor plus 4.95% for Eurodollar Loans and prime plus 3.95% for Base Rate Loans. Certain financial covenants were also amended.


As of September 30, 2018 , the total amount outstanding under the Credit Facility was $29.0 million with $7.0 million available to draw.  As of December 31, 2017 , the total amount outstanding under the Credit Facility was $36.0 million with $0.0 million available to draw. The total amount outstanding on the Credit Facility is shown net of unamortized debt issuance costs of $0.2 million and $0.2 million on our Consolidated Balance Sheet as of September 30, 2018 and December 31, 2017 , respectively. Substantially all of our assets, except our investments in U.S. Treasury Bills, are pledged as collateral for the obligations under the Credit Facility. The Credit Facility bears an interest rate of Adjusted Libor plus 5.35% for Eurodollar Loans, subject to a 1% Libor floor, and Base Rate plus 4.35% for Base Rate Loans. As of September 30, 2018 , the interest rate on our outstanding principal balance of $29.0 million was 7.07% .


The Credit Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants. We have complied with these covenants from the date of the Credit Agreement through September 30, 2018 , and had no existing defaults or events of default under the Credit Facility. The financial covenants, with terms as defined in the Credit Agreement, currently require us to:


|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|• | maintain a Debt to Tangible Net Worth Ratio of not more than 1.00:1.00 as determined on the last day of each calendar month,

|  |                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------
|• | maintain at all times a minimum liquidity in the form of Cash or Cash Equivalents of at least $1.0 million,

|  |                                                                                       
|- | --------------------------------------------------------------------------------------
|• | maintain a Debt to Fair Market Value Ratio of not more than 0.50:1.00 at any time, and

|  |                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | maintain the Fair Market Value of Liquid Portfolio Investments as a percentage of outstanding aggregate principal balance to not be less than 100% through September 9, 2019.




33


---







Repurchase Agreements


At the end of each quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which includes purchasing U.S. Treasury Bills, by utilizing repurchase agreements on a temporary basis. On September 27, 2018 , we purchased $22.0 million of U.S. Treasury Bills and contemporaneously entered into a $ 21.6 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $22.0 million of U.S. Treasury Bills and $0.4 million of cash as collateral under the repurchase agreement. We repaid the $21.6 million borrowed under the repurchase agreement, and was returned the $0.4 million cash collateral, net of an $8 thousand financing fee, upon maturity of the U.S. Treasury Bills on October 4, 2018 . We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount borrowed under the repurchase agreement is recorded as a current liability at September 30, 2018 .


On December 27, 2017, we purchased $20.0 million of U.S. Treasury Bills and contemporaneously entered into a $19.6 million repurchase arrangement with a global financial institution to finance such purchase. Under the repurchase arrangement, we transferred $20.0 million of U.S. Treasury Bills and $0.4 million of cash as collateral under the repurchase agreement. We repaid the $19.6 million borrowed under the repurchase agreement, and was returned the $0.4 million cash collateral, net of an $8 thousand financing fee, upon maturity of the U.S. Treasury Bills on January 4, 2018. We account for the transfer of the U.S. Treasury Bills under the repurchase agreement as a secured borrowing in accordance with GAAP. As a result, the U.S. Treasury Bills are recorded on our books as investments in U.S. Treasury Bills, and the amount outstanding under the repurchase agreement is recorded as a current liability at December 31, 2017.


Distributions


We have elected to operate our business to be taxed as a RIC for federal income tax purposes. As a RIC, we generally are not required to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as distributions. To maintain our RIC status, we must meet specific source-of-income and asset diversification requirements and distribute annually an amount equal to at least 90% of our “investment company taxable income” (which generally consists of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses) and net tax-exempt interest. In order to avoid certain excise taxes imposed on RICs, we generally must distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of our capital gain net income (i.e., realized capital gains in excess of realized capital losses) for the one-year period ended on October 31 of that calendar year, and (3) 100% of any ordinary income or capital gain net income not distributed in prior years and on which we did not pay corporate-level federal income taxes. We currently intend to make sufficient distributions to satisfy the annual distribution requirement and to avoid the excise taxes.


Although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment and designate such retained amount as a deemed distribution.


We determine the tax characteristics of our distributions to stockholders as of the end of the fiscal year, based on the taxable income for the full year and distributions paid during the year. Taxable income available for distribution differs from consolidated net investment income under GAAP due to (i) temporary and permanent differences in income and expense recognition, (ii) capital gains and losses, (iii) activity at taxable subsidiaries, and (iv) the timing and period of recognition regarding distributions declared in December of one year and paid in January of the following year. We (or the applicable withholding agent) report the tax characteristics of distributions paid annually to each stockholder on Form 1099-DIV after the end of the year.


