20140331 10Q TCAP
Table of Contents

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 March 31, 2014
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 814-00733 
__________________________________________________________
Triangle Capital Corporation
(Exact name of registrant as specified in its charter)
__________________________________________________________
Maryland
 
06-1798488
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
3700 Glenwood Avenue, Suite 530
Raleigh, North Carolina
 
27612
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (919) 719-4770
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A 
__________________________________________________________
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 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. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares outstanding of the registrant’s Common Stock on May 6, 2014 was 27,903,696.


Table of Contents

TRIANGLE CAPITAL CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q

 
 
Page
 
PART I – FINANCIAL INFORMATION
Item 1.
 
 
 
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 


2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

TRIANGLE CAPITAL CORPORATION
Consolidated Balance Sheets
 
 
March 31, 2014
 
December 31, 2013
 
(Unaudited)
 
 
Assets:
 
 
 
Investments at fair value:
 
 
 
Non-Control / Non-Affiliate investments (cost of $565,681,884 and $528,021,069 at March 31, 2014 and December 31, 2013, respectively)
$
578,923,349

 
$
546,043,946

Affiliate investments (cost of $96,920,921 and $107,418,051 at March 31, 2014 and December 31, 2013, respectively)
97,897,491

 
107,536,534

Control investments (cost of $18,254,446 and $18,378,665 at March 31, 2014 and December 31, 2013, respectively)
13,189,579

 
10,792,709

Total investments at fair value
690,010,419

 
664,373,189

Cash and cash equivalents
90,838,247

 
133,304,346

Interest and fees receivable
3,705,941

 
5,255,760

Prepaid expenses and other current assets
3,473,128

 
831,544

Deferred financing fees
10,665,772

 
11,063,716

Property and equipment, net
76,425

 
60,525

Total assets
$
798,769,932

 
$
814,889,080

Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
1,743,559

 
$
7,493,928

Interest payable
1,093,587

 
3,017,645

Taxes payable

 
1,064,544

Deferred income taxes
3,610,610

 
3,514,376

Borrowings under credit facility
10,860,711

 
11,221,246

Notes
149,500,000

 
149,500,000

SBA-guaranteed debentures payable
193,330,441

 
193,285,211

Total liabilities
360,138,908

 
369,096,950

Net Assets:
 
 
 
Common stock, $0.001 par value per share (150,000,000 shares authorized, 27,903,696 and 27,697,483 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively)
27,904

 
27,697

Additional paid in capital
408,613,927

 
409,042,893

Investment income in excess of distributions
7,134,163

 
8,610,735

Accumulated realized gains
16,547,531

 
20,665,371

Net unrealized appreciation
6,307,499

 
7,445,434

Total net assets
438,631,024

 
445,792,130

Total liabilities and net assets
$
798,769,932

 
$
814,889,080

Net asset value per share
$
15.72

 
$
16.10


See accompanying notes.


3

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Operations

 
Three Months
Ended
 
Three Months
Ended
 
 
March 31,
2014
 
March 31,
2013
 
Investment income:
 
 
 
 
Loan interest, fee and dividend income:
 
 
 
 
Non-Control / Non-Affiliate investments
$
16,507,765

 
$
17,187,501

 
Affiliate investments
3,576,791

 
2,963,029

 
Control investments
145,360

 
49,371

 
Total loan interest, fee and dividend income
20,229,916

 
20,199,901

 
Payment-in-kind interest income:
 
 
 
 
Non-Control / Non-Affiliate investments
2,997,777

 
3,250,548

 
Affiliate investments
730,657

 
958,379

 
Control investments
5,987

 
5,867

 
Total payment-in-kind interest income
3,734,421

 
4,214,794

 
Interest income from cash and cash equivalent investments
74,608

 
51,240

 
Total investment income
24,038,945

 
24,465,935

 
Operating expenses:
 
 
 
 
Interest and other financing fees
5,139,512

 
5,111,512

 
General and administrative expenses
5,056,092

 
4,120,958

 
Total operating expenses
10,195,604

 
9,232,470

 
Net investment income
13,843,341

 
15,233,465


Realized and unrealized gains (losses) on investments and foreign currency borrowings:
 
 
 
 
Net realized gains (losses):
 
 
 
 
Non-Control / Non-Affiliate investments
272,201

 
578,782

 
Affiliate investments

 
1,274,000

 
Control investments
(208,553
)
 

 
Net realized gains (losses)
63,648

 
1,852,782

 
Net unrealized appreciation (depreciation):
 
 
 
 
Investments
(1,498,470
)
 
1,766,545

 
Foreign currency borrowings
360,535

 

 
Net unrealized appreciation (depreciation)
(1,137,935
)
 
1,766,545

 
Net realized and unrealized gains (losses) on investments and foreign currency borrowings
(1,074,287
)
 
3,619,327

 
Loss on extinguishment of debt

 
(412,673
)
 
Provision for taxes
(266,555
)
 
(20,303
)
 
Net increase in net assets resulting from operations
$
12,502,499


$
18,419,816

 
Net investment income per share—basic and diluted
$
0.50

 
$
0.56

 
Net increase in net assets resulting from operations per share—basic and diluted
$
0.45

 
$
0.67

 
Dividends per share
$
0.54

 
$
0.54

 
Capital gain distributions per share
$
0.15

 
$

 
Weighted average number of shares outstanding—basic and diluted
27,805,108

 
27,433,290

 

See accompanying notes.


4

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Changes in Net Assets
 
 
Common Stock
 
Additional
Paid In
Capital
 
Investment
Income
in Excess of
Distributions
 
Accumulated
Realized
Gains on Investments
 
Net
Unrealized
Appreciation
 
Total
Net
Assets
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance, December 31, 2012
27,284,798

 
$
27,285

 
$
403,322,097

 
$
6,783,161

 
$
1,972,940

 
$
5,229,761

 
$
417,335,244

Net investment income

 

 

 
15,233,465

 

 

 
15,233,465

Stock-based compensation

 

 
630,006

 

 

 

 
630,006

Realized gain (loss) on investments

 

 

 

 
1,852,782

 
(1,274,000
)
 
578,782

Net unrealized gains on investments / foreign currency

 

 

 

 

 
3,040,545

 
3,040,545

Loss on extinguishment of debt

 

 

 
(412,673
)
 

 

 
(412,673
)
Provision for taxes

 

 

 
(20,303
)
 

 

 
(20,303
)
Dividends / distributions
28,577

 
28

 
796,999

 
(14,868,791
)
 

 

 
(14,071,764
)
Issuance of restricted stock
250,000

 
250

 
(250
)
 

 

 

 

Balance, March 31, 2013
27,563,375

 
$
27,563

 
$
404,748,852

 
$
6,714,859

 
$
3,825,722

 
$
6,996,306

 
$
422,313,302

 
 
Common Stock
 
Additional
Paid In
Capital
 
Investment
Income
in Excess of
Distributions
 
Accumulated
Realized
Gains on Investments
 
Net
Unrealized
Appreciation
 
Total
Net
Assets
 
Number
of Shares
 
Par
Value
 
 
 
 
 
Balance, December 31, 2013
27,697,483

 
$
27,697

 
$
409,042,893

 
$
8,610,735

 
$
20,665,371

 
$
7,445,434

 
$
445,792,130

Net investment income

 

 

 
13,843,341

 

 

 
13,843,341

Stock-based compensation

 

 
1,338,072

 

 

 

 
1,338,072

Realized gain (loss) on investments

 

 

 

 
63,648

 
(555,390
)
 
(491,742
)
Net unrealized loss on investments / foreign currency

 

 

 

 

 
(582,545
)
 
(582,545
)
Provision for taxes

 

 

 
(266,555
)
 

 

 
(266,555
)
Dividends / distributions
27,108

 
27

 
707,263

 
(15,053,358
)
 
(4,181,488
)
 

 
(18,527,556
)
Issuance of restricted stock
273,000

 
273

 
(273
)
 

 

 

 

Common stock withheld for payroll taxes upon vesting of restricted stock
(93,895
)
 
(93
)
 
(2,474,028
)
 

 

 

 
(2,474,121
)
Balance, March 31, 2014
27,903,696

 
$
27,904

 
$
408,613,927

 
$
7,134,163

 
$
16,547,531

 
$
6,307,499

 
$
438,631,024


See accompanying notes.


5

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Statements of Cash Flows
 
 
Three Months Ended
 
Three Months Ended
 
March 31, 2014
 
March 31, 2013
Cash flows from operating activities:
 
 
 
Net increase in net assets resulting from operations
$
12,502,499

 
$
18,419,816

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
 
 
 
Purchases of portfolio investments
(77,498,482
)
 
(10,259,545
)
Repayments received/sales of portfolio investments
51,808,786

 
9,274,946

Loan origination and other fees received
1,367,819

 
255,159

Net realized gain on investments
(63,648
)
 
(1,852,782
)
Net unrealized (appreciation) depreciation on investments
1,402,236

 
(1,325,156
)
Net unrealized depreciation on foreign currency borrowings
(360,535
)
 

Deferred income taxes
96,234

 
(441,389
)
Payment-in-kind interest accrued, net of payments received
(1,472,204
)
 
(3,685,061
)
Amortization of deferred financing fees
397,944

 
389,394

Loss on extinguishment of debt

 
412,673

Accretion of loan origination and other fees
(835,536
)
 
(734,094
)
Accretion of loan discounts
(346,201
)
 
(396,661
)
Accretion of discount on SBA-guaranteed debentures payable
45,230

 
44,259

Depreciation expense
9,652

 
9,172

Stock-based compensation
1,338,072

 
630,006

Changes in operating assets and liabilities:
 
 
 
Interest and fees receivable
1,549,819

 
(1,481,469
)
Prepaid expenses and other current assets
(2,641,584
)
 
(190,613
)
Accounts payable and accrued liabilities
(5,750,369
)
 
(4,698,321
)
Interest payable
(1,924,058
)
 
(2,070,906
)
Taxes payable
(1,064,544
)
 
(2,976,193
)
Net cash used in operating activities
(21,438,870
)
 
(676,765
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(25,552
)
 
(10,220
)
Net cash used in investing activities
(25,552
)
 
(10,220
)
Cash flows from financing activities:
 
 
 
Repayments of SBA-guaranteed debentures payable

 
(20,500,000
)
Common stock withheld for payroll taxes upon vesting of restricted stock
(2,474,121
)
 

Cash dividends/distributions paid
(18,527,556
)
 
(14,071,764
)
Net cash used in financing activities
(21,001,677
)
 
(34,571,764
)
Net decrease in cash and cash equivalents
(42,466,099
)
 
(35,258,749
)
Cash and cash equivalents, beginning of period
133,304,346

 
72,300,423

Cash and cash equivalents, end of period
$
90,838,247

 
$
37,041,674

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
6,404,312

 
$
6,594,078

Summary of non-cash financing transactions:
 
 
 
Dividends/distributions paid through DRIP share issuances
$
707,290

 
$
797,027


See accompanying notes.


6

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Non–Control / Non–Affiliate Investments:
 
 
 
 
 
 
Agilex Flavors & Fragrances, Inc. (3%)*
 
Custom Fragrance Producers
 
Subordinated Note (12% Cash, 1.5% PIK, Due 06/19)
 
$
12,745,683

 
$
12,530,110

 
$
12,530,110

Common Units (1,250 units)
 
 
 
1,250,000

 
1,565,000

 
 
 
12,745,683

 
13,780,110

 
14,095,110

 
 
 
 
 
 
 
 
 
 
 
AGM Automotive, LLC (3%)*
 
Auto Industry Interior Components Supplier
 
Subordinated Note (10% Cash, 3% PIK, Due 07/19)
 
12,060,075

 
11,828,390

 
11,828,390

 
Class A Units (500 units)
 
 
 
500,000

 
500,000

 
 
 
12,060,075

 
12,328,390

 
12,328,390

 
 
 
 
 
 
 
 
 
 
 
Ambient Air Corporation (0%)*
 
Specialty Trade Contractors
 
Subordinated Note (0% Cash, 8% PIK, Due 06/20)
 
483,500

 
66,993

 
142,000

 
 
 
483,500

 
66,993

 
142,000

 
 
 
 
 
 
 
 
 
 
 
Applied-Cleveland Holdings, Inc. (5%)*
 
Oil and Gas Pipeline Infrastructure Inspection Services
 
Subordinated Note (10% Cash, 2% PIK, Due 06/19)
 
18,000,000

 
17,712,461

 
17,712,461

 
Class A Preferred Units (2,129,032 units)
 
 
 
2,129,032

 
2,129,032

 
 
 
18,000,000

 
19,841,493

 
19,841,493

 
 
 
 
 
 
 
 
 
 
 
Assurance Operations Corporation (0%)*
 
Metal Fabrication
 
Common Stock (517 shares)
 
 
 
516,867

 
1,159,000

 
 
 
 
 
516,867

 
1,159,000

 
 
 
 
 
 
 
 
 
 
 
Audio and Video Labs Holdings, Inc. (3%)*
 
Manufacturer and Distributor for Independent Artists and Authors
 
Subordinated Note (12% Cash, 2% PIK, Due 06/18)
 
13,335,479

 
13,120,683

 
13,120,683

Common Units (138 units)
 
 
 
1,300,000

 
1,531,000

 
 
 
13,335,479

 
14,420,683

 
14,651,683

 
 
 
 
 
 
 
 
 
 
 
BFN Operations LLC (4%)*
 
Wholesale Grower and Distributor of Container Grown Shrubs, Trees and Plants
 
Subordinated Note (13% Cash, 4% PIK, Due 11/17)
 
17,725,664

 
17,392,688

 
17,392,688

 
 
 
17,725,664

 
17,392,688

 
17,392,688

 
 
 
 
 
 
 
 
 
 
 
Botanical Laboratories, Inc. (0%)*
 
Nutritional Supplement Manufacturing and Distribution
 
Common Unit Warrants (998,680 units)
 
 
 
237,301

 
240,000

 
 
 
 
 
237,301

 
240,000

 
 
 
 
 
 
 
 
 
 
 
Cafe Enterprises, Inc. (3%)*
 
Restaurant
 
Subordinated Note (12% Cash, 2% PIK, Due 09/19)
 
12,006,667

 
11,766,667

 
11,766,667

 
 
Series C Preferred Stock (10,000 shares)
 
 
 
1,000,000

 
1,000,000

 
 
 
 
12,006,667

 
12,766,667

 
12,766,667

 
 
 
 
 
 
 
 
 
 
 
Capital Contractors, Inc. (2%)*
 
Janitorial and Facilities Maintenance Services
 
Subordinated Notes (12% Cash, 2% PIK, Due 12/15)
 
9,613,505

 
9,332,086

 
9,332,086

Common Stock Warrants (20 shares)
 
 
 
492,000

 
250,000

 
 
9,613,505

 
9,824,086

 
9,582,086

 
 
 
 
 
 
 
 
 
 
 
Carepoint Resources, Inc. (5%)*
 
Business Process Outsourcing Provider
 
Subordinated Note (12% Cash, 2.5% PIK, Due 06/18)
 
23,661,777

 
23,302,602

 
23,302,602

 
 
 
 
23,661,777

 
23,302,602

 
23,302,602

 
 
 
 
 
 
 
 
 
 
 
Carolina Beverage Group, LLC (0%)*
 
Beverage Manufacturing
and Packaging
 
Class B Units (11,974 units)
 
 
 
119,735

 
1,549,000

 
 
 
 
 
119,735

 
1,549,000

 
 
 
 
 
 
 
 
 
 
 
Chromaflo Technologies Parent LP (3%)*
 
Colorant Manufacturer and Distributor
 
Subordinated Note (8.3% Cash, Due 06/20)
 
10,000,000

 
9,951,473

 
9,951,473

Class A Units (22,561 units)
 
 
 

 
2,239,000

 
 
 
10,000,000

 
9,951,473

 
12,190,473

 
 
 
 
 
 
 
 
 
 
 
Comverge, Inc. (4%)*
 
Provider of Intelligent Energy Management Solutions
 
Senior Note (12% Cash, Due 05/18)
 
15,505,583

 
15,265,377

 
15,265,377

Preferred Units (900 units)
 
 
 
900,000

 
1,001,000

Common Units (1,000,000 units)
 
 
 
100,000

 
138,000

 
 
 
15,505,583

 
16,265,377

 
16,404,377

 
 
 
 
 
 
 
 
 
 
 
Continental Anesthesia Management, LLC (2%)*
 
Physicians Management
Services
 
Subordinated Note (14% Cash, Due 09/14)
 
9,762,500

 
9,689,754

 
9,266,000

Warrant (263 shares)
 
 
 
276,100

 

 
 
9,762,500

 
9,965,854

 
9,266,000

 
 
 
 
 
 
 
 
 
 
 
CRS Reprocessing, LLC (6%)*
 
Fluid
Reprocessing
Services
 
Subordinated Note (12% Cash, 2% PIK, Due 11/15)
 
12,069,344

 
11,974,073

 
11,974,073

Subordinated Note (12% Cash, 2% PIK, Due 11/15)
 
13,310,223

 
12,539,268

 
12,539,268

Series C Preferred Units (30 units)
 
 
 
288,342

 
446,000

Common Unit Warrant (664 units)
 
 
 
1,759,556

 
2,649,000

Series D Preferred Units (16 units)
 
 
 
107,074

 
174,000

 
Series E Preferred Units (5 units)
 
 
 
31,651

 
47,000

 
 
 
25,379,567

 
26,699,964

 
27,829,341


7

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
 
 
 
 
 
 
 
 
 
 
 
Danville Materials, LLC (2%)*
 
Manufacturer of Dental Products
 
Senior Note (10% Cash, Due 12/18)
 
$
8,000,000

 
$
7,846,682

 
$
7,846,682

 
Common Units (45,492 units)
 
 
 
500,000

 
500,000

 
 
 
8,000,000

 
8,346,682

 
8,346,682

 
 
 
 
 
 
 
 
 
 
 
DataSource Incorporated (1%)*
 
Print Supply Chain Management Services
 
Subordinated Note (12% Cash, 2% PIK, Due 01/18)
 
4,791,459

 
4,664,116

 
4,664,116

 
Common Units (47 units)
 
 
 
1,000,000

 
1,037,000

 
 
 
4,791,459

 
5,664,116

 
5,701,116

 
 
 
 
 
 
 
 
 
 
 
DCWV Acquisition Corporation (1%)*
 
Arts & Crafts and Home Decor Products Designer and Supplier
 
Subordinated Note (12% Cash, 3% PIK, Due 09/17)
 
6,288,363

 
6,150,322

 
3,962,000

 
 
 
6,288,363

 
6,150,322

 
3,962,000

 
 
 
 
 
 
 
 
 
 
 
DLR Restaurants, LLC (0%)*
 
Restaurant
 
Royalty Rights
 
 
 

 

 
 
 
 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
Dyno Acquiror, Inc. (2%)*
 
Sewing Products and Seasonal Decorative Products Supplier
 
Subordinated Note (12% Cash, 2% PIK, Due 11/18)
 
7,128,619

 
7,003,709

 
7,003,709

 
 
Preferred series A Units (600,000 units)
 
 
 
600,000

 
357,000

 
 
 
 
7,128,619

 
7,603,709

 
7,360,709

 
 
 
 
 
 
 
 
 
 
 
Eckler's Holdings, Inc. (2%)*
 
Restoration Parts and Accessories for Classic Cars and Trucks
 
Subordinated Note (11% Cash, 4% PIK, Due 07/18)
 
7,156,402

 
7,024,688

 
7,024,688

 
Common Stock (18,029 shares)
 
 
 
183,562

 

 
Preferred Stock A (1,596 shares)
 
 
 
1,596,126

 
1,569,000

 
 
 
7,156,402

 
8,804,376

 
8,593,688

 
 
 
 
 
 
 
 
 
 
 
Electronic Systems Protection, Inc. (0%)*
 
Power Protection Systems Manufacturing
 
Common Stock (570 shares)
 
 
 
285,000

 
296,000

 
 
 
 
 
285,000

 
296,000

 
 
 
 
 
 
 
 
 
 
 
Flowchem Ltd. (2%)*
 
Provider of Support Services to Crude Oil Pipeline Operators
 
Subordinated Note (11% Cash, 2% PIK, Due 06/19)
 
7,799,315

 
7,649,536

 
7,649,536

 
Common Units (1,000,000 Units)
 
 
 
1,000,000

 
1,000,000

 
 
 
7,799,315

 
8,649,536

 
8,649,536

 
 
 
 
 
 
 
 
 
 
 
Foodstate, Inc. (1%)*
 
Nutritional Supplement Manufacturing and Distribution
 
Subordinated Note (12% Cash, 3.8% PIK, Due 10/16)
 
5,745,066

 
5,684,976

 
5,684,976

 
 
 
5,745,066

 
5,684,976

 
5,684,976

 
 
 
 
 
 
 
 
 
 
 
FrontStream Payments, Inc. (3%)*
 
Payment and Donation Management Product Service Provider
 
Senior Note (8% Cash, 6% PIK, Due 08/18)
 
11,201,738

 
10,999,232

 
10,999,232

 
 
 
 
11,201,738

 
10,999,232

 
10,999,232

 
 
 
 
 
 
 
 
 
 
 
Frontstreet Facility Solutions, Inc. (2%)*
 
Retail, Restaurant and Commercial Facilities Maintenance
 
Subordinated Note (10% Cash, 3% PIK, Due 07/18)
 
8,398,937

 
8,287,852

 
6,955,000

 
 
Convertible Preferred Units (2,500 units)
 
 
 
250,000

 

 
 
 
 
8,398,937

 
8,537,852

 
6,955,000

 
 
 
 
 
 
 
 
 
 
 
Frozen Specialties, Inc. (2%)*
 
Frozen Foods Manufacturer
 
Subordinated Note (11% Cash, 5% PIK, Due 05/17)
 
11,059,204

 
10,912,118

 
7,427,000

 
 
11,059,204

 
10,912,118

 
7,427,000

 
 
 
 
 
 
 
 
 
 
 
Garden Fresh Restaurant Holding, LLC (0%)*
 
Restaurant
 
Class A Units (5,000 units)
 
 
 
500,000

 
246,000

 
 
 
 
500,000

 
246,000

 
 
 
 
 
 
 
 
 
 
 
Grindmaster-Cecilware Corp. (2%)*
 
Food Services Equipment Manufacturer
 
Subordinated Note (12% Cash, 6% PIK, Due 04/16)
 
7,191,916

 
7,165,604

 
7,165,604

 
 
7,191,916

 
7,165,604

 
7,165,604

 
 
 
 
 
 
 
 
 
 
 
Hatch Chile Co., LLC (2%)*
 
Food Products Distributor
 
Senior Note (19% Cash, Due 11/18)
 
3,071,250

 
3,032,725

 
3,032,725

Subordinated Note (14% Cash, Due 11/18)
 
3,363,750

 
3,116,715

 
3,116,715

Unit Purchase Warrant (7,817 units)
 
 
 
295,800

 
686,000

 
 