The tax characteristics of distributions paid in 2017 represented $1.2 million from ordinary income, $1.1 million from return of capital and none from capital gains. For tax purposes, 100% of the $0.4 million distribution paid on January 9, 2018 was treated as arising in 2018.


We may not achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings when applicable to us as a BDC under the 1940 Act and due to provisions in our Credit Facility. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our status as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at any specific level.


We have established an “opt out” DRIP plan for our stockholders. As a result, if we declare a cash distribution, our plan agent automatically reinvests a stockholder’s cash distribution in additional shares of our common stock unless the stockholder, or his or her broker, specifically “opts out” of the distribution reinvestment plan and elects to receive cash distributions. No action is required on the part of a registered stockholder to have the stockholder’s dividend reinvested in shares of our common stock. The plan administrator will set up an account for shares acquired through the DRIP plan for each stockholder who has not elected to receive distributions in cash and hold such shares in non-certificated form. A registered stockholder may terminate participation in the DRIP





34


---







plan at any time and elect to receive distributions in cash by notifying the plan administrator in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to stockholders. Participants may terminate participation in the plan by notifying the plan administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator at American Stock Transfer & Trust Company, Operations Center, 6201 15th Avenue, Brooklyn, NY 11219 or by calling the plan administrator at 1-800-937-5449.


Within 20 days following receipt of a termination notice by the plan administrator and according to a participant’s instructions, the plan administrator will either: (a) maintain all shares held by such participant in a plan account designated to receive all future distributions in cash; (b) issue certificates for the whole shares credited to such participant’s plan account and issue a check representing the value of any fractional shares to such participant; or (c) sell the shares held in the plan account and remit the proceeds of the sale, less any brokerage commissions that may be incurred and a $15.00 transaction fee, to such participant at his or her address of record at the time of such liquidation. A stockholder who has elected to receive distributions in cash may re-enroll in the DRIP at any time by providing notice to the plan administrator.


Those stockholders whose shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election. It is customary practice for many brokers to opt out of DRIP plans on behalf of their clients unless specifically instructed otherwise.


We intend, when permitted by the DRIP plan, to primarily use newly issued shares for reinvested distributions under the DRIP plan. However, we reserve the right to purchase shares in the open market in connection with the DRIP plan. The number of newly issued shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the average market price per share of our common stock at the close of regular trading on the exchange or market on which our shares of common stock are listed for the five trading days preceding the valuation date for such distribution. We can not calculate the number of shares of our common stock to be outstanding after giving effect to payment of the distribution until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated.


We may not use newly issued shares to satisfy our obligations under the DRIP plan if the market price of our shares is less than our net asset value per share. In such event, the cash distributions are paid to the plan administrator who purchases shares in the open market for credit to the accounts of plan participants unless the average of the closing sales prices for the shares for the five days immediately preceding the payment date exceeds 110% of the most recently reported net asset value per share. The allocation of shares to the participants’ plan accounts is based on the average cost of the shares so purchased, including brokerage commissions. The plan administrator will reinvest all distributions as soon as practicable, but no later than the next ex-dividend date, except to the extent necessary to comply with applicable provisions of the federal securities laws. The plan will not pay interest on any uninvested cash payment.


As of October 9, 2018, the date of our most recent distribution payment, holders of approximately 128 ,000 shares, or approximately 0.6% of the 20,172,392 outstanding shares, were participants in the DRIP plan. During 2018, we declared distributions totaling $0.06 per common share. During 2017, we declared distributions totaling $0.08 per common share.


There are no brokerage charges on newly issued shares or other charges to stockholders who participate in the DRIP plan. We pay the plan administrator’s fees.


We may terminate the DRIP plan upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any distribution. When a participant withdraws from the DRIP plan or when the DRIP plan is terminated, the participant will receive a cash payment for any fractional shares of our common stock based on the market price on the date of withdrawal or termination. Participants and interested stockholders should direct all correspondence concerning the DRIP plan to the plan administrator by mail at American Stock Transfer & Trust Company, Operations Center, 6201 15th Avenue, Brooklyn, NY 11219.


The automatic reinvestment of distributions will not relieve a participant of any income tax liability associated with such dividend or distribution. A U.S. stockholder participating in the DRIP plan will be treated for U.S. federal income tax purposes as having received a distribution in an equal amount to the cash that the participant could have received instead of shares. The tax basis of such shares will equal the amount of such cash. In the case of newly issued shares under the DRIP plan, the distribution and tax basis will generally be the value of the issued shares. A participant will not realize any taxable income upon receipt of a certificate for whole shares credited to the participant’s account whether upon the participant’s request for a specified number of shares or upon termination of enrollment in the DRIP plan. Each participant will receive each year from us (or the applicable withholding agent) a Form 1099-DIV with respect to the U.S. federal income tax status of all distributions during the previous year.