6,435,000

 
6,445,240

 
6,835,440

 
 
 
 
 
 
 
 
 
 
 
Infrastructure Corporation of America, Inc. (3%)*
 
Roadway Maintenance, Repair and Engineering Services
 
Subordinated Note (12% Cash, 2% PIK, Due 09/18)
 
11,248,546

 
9,823,600

 
9,823,600

Common Stock Purchase Warrant (487,877 shares)
 
 
 
2,411,000

 
2,201,000

 
 
11,248,546

 
12,234,600

 
12,024,600

 
 
 
 
 
 
 
 
 
 
 

8

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Inland Pipe Rehabilitation Holding Company LLC (2%)*
 
Cleaning and Repair Services
 
Subordinated Note (13% Cash, 2.5% PIK, Due 12/16)
 
$
8,442,465

 
$
8,266,345

 
$
8,266,345

Membership Interest Purchase Warrant (3.0%)
 
 
 
853,500

 
1,127,000

 
 
8,442,465

 
9,119,845

 
9,393,345

 
 
 
 
 
 
 
 
 
 
 
IOS Acquisitions, Inc. (5%)*
 
Provider of Oil Country Tubular Goods Inspections and Repair Services
 
Subordinated Note (12% Cash, 3.8% PIK, Due 06/18)
 
19,685,778

 
19,366,411

 
19,366,411

Common Units (7,314 Class A Units)
 
 
 
1,699,847

 
1,325,000

 
 
19,685,778

 
21,066,258

 
20,691,411

 
 
 
 
 
 
 
 
 
 
 
Justrite Manufacturing Company, LLC (3%)*
 
Storage Product Developer and Supplier for Hazardous Materials
 
Subordinated Note (10% Cash, 2% PIK, Due 07/19)
 
14,553,972

 
14,344,008

 
14,344,008

 
 
Class A Common Units (1,268 Units)
 
 
 
118,110

 
118,110

 
 
Class A Preferred Units (132 Units)
 
 
 
131,890

 
131,890

 
 
 
 
14,553,972

 
14,594,008

 
14,594,008

 
 
 
 
 
 
 
 
 
 
 
Library Systems & Services, LLC (0%)*
 
Municipal Business Services
 
Common Stock Warrants (112 shares)
 
 
 
58,995

 
1,884,000

 
 
 
 
 
58,995

 
1,884,000

 
 
 
 
 
 
 
 
 
 
 
Magpul Industries Corp. (2%)*
 
Firearm Accessories Manufacturer and Distributor
 
Preferred Units (1,470 units)
 
 
 
1,470,000

 
2,074,000

 
Common Units (30,000 units)
 
 
 
30,000

 
7,771,000

 
 
 
 
 
1,500,000

 
9,845,000

 
 
 
 
 
 
 
 
 
 
 
Media Storm, LLC (3%)*
 
Marketing Services
 
Subordinated Note (10% Cash, Due 08/19)
 
11,000,000

 
10,915,763

 
10,915,763

Membership Units (1,216,204 units)
 
 
 
1,176,957

 
1,688,000

 
 
11,000,000

 
12,092,720

 
12,603,763

 
 
 
 
 
 
 
 
 
 
 
Micross Solutions LLC (3%)*
 
Provider of Semiconductor Products and Services
 
Subordinated Note (12% Cash, 2% PIK, Due 06/18)
 
10,886,830

 
10,755,474

 
10,755,474

Class A-2 Common Units (1,580,559 units)
 
 
 
1,580,599

 
1,378,000

 
 
10,886,830

 
12,336,073

 
12,133,474

 
 
 
 
 
 
 
 
 
 
 
Minco Technology Labs, LLC (0%)*
 
Semiconductor Distribution
 
Subordinated Note (6.5% Cash, 3.5% PIK, Due 12/16)
 
5,881,876

 
5,478,942

 
1,994,000

Class A Units (5,000 HoldCo. units)
 
 
 
500,000

 

Class A Units (3,907 OpCo. units)
 
 
 
3,907

 

 
 
5,881,876

 
5,982,849

 
1,994,000

 
 
 
 
 
 
 
 
 
 
 
My Alarm Center, LLC (0%)*
 
Security Company
 
Preferred Units (2,000,000 units)
 
 
 
2,000,000

 
2,079,000

 
 
 


 
2,000,000

 
2,079,000

 
 
 
 
 
 
 
 
 
 
 
Novolyte Technologies, Inc. (0%)*
 
Specialty Manufacturing
 
Common Units (24,522 units)
 
 
 
43,905

 
41,000

 
 
 
 
 
43,905

 
41,000

 
 
 
 
 
 
 
 
 
 
 
On Event Services, LLC (2%)*
 
Equipment Rentals to Conference Venues and Live Events
 
Subordinated Note (10% Cash, 2% PIK, Due 01/19)
 
9,796,042

 
9,608,676

 
9,608,676

 
 
 
9,796,042

 
9,608,676

 
9,608,676

 
 
 
 
 
 
 
 
 
 
 
Performance Health & Wellness Holdings, Inc. (2%)*
 
Designer and Manufacturer of Rehabilitation and Wellness Products
 
Subordinated Note (12% Cash, 1% PIK, Due 04/19)
 
6,684,660

 
6,522,378

 
6,522,378

 
Class A Limited Partnership Units (15,000 units)
 
 
 
1,500,000

 
1,604,000

 
 
 
6,684,660

 
8,022,378

 
8,126,378

 
 
 
 
 
 
 
 
 
 
 
PetroLiance, LLC (3%)*
 
Lubricant, Fuel and Ancillary Products Distributor
 
Subordinated Note (12% Cash, 1% PIK, Due 08/19)
 
12,015,004

 
11,782,863

 
11,782,863

 
Class A Units (1,142,857 Units)
 
 
 
1,200,000

 
1,200,000

 
 
 
12,015,004

 
12,982,863

 
12,982,863

 
 
 
 
 
 
 
 
 
 
 
PowerDirect Marketing, LLC (2%)*
 
Marketing Services
 
Subordinated Note (13% Cash, 2% PIK, Due 12/16)
 
7,346,980

 
6,937,261

 
6,937,261

Common Unit Purchase Warrants
 
 
 
590,200

 
644,000

 
 
7,346,980

 
7,527,461

 
7,581,261

 
 
 
 
 
 
 
 
 
 
 
Sheplers, Inc. (3%)*
 
Western Apparel Retailer
 
Subordinated Note (13.2% Cash, Due 12/16)
 
8,750,000

 
8,612,574

 
8,612,574

Subordinated Note (10% Cash, 7% PIK, Due 12/17)
 
4,389,464

 
4,343,691

 
4,343,691

 
 
 
13,139,464

 
12,956,265

 
12,956,265

 
 
 
 
 
 
 
 
 
 
 

9

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Snacks Holding Corporation (2%)*
 
Trail Mixes and Nut Manufacturer and Marketer
 
Subordinated Note (12% Cash, 1% PIK, Due 05/20)
 
$
5,043,470

 
$
5,008,670

 
$
5,008,670

Preferred A Units (22,368 units)
 
 
 
1,053,897

 
2,588,000

Preferred B Units (10,380 units)
 
 
 
25,337

 
226,000

Common Units (190,935 units)
 
 
 
150,000

 
1,654,000

Common Stock Warrants (14,558 shares)
 
 
 
14,558

 
179,000

 
 
 
5,043,470

 
6,252,462

 
9,655,670

 
 
 
 
 
 
 
 
 
 
 
SPC Partners V, LP (0%)*(4)
 
Multi-Sector Holdings
 
0.7% Limited Partnership Interest
 
 
 
545,801

 
545,801

 
 
 
 
 
 
545,801

 
545,801

 
 
 
 
 
 
 
 
 
 
 
Specialized Desanders, Inc. (3%)* (4)
 
Sand and Particulate Removal Equipment Provider for Oil and Gas Companies
 
Subordinated Notes (12% Cash, 2% PIK, Due 03/19)
 
11,750,144

 
11,533,108

 
11,129,920

Common C Shares (2,000,000 shares)
 
 
 
1,937,421

 
1,832,000

 
 
 
11,750,144

 
13,470,529

 
12,961,920

 
 
 
 
 
 
 
 
 
 
 
Stella Environmental Services, LLC (0%)*
 
Waste Transfer Stations
 
Common Stock Purchase Warrants
 
 
 
20,000

 
478,000

 
 
 
 
 
 
20,000

 
478,000

 
 
 
 
 
 
 
 
 
 
 
The Krystal Company (0%)*
 
Restaurant
 
Class A Units of Limited Partnership (2,000 units)
 
 
 

 
2,075,000

 
 
 
 
 
 

 
2,075,000

 
 
 
 
 
 
 
 
 
 
 
Tomich Brothers, LLC (3%)*
 
Squid and Wetfish Processor and Distributor
 
Subordinated Note (5% Cash, 10% PIK, Due 04/16)
 
12,699,312

 
12,535,569

 
11,065,000

 
 
 
12,699,312

 
12,535,569

 
11,065,000

 
 
 
 
 
 
 
 
 
 
 
Top Knobs USA, Inc. (0%)*
 
Hardware Designer and Distributor
 
Common Stock (26,593 shares)
 
 
 
402,828

 
1,428,828

 
 
 
 
 
402,828

 
1,428,828

 
 
 
 
 
 
 
 
 
 
 
Trinity Consultants Holdings, Inc. (2%)*
 
Air Quality Consulting Services
 
Subordinated Note (12% Cash, 2% PIK, Due 04/19)
 
8,368,775

 
8,254,742

 
8,254,742

Series A Preferred Stock (10,000 units)
 
 
 
785,775

 
989,000

Common Stock (50,000 units)
 
 
 
50,000

 
787,000

 
 
 
8,368,775

 
9,090,517

 
10,030,742

 
 
 
 
 
 
 
 
 
 
 
TrustHouse Services Group, Inc.  (0%)*
 
Food Management Services
 
Class A Units (1,557 units)
 
 
 
69,302

 
195,881

 
Class B Units (82 units)
 
 
 
3,647

 
7,089

 
Class E Units (838 units)
 
 
 
101,532

 
112,555

 
 
 
 
 
 
174,481

 
315,525

 
 
 
 
 
 
 
 
 
 
 
United Biologics, LLC (3%)*
 
Allergy Immunotherapy
 
Subordinated Note (12% Cash, 2% PIK, Due 03/17)
 
12,675,846

 
11,931,277

 
11,931,277

 
Class A Common Stock (177,935 shares)
 
 
 
1,999,989

 
851,000

 
Class A-1 Common Stock (18,818 shares)
 
 
 
137,324

 
137,000

 
Class A-1 Common Kicker Stock (14,114 shares)
 
 
 

 

 
Class A & Class B Unit Purchase Warrants
 
 
 
838,117

 
200,000

 
 
 
 
12,675,846

 
14,906,707

 
13,119,277

 
 
 
 
 
 
 
 
 
 
 
United Retirement Plan Consultants, Inc. (3%)*
 
Retirement Plan Administrator
 
Subordinated Note (12% Cash, 4% PIK, Due 09/16)
 
12,976,436

 
12,827,752

 
12,827,752

 
Preferred A Units (90,000 units)
 
 
 
900,000

 
978,000

 
Common Units (10,000 units)
 
 
 
100,000

 

 
 
 
 
12,976,436

 
13,827,752

 
13,805,752

 
 
 
 
 
 
 
 
 
 
 
Water Pik, Inc. (2%)*
 
Branded Oral Health and Replacement Shower Head Supplier
 
Second Lien Term Loan (9.8% Cash, Due 01/21)
 
10,000,000

 
9,673,630

 
9,673,630

 
 
 
 
10,000,000

 
9,673,630

 
9,673,630

 
 
 
 
 
 
 
 
 
 
 
Workforce Software, LLC (5%)*
 
Software Provider
 
Subordinated Note (11% Cash, 5% PIK, Due 11/16)
 
8,000,000

 
7,293,099

 
8,000,000

 
 
Class B Preferred Units (1,020,000 units)
 
 
 
1,020,000

 
1,214,000

 
 
Class C Preferred Units (624,253 units)
 
 
 
1,250,000

 
2,739,000

 
 
Common Unit Purchase Warrants (2,434,749 units)
 
 
 
952,300

 
10,000,000

 
 
 
 
8,000,000

 
10,515,399

 
21,953,000

 
 
 
 
 
 
 
 
 
 
 

10

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
WSO Holdings, LP (5%)*
 
Organic/Fair Trade Sugar, Syrup, Nectar and Honey Producer
 
Subordinated Note (12% Cash, 2% PIK, Due 10/17)
 
$
20,198,264

 
$
19,985,624

 
$
19,985,624

Common Points (3,000 points)
 
 
 
3,000,000

 
2,306,000

 
 
20,198,264

 
22,985,624

 
22,291,624

 
 
 
 
 
 
 
 
 
 
 
Xchange Technology Group, LLC (0%)*
 
Used and Refurbished IT Asset Supplier
 
Subordinated Note (8% Cash, Due 06/15)
 
6,658,231

 
5,904,000

 

Royalty Rights
 
 
 

 

 
 
6,658,231

 
5,904,000

 

 
 
 
 
 
 
 
 
 
 
 
Yellowstone Landscape Group, Inc. (5%)*
 
Landscaping Services
 
Subordinated Note (10% Cash, 2.5% PIK, Due 02/19)
 
20,000,001

 
20,020,643

 
20,020,643

 
 
20,000,001

 
20,020,643

 
20,020,643

 
 
 
 
 
 
 
Subtotal Non–Control / Non–Affiliate Investments
 
530,528,115

 
565,681,884

 
578,923,349

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments:
 
 
 
 
 
 
 
 
 
 
All Aboard America! Holdings Inc. (2%)*
 
Motor Coach Operator
 
Subordinated Note (12% Cash, 3% PIK, Due (10/17)
 
8,964,289

 
8,839,713

 
8,839,713

 
Convertible Preferred Interest in LLC
 
 
 
1,500,000

 
1,500,000

 
 
 
8,964,289

 
10,339,713

 
10,339,713

 
 
 
 
 
 
 
 
 
 
 
American De-Rosa Lamparts, LLC and Hallmark Lighting (2%)*
 
Lighting Wholesale and Distribution
 
Subordinated Note (12% Cash, 6% PIK, Due 06/16)
 
6,942,541

 
6,920,471

 
6,920,471

Membership Units (8,364 units)
 
 
 
620,653

 

 
 
 
6,942,541

 
7,541,124

 
6,920,471

 
 
 
 
 
 
 
 
 
 
 
AP Services, Inc. (0%)*
 
Fluid Sealing Supplies and Services
 
Class A Units (933 units)
 
 
 
156,953

 
253,004

Class B Units (496 units)
 
 
 

 
134,381

 
 
 
 
156,953

 
387,385

 
 
 
 
 
 
 
 
 
 
 
Asset Point, LLC (2%)*
 
Asset Management Software Provider
 
Senior Note (12% Cash, 5% PIK, Due 03/14)
 
6,716,285

 
6,716,283

 
6,716,283

Subordinated Note (12% Cash, 2% PIK, Due 07/15)
 
646,368

 
646,368

 
584,000

Subordinated Note (7% Cash, Due 03/14)
 
941,798

 
941,798

 
941,798

Membership Units (1,000,000 units)
 
 
 
8,203

 

Options to Purchase Membership Units (342,407 units)
 
 
 
500,000

 
146,000

Membership Unit Warrants (356,506 units)
 
 
 

 

 
 
 
8,304,451

 
8,812,652

 
8,388,081

 
 
 
 
 
 
 
 
 
 
 
Captek Softgel International, Inc.  (2%)*
 
Nutraceutical Manufacturer
 
Subordinated Note (12% Cash, 4% PIK, Due 08/16)
 
9,066,289

 
8,980,649

 
8,980,649

Class A Units (80,000 units)
 
 
 
800,000

 
930,000

 
 
 
9,066,289

 
9,780,649

 
9,910,649

 
 
 
 
 
 
 
 
 
 
 
CIS Secure Computing Inc. (2%)*
 
Secure Communications and Computing Solutions Provider
 
Subordinated Note (12% Cash, 4% PIK, Due 06/17)
 
10,562,599

 
10,444,995

 
10,444,995

Common Stock (84 shares)
 
 
 
502,320

 
168,000

 
 
10,562,599

 
10,947,315

 
10,612,995

 
 
 
 
 
 
 
 
 
 
 
Dyson Corporation (0%)*
 
Custom Forging and Fastener Supplies
 
Class A Units (1,000,000 units)
 
 
 
1,000,000

 
1,001,000

 
 
 
 
 
1,000,000

 
1,001,000

 
 
 
 
 
 
 
 
 
 
 
Main Street Gourmet, LLC (0%)*
 
Baked Goods Provider
 
Jr. Subordinated Notes (8% Cash, 2% PIK, Due 04/17)
 
751,293

 
740,110

 
740,110

 
Preferred Units (233 units)
 
 
 
211,867

 
310,000

 
Common B Units (3,000 units)
 
 
 
23,140

 
470,000

 
Common A Units (1,652 units)
 
 
 
14,993

 
259,000

 
 
 
 
751,293

 
990,110

 
1,779,110

 
 
 
 
 
 
 
 
 
 
 
PartsNow!, LLC (3%)*
 
Printer Parts Distributor
 
Subordinated Note (12% Cash, 3% PIK, Due 08/17)
 
11,542,096

 
11,380,882

 
11,380,882

 
Member Units (1,000,000 units)
 
 
 
1,000,000

 
852,000

 
Royalty Rights
 
 
 

 

 
 
 
11,542,096

 
12,380,882

 
12,232,882

 
 
 
 
 
 
 
 
 
 
 
Pine Street Holdings, LLC (0%)*
 
Oil and Gas Services
 
Preferred Units (200 units)
 
 
 
200,000

 

 
Common Unit Warrants (2,220 units)
 
 
 

 

 
 
 
 
 
200,000

 

 
 
 
 
 
 
 
 
 
 
 

11

Table of Contents

TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2014
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Plantation Products, LLC (4%)*
 
Seed Manufacturing
 
Subordinated Notes (12% Cash, 2% PIK, Due 10/17)
 
$
6,084,629

 
$
5,925,499

 
$
5,925,499

Preferred Units (4,312 units)
 
 
 
4,312,000

 
5,129,000

Common Units (352,000 units)
 
 
 
88,000

 
5,639,000

 
 
 
6,084,629

 
10,325,499

 
16,693,499

 
 
 
 
 
 
 
 
 
 
 
QC Holdings, Inc. (0%)*
 
Lab Testing Services
 
Common Stock (5,594 shares)
 
 
 
563,602

 
545,000

 
 
 
 
 
563,602

 
545,000

 
 
 
 
 
 
 
 
 
 
 
Technology Crops International (2%)*
 
Supply Chain Management Services
 
Subordinated Note (12% Cash, 5% PIK, Due 03/15)
 
10,297,031

 
10,193,706

 
10,193,706

Common Units (50 units)
 
 
 
500,000

 
105,000

 
 
 
10,297,031

 
10,693,706

 
10,298,706

 
 
 
 
 
 
 
 
 
 
 
Venture Technology Groups, Inc. (0%)*
 
Fluid and Gas Handling Products Distributor
 
Subordinated Note (12.5% Cash, 4% PIK, Due 09/16)
 
7,332,463

 
5,703,715

 
317,000

Class A Units (1,000,000 units)
 
 
 
1,000,000

 

 
 
7,332,463

 
6,703,715

 
317,000

 
 
 
 
 
 
 
 
 
 
 
Waste Recyclers Holdings, LLC (0%)*
 
Environmental and Facilities Services
 
Class A Preferred Units (280 units)
 
 
 
2,251,100

 

Class B Preferred Units (11,484,867 units)
 
 
 
3,304,218

 
1,355,000

Common Unit Purchase Warrant (1,170,083 units)
 
 
 
748,900

 

Common Units (153,219 units)
 
 
 
180,783

 

 
 
 
 
 
6,485,001

 
1,355,000

 
 
 
 
 
 
 
 
 
 
 
Wythe Will Tzetzo, LLC (2%)*
 
Confectionery Goods Distributor
 
Series A Preferred Units (74,764 units)
 
 
 

 
5,329,000

 
Common Unit Purchase Warrants (25,065 units)
 
 
 

 
1,787,000

 
 
 
 
 
 

 
7,116,000

 
 
 
 
 
 
 
 
 
 
 
Subtotal Affiliate Investments
 
 
 
79,847,681

 
96,920,921

 
97,897,491

 
 
 
 
 
 
 
 
 
 
 
Control Investments:
 
 
 
 
 
 
 
 
 
 
Buckingham SRC, Inc. (0%)*
 
Specialty Chemical Manufacturer
 
Subordinated Note (10.8% Cash, 0.25% PIK, Due 12/14)
 
2,160,348

 
250,000

 

 
 
Common Stock Purchase Warrants
 
 
 
123,800

 

 
 
 
 
2,160,348

 
373,800

 

 
 
 
 
 
 
 
 
 
 
 
FCL Graphics, Inc. (“FCL”) and FCL Holding SPV, LLC (“SPV”) (1%)*
 
Commercial Printing Services
 
Senior Note-FCL (4.8% Cash, Due 09/16)
 
1,252,579

 
1,252,579

 
1,252,579

Senior Note-FCL (7.8% Cash, 2% PIK, Due 09/16)
 
1,201,357

 
1,201,355

 
1,078,000

Senior Note-SPV (2.0% Cash, 5.3% PIK, Due 09/16)
 
1,078,064

 
1,007,272

 
115,000

Members Interests-SPV (299,875 units)
 
 
 

 

 
 
 
3,532,000

 
3,461,206

 
2,445,579

 
 
 
 
 
 
 
 
 
 
 
Gerli & Company (0%)*
 
Specialty Woven Fabrics Manufacturer
 
Subordinated Note (13% Cash, Due 07/15)
 
453,637

 
375,000

 
375,000

Subordinated Note (8.5% Cash, Due 07/15)
 
3,874,465

 
3,000,000

 
441,000

Class A Preferred Shares (1,211 shares)
 
 
 
855,000

 

Class C Preferred Shares (744 shares)
 
 
 

 

Class E Preferred Shares (400 shares)
 
 
 
161,440

 

Common Stock (300 shares)
 
 
 
100,000

 

 
 
 
4,328,102

 
4,491,440

 
816,000

 
 
 
 
 
 
 
 
 
SRC, Inc. (2%)*
 
Specialty Chemical Manufacturer
 
Common Stock (5,000 shares)
 
 
 
9,928,000

 
9,928,000

 
 
 
 
 
 
9,928,000

 
9,928,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subtotal Control Investments
 
 
 
10,020,450

 
18,254,446

 
13,189,579

 
 
 
 
 
 
 
 
 
Total Investments, March 31, 2014 (157%)*
 
 
 
$
620,396,246

 
$
680,857,251

 
$
690,010,419


*    Fair value as a percent of net assets
(1)
All debt investments are income producing. Equity and equity-linked investments are non-income producing.
(2)
Disclosures of interest rates on notes include cash interest rates and payment-in-kind (“PIK”) interest rates.
(3)
All investments are restricted as to resale and were valued at fair value as determined in good faith by the Board of Directors.
(4)
Investment is not a qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets.