A copy of our DRIP plan is available on our corporate website, www.ohainvestmentcorporation.com, in the investor relations section.








Portfolio Credit Quality





35


---







At September 30, 2018 , a significant portion of our portfolio investments were being negotiated, and often illiquid, securities of middle market businesses. As of September 30, 2018 , we had an investment related to one portfolio company on non-accrual status with a cost and fair value of $27.0 million and $2.2 million , respectively. Effective July 1, 2015, Bennu was placed on non-accrual status based on estimated future production payments and cash received is applied to cost basis. Our portfolio investments at fair value were approximately 64.2% and 41.7% of the related cost basis as of September 30, 2018 and December 31, 2017 , respectively.


Non-accruing and non-income producing investmentsSeptember 30, 2018December 31, 2017(in thousands)CostFair ValueCostFair ValueNon-accruing investmentsCastex Energy 2005, LP (non-accrual January 2017)$—$—$56,315$—ATP Oil & Gas Corporation/Bennu Oil & Gas, LLC (non-accrual July 2015)26,9852,17327,845—Total non-accruing investments26,9852,17384,160—Non-income producing investmentsOHA/OCI Investments, LLC Class A Units2,500—2,500164Total non-income producing investments2,500—2,500164Total non-accruing and non-income producing investments$29,485$2,173$86,660$164








Contractual Obligations and Off-Balance Sheet Arrangements


The following table summarizes our contractual payment obligations at September 30, 2018 (in thousands):


Credit facilities(1)TotalLess than1 Year1-3 Years3-5 YearsMore than5 YearsCredit Facility$29,000$—$29,000$—$—Repurchase Agreement(2)21,55221,552———Total$50,552$21,552$29,000$—$—


(1) Excludes accrued interest amounts.


(2) Amount outstanding under the Repurchase Agreement was repaid on October 4, 2018 .


From time to time we could have unused commitments to extend credit to our portfolio companies. Generally, these commitments have fixed expiration dates, and we do not fund the entire amounts before they expire. Therefore, these commitment amounts do not necessarily represent future cash requirements, and we do not report the unused portions of these commitments on our Consolidated Balance Sheets. At September 30, 2018 we had $1.6 million unused credit commitment of our ClearChoice revolver investment.








Item 3. Quantitative and Qualitative Disclosures About Market Risk


There have been no material changes from the information provided in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2017 .








Item 4. Controls and Procedures


Disclosure Controls and Procedures


We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) designed to ensure that information required to be disclosed in our reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures.


In connection with the preparation of this Quarterly Report on Form 10-Q, as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q ( September 30, 2018 ), we performed an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based on this





36


---







evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of September 30, 2018 , our disclosure controls and procedures were effective in providing reasonable assurance (i) that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (ii) that such information is accumulated and communicated to management in a manner that allows timely decisions regarding required disclosure.


Changes in Internal Control over Financial Reporting


No changes in internal control over financial reporting occurred during the quarter ended September 30, 2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).








37


---










PART II – OTHER INFORMATION








Item 1. Legal Proceedings


The information set forth under the heading “Legal Proceedings” in Note 6 to our interim consolidated financial statements is incorporated herein by reference.








Item 1A. Risk Factors


During the nine months ended  September 30, 2018 , there were no material changes to the risk factors disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 .








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


The information set forth in Note 8 to our interim consolidated financial statements is incorporated herein by reference. There were no shares of common stock repurchased during the nine months ended  September 30, 2018 .








Item 3. Defaults Upon Senior Securities


None.








Item 4. Mine Safety Disclosures


Not applicable.








Item 5. Other Information


None.








Item 6. Exhibits


See “Index to Exhibits” following the signature page for a description of the exhibits furnished as part of this Quarterly Report on Form 10-Q.








38


---










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.


OHA INVESTMENT CORPORATIONDate:November 14, 2018By:/s/ STEVEN T. WAYNESteven T. WaynePresident and Chief Executive OfficerDate:November 14, 2018By:/s/ CORY E. GILBERTCory E. GilbertChief Financial Officer and Treasurer











39


---










Index to Exhibits





Exhibit No.Exhibit31.1Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Executive Officer31.2Certification required by Rule 13a-14(a)/15d-14(a) by the Chief Financial Officer32.1Section 1350 Certification by the Chief Executive Officer32.2Section 1350 Certification by the Chief Financial Officer


____________














40