See accompanying notes.

12

Table of Contents

TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Non–Control / Non–Affiliate Investments:
 
 
 
 
 
 
Agilex Flavors & Fragrances, Inc. (3%)*
 
Custom Fragrance Producers
 
Subordinated Note (12% Cash, 1.5% PIK, Due 06/19)
 
$
12,698,065

 
$
12,475,194

 
$
12,475,194

Common Units (1,250 units)
 
 
 
1,250,000

 
1,398,000

 
 
 
12,698,065

 
13,725,194

 
13,873,194

 
 
 
 
 
 
 
 
 
 
 
Ambient Air Corporation (0%)*
 
Specialty Trade Contractors
 
Subordinated Note (0% Cash, 8% PIK, Due 06/20)
 
473,958

 
66,993

 
200,000

 
 
 
473,958

 
66,993

 
200,000

 
 
 
 
 
 
 
 
 
 
 
Applied-Cleveland Holdings, Inc. (4%)*
 
Oil and Gas Pipeline Infrastructure Inspection Services
 
Subordinated Note (10% Cash, 2% PIK, Due 06/19)
 
18,000,000

 
17,700,961

 
17,700,961

 
Class A Preferred (2,000,000 units)
 
 
 
2,000,000

 
2,000,000

 
 
 
18,000,000

 
19,700,961

 
19,700,961

 
 
 
 
 
 
 
 
 
 
 
Assurance Operations Corporation (0%)*
 
Metal Fabrication
 
Common Stock (517 shares)
 
 
 
516,867

 
1,076,000

 
 
 
 
 
516,867

 
1,076,000

 
 
 
 
 
 
 
 
 
 
 
Audio and Video Labs Holdings, Inc. (3%)*
 
Manufacturer and Distributor for Independent Artists and Authors
 
Subordinated Note (12% Cash, 2% PIK, Due 06/18)
 
13,269,023

 
13,044,644

 
13,044,644

Common Units (138 units)
 
 
 
1,300,000

 
1,406,000

 
 
 
13,269,023

 
14,344,644

 
14,450,644

 
 
 
 
 
 
 
 
 
 
 
Berry Family Nursery Operations LLC (4%)*
 
Wholesale Grower and Distributor of Container Grown Shrubs, Trees and Plants
 
Subordinated Note (13% Cash, 3% PIK, Due 11/17)
 
17,549,583

 
17,199,583

 
17,199,583

 
 
 
17,549,583

 
17,199,583

 
17,199,583

 
 
 
 
 
 
 
 
 
 
 
Botanical Laboratories, Inc. (0%)*
 
Nutritional Supplement Manufacturing and Distribution
 
Common Unit Warrants (998,680 units)
 
 
 
237,301

 
580,603

 
 
 
 
 
237,301

 
580,603

 
 
 
 
 
 
 
 
 
 
 
Capital Contractors, Inc. (2%)*
 
Janitorial and Facilities Maintenance Services
 
Subordinated Notes (12% Cash, 2% PIK, Due
12/15)
 
9,565,598

 
9,248,522

 
9,248,522

Common Stock Warrants (20 shares)
 
 
 
492,000

 
361,000

 
 
9,565,598

 
9,740,522

 
9,609,522

 
 
 
 
 
 
 
 
 
 
 
Carepoint Resources, Inc. (5%)*
 
Business Process Outsourcing Provider
 
Subordinated Note (12% Cash, 2.5% PIK, Due 06/18)
 
23,514,505

 
23,139,305

 
23,139,305

 
 
 
 
23,514,505

 
23,139,305

 
23,139,305

 
 
 
 
 
 
 
 
 
 
 
Carolina Beverage Group, LLC (1%)*
 
Beverage Manufacturing
and Packaging
 
Class B Units (11,974 units)
 
 
 
119,735

 
2,266,000

 
 
 
 
 
119,735

 
2,266,000

 
 
 
 
 
 
 
 
 
 
 
Chromaflo Technologies Parent LP (3%)*
 
Colorant Manufacturer and Distributor
 
Subordinated Note (8.3% Cash, Due 06/20)
 
10,000,000

 
9,950,000

 
9,950,000

Class A Units (22,561 units)
 
 
 

 
2,239,000

 
 
 
10,000,000

 
9,950,000

 
12,189,000

 
 
 
 
 
 
 
 
 
 
 
Comverge, Inc. (4%)*
 
Provider of Intelligent Energy Management Solutions
 
Senior Note (12% Cash, Due 05/18)
 
15,505,583

 
15,254,660

 
15,254,660

Preferred Units (900 units)
 
 
 
900,000

 
981,000

Common Units (1,000,000 units)
 
 
 
100,000

 
225,000

 
 
 
15,505,583

 
16,254,660

 
16,460,660

 
 
 
 
 
 
 
 
 
 
 
Continental Anesthesia Management, LLC (2%)*
 
Physicians Management
Services
 
Subordinated Note (14% Cash, Due 9/14)
 
9,825,000

 
9,722,773

 
9,176,000

Warrant (263 shares)
 
 
 
276,100

 

 
 
9,825,000

 
9,998,873

 
9,176,000

 
 
 
 
 
 
 
 
 
 
 
CRS Reprocessing, LLC (6%)*
 
Fluid
Reprocessing
Services
 
Subordinated Note (12% Cash, 2% PIK, Due 11/15)
 
12,009,198

 
11,884,003

 
11,884,003

Subordinated Note (12% Cash, 2% PIK, Due 11/15)
 
13,243,893

 
12,376,217

 
12,376,217

Series C Preferred Units (30 units)
 
 
 
288,342

 
443,000

Common Unit Warrant (664 units)
 
 
 
1,759,556

 
2,755,000

Series D Preferred Units (16 units)
 
 
 
107,074

 
175,000

 
Series E Preferred Units (5 units)
 
 
 
31,651

 
48,000

 
 
 
25,253,091

 
26,446,843

 
27,681,220

 
 
 
 
 
 
 
 
 
 
 
Danville Materials, LLC (2%)*
 
Manufacturer of Dental Products
 
Senior Note (10% Cash, Due 12/18)
 
8,000,000

 
7,840,000

 
7,840,000

 
Common Units (45,492 units)
 
 
 
500,000

 
500,000

 
 
 
8,000,000

 
8,340,000

 
8,340,000

 
 
 
 
 
 
 
 
 
 
 

13

Table of Contents

TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
DataSource Incorporated (2%)*
 
Print Supply Chain Management Services
 
Subordinated Note (12% Cash, 2% PIK, Due 01/18)
 
$
8,759,661

 
$
8,625,671

 
$
8,625,671

 
Common Units (47 units)
 
 
 
1,000,000

 
965,000

 
 
 
8,759,661

 
9,625,671

 
9,590,671

 
 
 
 
 
 
 
 
 
 
 
DCWV Acquisition Corporation (1%)*
 
Arts & Crafts and Home Decor Products Designer and Supplier
 
Subordinated Note (12% Cash, 3% PIK, Due 09/17)
 
6,241,435

 
6,145,145

 
4,505,000

 
 
 
6,241,435

 
6,145,145

 
4,505,000

 
 
 
 
 
 
 
 
 
 
 
DLR Restaurants, LLC (0%)*
 
Restaurant
 
Royalty Rights
 
 
 

 

 
 
 
 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
Dyno Acquiror, Inc. (2%)*
 
Sewing Products and Seasonal Decorative Products Supplier
 
Subordinated Note (12% Cash, 2% PIK, Due 11/18)
 
7,093,094

 
6,963,005

 
6,963,005

 
 
Preferred series A Units (600,000 units)
 
 
 
600,000

 
594,000

 
 
 
 
7,093,094

 
7,563,005

 
7,557,005

 
 
 
 
 
 
 
 
 
 
 
Eckler's Holdings, Inc. (2%)*
 
Restoration Parts and Accessories for Classic Cars and Trucks
 
Subordinated Note (11% Cash, 4% PIK, Due 07/18)
 
7,084,528

 
6,947,215

 
6,947,215

 
Common Stock (18,029 shares)
 
 
 
183,562

 
6,000

 
Preferred Stock A (1,596 shares)
 
 
 
1,596,126

 
1,794,000

 
 
 
7,084,528

 
8,726,903

 
8,747,215

 
 
 
 
 
 
 
 
 
 
 
Electronic Systems Protection, Inc. (0%)*
 
Power Protection Systems Manufacturing
 
Common Stock (570 shares)
 
 
 
285,000

 
309,000

 
 
 
 
 
285,000

 
309,000

 
 
 
 
 
 
 
 
 
 
 
Flowchem Ltd. (2%)*
 
Provider of Support Services to Crude Oil Pipeline Operators
 
Subordinated Note (11% Cash, 2% PIK, Due 06/19)
 
7,761,041

 
7,606,041

 
7,606,041

 
Common Units (1,000,000 Units)
 
 
 
1,000,000

 
1,000,000

 
 
 
7,761,041

 
8,606,041

 
8,606,041

 
 
 
 
 
 
 
 
 
 
 
Foodstate, Inc. (1%)*
 
Nutritional Supplement Manufacturing and Distribution
 
Subordinated Note (12% Cash, 3.8% PIK, Due 10/16)
 
5,691,706

 
5,627,061

 
5,627,061

 
 
 
5,691,706

 
5,627,061

 
5,627,061

 
 
 
 
 
 
 
 
 
 
 
FrontStream Payments, Inc. (2%)*
 
Payment and Donation Management Product Service Provider
 
Senior Note (8% Cash, 6% PIK, Due 08/18)
 
7,161,823

 
7,027,585

 
7,027,585

 
 
 
 
7,161,823

 
7,027,585

 
7,027,585

 
 
 
 
 
 
 
 
 
 
 
Frontstreet Facility Solutions, Inc. (2%)*
 
Retail, Restaurant and Commercial Facilities Maintenance
 
Subordinated Note (10% Cash, 3% PIK, Due 07/18)
 
8,336,414

 
8,220,061

 
6,887,000

 
 
Convertible Preferred Units (2,500 units)
 
 
 
250,000

 

 
 
 
 
8,336,414

 
8,470,061

 
6,887,000

 
 
 
 
 
 
 
 
 
 
 
Frozen Specialties, Inc. (2%)*
 
Frozen Foods Manufacturer
 
Subordinated Note (11% Cash, 5% PIK, Due 05/17)
 
10,922,109

 
10,902,440

 
10,902,440

 
 
10,922,109

 
10,902,440

 
10,902,440

 
 
 
 
 
 
 
 
 
 
 
Garden Fresh Restaurant Corp. (0%)*
 
Restaurant
 
Membership Units (5,000 units)
 
 
 
500,000

 
285,000

 
 
 
 
500,000

 
285,000

 
 
 
 
 
 
 
 
 
 
 
Grindmaster-Cecilware Corp. (2%)*
 
Food Services Equipment Manufacturer
 
Subordinated Note (12% Cash, 6% PIK, Due 04/16)
 
7,085,108

 
7,052,652

 
7,052,652

 
 
7,085,108

 
7,052,652

 
7,052,652

 
 
 
 
 
 
 
 
 
 
 
Hatch Chile Co., LLC (2%)*
 
Food Products Distributor
 
Senior Note (19% Cash, Due 11/18)
 
3,150,000

 
3,104,786

 
3,104,786

Subordinated Note (14% Cash, Due 11/18)
 
3,450,000

 
3,185,408

 
3,185,408

Unit Purchase Warrant (7,817 units)
 
 
 
295,800

 
672,000

 
 
6,600,000

 
6,585,994

 
6,962,194

 
 
 
 
 
 
 
 
 
 
 
Infrastructure Corporation of America, Inc. (3%)*
 
Roadway Maintenance, Repair and Engineering Services
 
Subordinated Note (12% Cash, 2% PIK, Due 09/18)
 
11,192,490

 
9,708,459

 
9,708,459

Common Stock Purchase Warrant (417,593 shares)
 
 
 
2,411,000

 
2,257,000

 
 
11,192,490

 
12,119,459

 
11,965,459

 
 
 
 
 
 
 
 
 
 
 
Inland Pipe Rehabilitation Holding Company LLC (2%)*
 
Cleaning and Repair Services
 
Subordinated Note (13% Cash, 2.0% PIK, Due 12/16)
 
8,363,431

 
8,174,163

 
8,174,163

Membership Interest Purchase Warrant (3.0%)
 
 
 
853,500

 
1,254,000

 
 
8,363,431

 
9,027,663

 
9,428,163

 
 
 
 
 
 
 
 
 
 
 
IOS Acquisitions, Inc. (5%)*
 
Provider of Oil Country Tubular Goods Inspections and Repair Services
 
Subordinated Note (12% Cash, 3.5% PIK, Due 06/18)
 
19,502,372

 
19,168,757

 
19,168,757

Common Units (7,314 Class A Units)
 
 
 
1,699,847

 
1,231,000

 
 
19,502,372

 
20,868,604

 
20,399,757


14

Table of Contents

TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
 
 
 
 
 
 
 
 
 
 
 
Library Systems & Services, LLC (0%)*
 
Municipal Business Services
 
Common Stock Warrants (112 shares)
 
 
 
$
58,995

 
$
1,820,000

 
 
 
 
 
58,995

 
1,820,000

 
 
 
 
 
 
 
 
 
 
 
Magpul Industries Corp. (2%)*
 
Firearm Accessories Manufacturer and Distributor
 
Preferred Units (1,470 units)
 
 
 
1,470,000

 
2,006,000

 
Common Units (30,000 units)
 
 
 
30,000

 
7,839,000

 
 
 
 
 
 
 
1,500,000

 
9,845,000

 
 
 
 
 
 
 
 
 
 
 
Marine Acquisition Corp. (3%)*
 
Boat Steering System and Driver Control Provider
 
Subordinated Note (11.5% Cash, 2% PIK, Due 05/17)
 
$
12,000,000

 
11,787,615

 
12,000,000

 
 
 
12,000,000

 
11,787,615

 
12,000,000

 
 
 
 
 
 
 
 
 
 
 
Media Storm, LLC (2%)*
 
Marketing Services
 
Subordinated Note (12% Cash, 2% PIK, Due 10/17)
 
8,219,009

 
8,159,092

 
8,159,092

Membership Units (1,216,204 units)
 
 
 
1,176,957

 
1,416,000

 
 
8,219,009

 
9,336,049

 
9,575,092

 
 
 
 
 
 
 
 
 
 
 
Micross Solutions LLC (3%)*
 
Provider of Semiconductor Products and Services
 
Subordinated Note (12% Cash, 2% PIK, Due 06/18)
 
10,832,577

 
10,695,361

 
10,695,361

Class A-2 Common Units (1,580,559 units)
 
 
 
1,580,599

 
1,190,000

 
 
10,832,577

 
12,275,960

 
11,885,361

 
 
 
 
 
 
 
 
 
 
 
Minco Technology Labs, LLC (0%)*
 
Semiconductor Distribution
 
Subordinated Note (6.5% Cash, 3.5% PIK, Due 12/16)
 
5,830,856

 
5,473,436

 
1,994,000

Class A Units (5,000 HoldCo. units)
 
 
 
500,000

 

Class A Units (3,907 OpCo. units)
 
 
 
3,907

 

 
 
5,830,856

 
5,977,343

 
1,994,000

 
 
 
 
 
 
 
 
 
 
 
My Alarm Center, LLC (3%)*
 
Security Company
 
Subordinated Note (12% Cash, 2.5% PIK, Due 04/19)
 
10,329,382

 
10,250,068

 
10,329,382

 
Preferred Units (2,000,000 units)
 
 
 
2,000,000

 
2,079,000

 
 
 
10,329,382

 
12,250,068

 
12,408,382

 
 
 
 
 
 
 
 
 
 
 
Novolyte Technologies, Inc. (0%)*
 
Specialty Manufacturing
 
Common Units (24,522 units)
 
 
 
43,905

 
178,801

 
 
 
 
 
43,905

 
178,801

 
 
 
 
 
 
 
 
 
 
 
Performance Health & Wellness Holdings, Inc. (3%)*
 
Designer and Manufacturer of Rehabilitation and Wellness Products
 
Subordinated Note (12% Cash, 1% PIK, Due 04/19)
 
13,161,867

 
12,993,721

 
12,993,721

 
Class A Limited Partnership Units (15,000 units)
 
 
 
1,500,000

 
1,440,000

 
 
 
13,161,867

 
14,493,721

 
14,433,721

 
 
 
 
 
 
 
 
 
 
 
PowerDirect Marketing, LLC (2%)*
 
Marketing Services
 
Subordinated Note (13% Cash, 2% PIK, Due 12/16)
 
7,310,361

 
6,861,977

 
6,861,977

Common Unit Purchase Warrants
 
 
 
590,200

 
1,131,000

 
 
7,310,361

 
7,452,177

 
7,992,977

 
 
 
 
 
 
 
 
 
 
 
Sheplers, Inc. (3%)*
 
Western Apparel Retailer
 
Subordinated Note (13.2% Cash, Due 12/16)
 
8,750,000

 
8,602,331

 
8,602,331

Subordinated Note (10% Cash, 7% PIK, Due 12/17)
 
4,315,809

 
4,266,459

 
4,266,459

 
 
 
13,065,809

 
12,868,790

 
12,868,790

 
 
 
 
 
 
 
 
 
 
 
Snacks Holding Corporation (2%)*
 
Trail Mixes and Nut Manufacturer and Marketer
 
Subordinated Note (12% Cash, 1% PIK, Due 05/20)
 
5,030,893

 
4,995,166

 
4,995,166

Preferred A Units (22,368 units)
 
 
 
1,053,897

 
2,485,000

Preferred B Units (10,380 units)
 
 
 
25,337

 
201,000

Common Units (190,935 units)
 
 
 
150,000

 
1,471,000

Common Stock Warrants (14,558 shares)
 
 
 
14,558

 
160,000

 
 
 
5,030,893

 
6,238,958

 
9,312,166

 
 
 
 
 
 
 
 
 
 
 
Specialized Desanders, Inc. (3%)* (4)
 
Sand and Particulate Removal Equipment Provider for Oil and Gas Companies
 
Subordinated Notes (12% Cash, 2% PIK, Due 03/19)
 
11,695,386

 
11,470,508

 
11,065,626

Common C Shares (2,000,000 shares)
 
 
 
1,937,421

 
1,870,208

 
 
 
11,695,386

 
13,407,929

 
12,935,834

 
 
 
 
 
 
 
 
 
 
 
Stella Environmental Services, LLC (0%)*
 
Waste Transfer Stations
 
Common Stock Purchase Warrants
 
 
 
20,000

 
406,000

 
 
 
 
 
 
20,000

 
406,000

 
 
 
 
 
 
 
 
 
 
 
Syrgis Holdings, Inc. (0%)*
 
Specialty Chemical Manufacturer
 
Class C Units (2,114 units)
 
 
 
111,037

 
201,281

 
 
 
 
111,037

 
201,281

 
 
 
 
 
 
 
 
 
 
 
The Krystal Company (0%)*
 
Restaurant
 
Class A Units of Limited Partnership (2,000 units)
 
 
 

 
1,709,000

 
 
 
 
 
 

 
1,709,000


15

Table of Contents

TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
 
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
 
 
 
 
 
 
 
 
 
 
 
 
 
TMR Automotive Service Supply, LLC (1%)*
 
Automotive Supplies
 
Subordinated Note (12% Cash, 1% PIK, Due 03/16)
 
$
4,250,000

 
$
4,095,611

 
$
4,095,611

 
Unit Purchase Warrant (316,858 units)
 
 
 
195,000

 
577,000

 
 
 
 
4,250,000

 
4,290,611

 
4,672,611

 
 
 
 
 
 
 
 
 
 
 
 
 
Tomich Brothers, LLC (2%)*
 
Squid and Wetfish Processor and Distributor
 
Subordinated Note (5% Cash, 10% PIK, Due 04/16)
 
12,315,529

 
12,133,908

 
10,622,000

 
 
 
 
12,315,529

 
12,133,908

 
10,622,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Top Knobs USA, Inc. (0%)*
 
Hardware Designer and Distributor
 
Common Stock (26,593 shares)
 
 
 
402,828

 
1,296,828

 
 
 
 
 
 
402,828

 
1,296,828

 
 
 
 
 
 
 
 
 
 
 
 
 
Trinity Consultants Holdings, Inc. (2%)*
 
Air Quality Consulting Services
 
Subordinated Note (12% Cash, 2% PIK, Due 04/19)
 
8,327,070

 
8,207,084

 
8,207,084

 
Series A Preferred Stock (10,000 units)
 
 
 
785,775

 
968,000

 
Common Stock (50,000 units)
 
 
 
50,000

 
819,000

 
 
 
 
8,327,070

 
9,042,859

 
9,994,084

 
 
 
 
 
 
 
 
 
 
 
 
 
TrustHouse Services Group, Inc.  (0%)*
 
Food Management Services
 
Class A Units (1,557 units)
 
 
 
69,302

 
242,996

 
 
Class B Units (82 units)
 
 
 
3,647

 
8,794

 
 
Class E Units (838 units)
 
 
 
101,532

 
139,628

 
 
 
 
 
 
 
174,481

 
391,418

 
 
 
 
 
 
 
 
 
 
 
 
 
United Biologics, LLC (2%)*
 
Allergy Immunotherapy
 
Subordinated Note (12% Cash, 2% PIK, Due 03/17)
 
10,123,339

 
9,381,255

 
9,381,255

 
 
Class A Common Stock (177,935 shares)
 
 
 
1,999,989

 
1,198,001

 
 
Class A-1 Common Stock (18,818 shares)
 
 
 
137,324

 
137,324

 
 
Class A-1 Common Kicker Stock (14,114 shares)
 
 
 

 

 
 
Class A & Class B Unit Purchase Warrants
 
 
 
838,117

 
262,000

 
 
 
 
 
10,123,339

 
12,356,685

 
10,978,580

 
 
 
 
 
 
 
 
 
 
 
 
 
United Retirement Plan Consultants, Inc. (3%)*
 
Retirement Plan Administrator
 
Subordinated Note (12% Cash, 4% PIK, Due 09/16)
 
12,847,956

 
12,686,503

 
12,686,503

 
 
Preferred A Units (90,000 units)
 
 
 
900,000

 
835,000

 
 
Common Units (10,000 units)
 
 
 
100,000

 

 
 
 
 
 
12,847,956

 
13,686,503

 
13,521,503

 
 
 
 
 
 
 
 
 
 
 
 
 
Water Pik, Inc. (2%)*
 
Branded Oral Health and Replacement Shower Head Supplier
 
Second Lien Term Loan (9.8% Cash, Due 01/21)
 
10,000,000

 
9,665,563

 
9,665,563

 
 
 
 
 
10,000,000

 
9,665,563

 
9,665,563

 
 
 
 
 
 
 
 
 
 
 
 
 
Workforce Software, LLC (5%)*
 
Software Provider
 
Subordinated Note (11% Cash, 5% PIK, Due 11/16)
 
8,000,000

 
7,238,689

 
7,238,689

 
 
 
Class B Preferred Units (1,020,000 units)
 
 
 
1,020,000

 
1,256,000

 
 
 
Class C Preferred Units (624,253 units)
 
 
 
1,250,000

 
2,764,000

 
 
 
Common Unit Purchase Warrants (2,434,749 units)
 
 
 
952,300

 
9,778,000

 
 
 
 
 
8,000,000

 
10,460,989

 
21,036,689

 
 
 
 
 
 
 
 
 
 
 
 
 
WSO Holdings, LP (5%)*
 
Organic/Fair Trade Sugar, Syrup, Nectar and Honey Producer
 
Subordinated Note (12% Cash, 2% PIK,
Due 10/17)
 
20,198,264

 
19,973,542

 
19,973,542

 
 
Common Points (3,000 points)
 
 
 
3,000,000

 
2,338,000

 
 
 
20,198,264

 
22,973,542

 
22,311,542

 
 
 
 
 
 
 
 
 
 
 
 
 
Xchange Technology Group, LLC (0%)*
 
Used and Refurbished IT Asset Supplier
 
Subordinated Note (8% Cash, Due 06/15)
 
6,527,677

 
5,904,000

 

 
Royalty Rights
 
 
 

 

 
 
 
6,527,677

 
5,904,000

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Yellowstone Landscape Group, Inc. (5%)*
 
Landscaping Services
 
Subordinated Note (10% Cash, 2.5% PIK, Due 02/19)
 
20,181,603

 
20,191,788

 
20,191,788

 
 
 
20,181,603

 
20,191,788

 
20,191,788

 
 
 
 
 
 
 
 
 
Subtotal Non–Control / Non–Affiliate Investments
 
495,697,196

 
528,021,069

 
546,043,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments:
 
 
 
 
 
 
 
 
 
 
 
All Aboard America! Holdings Inc. (2%)*
 
Motor Coach Operator
 
Subordinated Note (12% Cash, 3% PIK, Due (10/17)
 
8,897,392

 
8,765,737

 
8,765,737

 
 
Convertible Preferred Interest in LLC
 
 
 
1,500,000

 
1,002,000

 
 
 
 
8,897,392

 
10,265,737

 
9,767,737

 
 
 
 
 
 
 
 
 
 
 
 

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TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
American De-Rosa Lamparts, LLC and Hallmark Lighting (2%)*
 
Lighting Wholesale and Distribution
 
Subordinated Note (12% Cash, 6% PIK, Due 06/16)
 
$
6,839,436

 
$
6,815,257

 
$
6,815,257

Membership Units (8,364 units)
 
 
 
620,653

 
39,000

 
 
 
6,839,436

 
7,435,910

 
6,854,257

 
 
 
 
 
 
 
 
 
 
 
AP Services, Inc. (0%)*
 
Fluid Sealing Supplies and Services
 
Class A Units (933 units)
 
 
 
156,953

 
253,004

Class B Units (496 units)
 
 
 

 
134,381

 
 
 
 
156,953

 
387,385

 
 
 
 
 
 
 
 
 
 
 
Asset Point, LLC (2%)*
 
Asset Management Software Provider
 
Senior Note (12% Cash, 5% PIK, Due 03/14)
 
6,633,027

 
6,633,025

 
6,633,025

Subordinated Note (12% Cash, 2% PIK, Due 07/15)
 
643,147

 
643,147

 
606,000

Subordinated Note (7% Cash, Due 03/14)
 
941,798

 
941,798

 
786,000

Membership Units (1,000,000 units)
 
 
 
8,203

 
725,000

Options to Purchase Membership Units (342,407 units)
 
 
 
500,000

 
227,000

Membership Unit Warrants (356,506 units)
 
 
 

 

 
 
 
8,217,972

 
8,726,173

 
8,977,025

 
 
 
 
 
 
 
 
 
 
 
Captek Softgel International, Inc.  (2%)*
 
Nutraceutical Manufacturer
 
Subordinated Note (12% Cash, 4% PIK, Due 08/16)
 
8,976,227

 
8,883,334

 
8,883,334

Class A Units (80,000 units)
 
 
 
800,000

 
694,000

 
 
 
8,976,227

 
9,683,334

 
9,577,334

 
 
 
 
 
 
 
 
 
 
 
CIS Secure Computing Inc. (2%)*
 
Secure Communications and Computing Solutions Provider
 
Subordinated Note (12% Cash, 3% PIK, Due 06/17)
 
10,457,673

 
10,327,229

 
10,327,229

Common Stock (84 shares)
 
 
 
502,320

 
213,000

 
 
10,457,673

 
10,829,549

 
10,540,229

 
 
 
 
 
 
 
 
 
 
 
Dyson Corporation (0%)*
 
Custom Forging and Fastener Supplies
 
Class A Units (1,000,000 units)
 
 
 
1,000,000

 
1,555,000

 
 
 
 
 
1,000,000

 
1,555,000

 
 
 
 
 
 
 
 
 
 
 
Main Street Gourmet, LLC (1%)*
 
Baked Goods Provider
 
Subordinated Notes (12% Cash, 4.5% PIK, Due 10/16)
 
4,528,839

 
4,482,393

 
4,482,393

Jr. Subordinated Notes (8% Cash, 2% PIK, Due 04/17)
 
1,056,922

 
1,044,922

 
1,044,922

Preferred Units (233 units)
 
 
 
211,867

 
303,000

Common B Units (3,000 units)
 
 
 
23,140

 
440,000

Common A Units (1,652 units)
 
 
 
14,993

 
242,000

 
 
 
5,585,761

 
5,777,315

 
6,512,315

 
 
 
 
 
 
 
 
 
 
 
PartsNow!, LLC (3%)*
 
Printer Parts Distributor
 
Subordinated Note (12% Cash, 3% PIK, Due 08/17)
 
11,455,962

 
11,285,587

 
11,285,587

 
Member Units (1,000,000 units)
 
 
 
1,000,000

 
1,351,000

 
Royalty Rights
 
 
 

 
73,000

 
 
 
11,455,962

 
12,285,587

 
12,709,587

 
 
 
 
 
 
 
 
 
 
 
Pine Street Holdings, LLC (0%)*
 
Oil and Gas Services
 
Preferred Units (200 units)
 
 
 
200,000

 

 
Common Unit Warrants (2,220 units)
 
 
 

 

 
 
 
 
 
200,000

 

 
 
 
 
 
 
 
 
 
 
 
Plantation Products, LLC (5%)*
 
Seed Manufacturing
 
Subordinated Notes (12% Cash, 2% PIK, Due 11/17)
 
14,591,557

 
14,423,858

 
14,423,858

Preferred Units (4,312 units)
 
 
 
4,312,000

 
5,033,000

Common Units (352,000 units)
 
 
 
88,000

 
4,241,000

 
 
 
14,591,557

 
18,823,858

 
23,697,858

 
 
 
 
 
 
 
 
 
 
 
QC Holdings, Inc. (0%)*
 
Lab Testing Services
 
Common Stock (5,594 shares)
 
 
 
563,602

 
470,000

 
 
 
 
 
563,602

 
470,000

 
 
 
 
 
 
 
 
 
 
 
Technology Crops International (1%)*
 
Supply Chain Management Services
 
Subordinated Note (12% Cash, 5% PIK, Due 03/15)
 
6,208,545

 
6,179,807

 
6,179,807

Common Units (50 units)
 
 
 
500,000

 

 
 
 
6,208,545

 
6,679,807

 
6,179,807

 
 
 
 
 
 
 
 
 
 
 
Venture Technology Groups, Inc. (0%)*
 
Fluid and Gas Handling Products Distributor
 
Subordinated Note (12.5% Cash, 4% PIK, Due 09/16)
 
7,038,134

 
5,703,715

 
411,000

Class A Units (1,000,000 units)
 
 
 
1,000,000

 

 
 
7,038,134

 
6,703,715

 
411,000

 
 
 
 
 
 
 
 
 
 
 

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TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2013
Portfolio Company
 
Industry
 
Type of Investment(1)(2)
 
Principal
Amount
 
Cost
 
Fair
Value(3)
Waste Recyclers Holdings, LLC (0%)*
 
Environmental and Facilities Services
 
Class A Preferred Units (280 units)
 
 
 
$
2,251,100

 
$

Class B Preferred Units (11,484,867 units)
 
 
 
3,304,218

 
1,482,000

Common Unit Purchase Warrant (1,170,083 units)
 
 
 
748,900

 

Common Units (153,219 units)
 
 
 
180,783

 

 
 
 
 
 
6,485,001

 
1,482,000

 
 
 
 
 
 
 
 
 
 
 
Wythe Will Tzetzo, LLC (2%)*
 
Confectionery Goods Distributor
 
Series A Preferred Units (74,764 units)
 
 
 
1,500,000

 
6,500,000

 
Common Unit Purchase Warrants (25,065 units)
 
 
 
301,510

 
1,915,000

 
 
 
 
 
 
1,801,510

 
8,415,000

 
 
 
 
 
 
 
 
 
 
 
Subtotal Affiliate Investments
 
 
 
$
88,268,659

 
107,418,051

 
107,536,534

 
 
 
 
 
 
 
 
 
 
 
Control Investments:
 
 
 
 
 
 
 
 
 
 
FCL Graphics, Inc. (“FCL”) and FCL Holding SPV, LLC (“SPV”) (1%)*
 
Commercial Printing Services
 
Senior Note-FCL (4.8% Cash, Due 09/16)
 
1,271,233

 
1,271,233

 
1,271,233

Senior Note-FCL (7.8% Cash, 2% PIK, Due 09/16)
 
1,195,370

 
1,195,368

 
1,062,000

Senior Note-SPV (2.0% Cash, 5.3% PIK, Due 09/16)
 
1,064,061

 
1,007,272

 
9,000

Members Interests-SPV (299,875 units)
 
 
 

 

 
 
 
3,530,664

 
3,473,873

 
2,342,233

 
 
 
 
 
 
 
 
 
 
 
Gerli & Company (0%)*
 
Specialty Woven Fabrics Manufacturer
 
Subordinated Note (13% Cash, Due 07/15)
 
439,358

 
375,000

 
375,000

Subordinated Note (8.5% Cash, Due 07/15)
 
3,793,846

 
3,000,000

 
358,000

Class A Preferred Shares (1,211 shares)
 
 
 
855,000

 

Class C Preferred Shares (744 shares)
 
 
 

 

Class E Preferred Shares (400 shares)
 
 
 
161,440

 

Common Stock (300 shares)
 
 
 
100,000

 

 
 
 
4,233,204

 
4,491,440

 
733,000

 
 
 
 
 
 
 
 
 
SRC, Inc. (2%)*
 
Specialty Chemical Manufacturer
 
Subordinated Note (10.8% Cash, 0.25% PIK, Due 12/14)
 
2,160,348

 
250,000

 

 
 
Senior Revolver (9.3% Cash, Due 05/14)
 
374,999

 
376,195

 
376,195

 
 
Senior Term Loan (10.3% Cash, Due 05/14)
 
1,900,000

 
1,907,481

 
1,907,481

 
 
Debtor in Possession Loan (8.0% Cash, Due 01/14)
 
1,491,800

 
1,491,800

 
1,491,800

 
 
Subordinated Notes (12% Cash, 2% PIK, Due 09/14)
 
6,331,199

 
6,264,076

 
3,942,000

 
 
Common Stock Purchase Warrants
 
 
 
123,800

 

 
 
 
 
12,258,346

 
10,413,352

 
7,717,476

 
 
 
 
 
 
 
 
 
Subtotal Control Investments
 
 
 
20,022,214

 
18,378,665

 
10,792,709

 
 
 
 
 
 
 
 
 
Total Investments, December 31, 2013 (149%)*
 
 
 
$
603,988,069

 
$
653,817,785

 
$
664,373,189


*    Fair value as a percent of net assets
(1)
All debt investments are income producing. Equity and equity-linked investments are non-income producing.
(2)
Disclosures of interest rates on notes include cash interest rates and payment-in-kind (“PIK”) interest rates.
(3)
All investments are restricted as to resale and were valued at fair value as determined in good faith by the Board of Directors.
(4)
Investment is not a qualifying investment as defined under Section 55(a) of the Investment Company Act of 1940. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets.

See accompanying notes.

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TRIANGLE CAPITAL CORPORATION
Notes to Unaudited Consolidated Financial Statements

1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Organization and Business
Triangle Capital Corporation and its wholly owned subsidiaries, including Triangle Mezzanine Fund LLLP (“Triangle SBIC”) and Triangle Mezzanine Fund II LP (“Triangle SBIC II”) (collectively, the “Company”), operate as a Business Development Company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). Triangle SBIC and Triangle SBIC II are specialty finance limited partnerships formed to make investments primarily in lower middle market companies located throughout the United States. On September 11, 2003, Triangle SBIC was licensed to operate as a Small Business Investment Company (“SBIC”) under the authority of the United States Small Business Administration (“SBA”). On May 26, 2010, Triangle SBIC II obtained its license to operate as an SBIC. As SBICs, both Triangle SBIC and Triangle SBIC II are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments.
The Company currently operates as a closed-end, non-diversified investment company and has elected to be treated as a BDC under the 1940 Act. The Company is internally managed by its executive officers under the supervision of its Board of Directors. The Company does not pay management or advisory fees, but instead incurs the operating costs associated with employing executive management and investment and portfolio management professionals.
Basis of Presentation
The financial statements of the Company include the accounts of Triangle Capital Corporation and its wholly-owned subsidiaries, including Triangle SBIC and Triangle SBIC II. Triangle Capital Corporation, Triangle SBIC and Triangle SBIC II do not consolidate portfolio company investments. The effects of all intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation.
The accompanying unaudited financial statements are presented in conformity with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for the fair presentation of financial statements for the interim period, have been reflected in the unaudited consolidated financial statements. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Additionally, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the period ended December 31, 2013. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

2. INVESTMENTS
Portfolio Composition
The Company primarily invests in subordinated debt securities of privately held companies, generally secured by second lien security interests in portfolio company assets. In addition, the Company generally invests in an equity instrument of the borrower, such as warrants to purchase common stock in the portfolio company or direct preferred or common equity interests. On a more limited basis, the Company also invests in senior debt securities secured by first lien security interests in portfolio companies. The Company's investments generally range from $5.0 million to $35.0 million per portfolio company.

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The cost basis of the Company's debt investments includes any unamortized original issue discount, unamortized loan origination fees and payment-in-kind (“PIK”) interest, if any. Summaries of the composition of the Company’s investment portfolio at cost and fair value, and as a percentage of total investments, are shown in the following tables:
 
Cost
 
Percentage of
Total Portfolio
 
Fair Value
 
Percentage of
Total Portfolio
March 31, 2014:
 
 
 
 
 
 
 
Subordinated debt and 2nd lien notes
$
555,943,162

 
82
%
 
$
528,881,970

 
77
%
Senior debt and 1st lien notes
46,314,233

 
7

 
46,190,878

 
7

Equity shares
68,927,729

 
10

 
92,612,571

 
13

Equity warrants
9,672,127

 
1

 
22,325,000

 
3

Royalty rights

 

 

 

 
$
680,857,251

 
100
%
 
$
690,010,419

 
100
%
December 31, 2013:
 
 
 
 
 
 
 
Subordinated debt and 2nd lien notes
$
540,561,082

 
83
%
 
$
514,467,575

 
77
%
Senior debt and 1st lien notes
46,102,133

 
7

 
45,968,765

 
7

Equity shares
56,985,933

 
9

 
79,935,246

 
12

Equity warrants
10,168,637

 
1

 
23,928,603

 
4

Royalty rights

 

 
73,000

 

 
$
653,817,785

 
100
%
 
$
664,373,189

 
100
%

During the three months ended March 31, 2014, the Company made six new investments totaling approximately $63.7 million and six investments in existing portfolio companies totaling approximately $13.8 million. During the three months ended March 31, 2013, the Company made six investments in existing portfolio companies totaling approximately $10.3 million.
Investment Valuation Process
The Company has established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring basis in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). Under ASC Topic 820, a financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. The three levels of valuation inputs established by ASC Topic 820 are as follows:
Level 1 Inputs – include quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs – include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs – include inputs that are unobservable and significant to the fair value measurement.
The Company’s investment portfolio is comprised of debt and equity instruments of privately held companies for which quoted prices or other inputs falling within the categories of Level 1 and Level 2 are not available. Therefore, the Company determines the fair value of its investments in good faith using Level 3 inputs, pursuant to a valuation policy and process that is established by the management of the Company with the assistance of certain third-party advisors and subsequently approved by the Company’s Board of Directors. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of the Company’s investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.
The Company’s valuation process is led by the Company’s executive officers and managing directors. The Company’s valuation process begins with a quarterly review of each investment in the Company’s investment portfolio by the Company’s executive officers and investment committee. Valuations of each portfolio security are then prepared by the Company’s investment professionals, who have direct responsibility for the origination, management and monitoring of each investment. Under the Company’s valuation policy, each investment valuation is subject to (i) a review by the lead investment officer responsible for the portfolio company investment and (ii) a peer review by a second investment officer or executive officer of

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the Company. Generally, any investment that is valued below cost is subjected to review by one of the Company’s executive officers. After the peer review is complete, the Company engages two independent valuation firms, Duff & Phelps, LLC and Lincoln Partners Advisors LLC (collectively, the “Valuation Firms”), to provide third-party reviews of certain investments, as described further below. Finally, the Board of Directors has the responsibility for reviewing and approving, in good faith, the fair value of the Company’s investments in accordance with the 1940 Act.
The Valuation Firms provide third party valuation consulting services to the Company which consist of certain procedures that the Company identified and requested the Valuation Firms to perform (hereinafter referred to as the “Procedures”). The Procedures are performed with respect to each portfolio company at least once in every calendar year and for new portfolio companies, at least once in the twelve-month period subsequent to the initial investment. In addition, the Procedures are generally performed with respect to a portfolio company when there has been a significant change in the fair value of the investment. In certain instances, the Company may determine that it is not cost-effective, and as a result is not in the Company’s stockholders’ best interest, to request the Valuation Firms to perform the Procedures on one or more portfolio companies. Such instances include, but are not limited to, situations where the fair value of the investment in the portfolio company is determined to be insignificant relative to the total investment portfolio.    
The total number of investments and the percentage of the investment portfolio on which the Procedures were performed are summarized below by period: 
For the quarter ended:
Total
companies
 
Percent of total
investments at
fair value(1)
March 31, 2013
17
 
23%
June 30, 2013
13
 
27%
September 30, 2013
14
 
28%
December 31, 2013
14
 
21%
March 31, 2014
15
 
25%

(1)
Exclusive of the fair value of new investments made during the quarter.
Upon completion of the Procedures, the Valuation Firms concluded that, with respect to each investment reviewed by each Valuation Firm, the fair value of those investments subjected to the Procedures appeared reasonable. The Company’s Board of Directors is ultimately responsible for determining the fair value of the Company’s investments in good faith.
Investment Valuation Inputs
Under ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between a willing buyer and a willing seller at the measurement date. For the Company’s portfolio securities, fair value is generally the amount that the Company might reasonably expect to receive upon the current sale of the security. Under ASC Topic 820, the fair value measurement assumes that the sale occurs in the principal market for the security, or in the absence of a principal market, in the most advantageous market for the security. Under ASC Topic 820, if no market for the security exists or if the Company does not have access to the principal market, the security should be valued based on the sale occurring in a hypothetical market. The securities in which the Company invests are generally only purchased and sold in merger and acquisition transactions, in which case the entire portfolio company is sold to a third-party purchaser. As a result, unless the Company has the ability to control such a transaction, the assumed principal market for the Company’s securities is a hypothetical secondary market. The Level 3 inputs to the Company’s valuation process reflect the Company’s best estimate of the assumptions that would be used by market participants in pricing the investment in a transaction in a hypothetical secondary market.
Enterprise Value Waterfall Approach
In valuing equity securities (including warrants), the Company estimates fair value using an “Enterprise Value Waterfall” valuation model. The Company estimates the enterprise value of a portfolio company and then allocates the enterprise value to the portfolio company’s securities in order of their relative liquidation preference. In addition, the Company assumes that any outstanding debt or other securities that are senior to the Company’s equity securities are required to be repaid at par. Additionally, the Company estimates the fair value of a limited number of its debt securities using the Enterprise Value Waterfall approach in cases where the Company does not expect to receive full repayment.
To estimate the enterprise value of the portfolio company, the Company primarily uses a valuation model based on a transaction multiple, which generally is the original transaction multiple, and measures of the portfolio company’s financial

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performance. In addition, the Company considers other factors, including but not limited to (i) offers from third-parties to purchase the portfolio company, (ii) the implied value of recent investments in the equity securities of the portfolio company, (iii) publicly available information regarding recent sales of private companies in comparable transactions and (iv) when the Company believes there are comparable companies that are publicly traded, the Company performs a review of these publicly traded companies and the market multiple of their equity securities.
The significant Level 3 inputs to the Enterprise Value Waterfall model are (i) an appropriate transaction multiple and (ii) a measure of the portfolio company’s financial performance, which generally is either earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted EBITDA”) or revenues. Such inputs can be based on historical operating results, projections of future operating results or a combination thereof. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require adjustments for certain non-recurring items. In determining the operating results input, the Company utilizes the most recent portfolio company financial statements and forecasts available as of the valuation date. The Company also consults with the portfolio company’s senior management to obtain updates on the portfolio company’s performance, including information such as industry trends, new product development, loss of customers and other operational issues. Fair value measurements using the Enterprise Value Waterfall model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in either the transaction multiple, Adjusted EBITDA or revenues for a particular equity security would result in a higher (lower) fair value for that security.
Income Approach
In valuing debt securities, the Company utilizes an “Income Approach” model that considers factors including, but not limited to, (i) the stated yield on the debt security, (ii) the portfolio company’s current Adjusted EBITDA as compared to the portfolio company’s historical or projected Adjusted EBITDA as of the date the investment was made and the portfolio company’s anticipated Adjusted EBITDA for the next twelve months of operations, (iii) the portfolio company’s current Leverage Ratio (defined as the portfolio company’s total indebtedness divided by Adjusted EBITDA) as compared to its Leverage Ratio as of the date the investment was made, (iv) publicly available information regarding current pricing and credit metrics for similar proposed and executed investment transactions of private companies and (v) when the Company believes a relevant comparison exists, current pricing and credit metrics for similar proposed and executed investment transactions of publicly traded debt. In addition, the Company uses a risk rating system to estimate the probability of default on the debt securities and the probability of loss if there is a default. This risk rating system covers both qualitative and quantitative aspects of the business and the securities held.
The Company considers the factors above, particularly any significant changes in the portfolio company’s results of operations and leverage, and develops an expectation of the yield that a hypothetical market participant would require when purchasing the debt investment (the “Required Rate of Return”). The Required Rate of Return, along with the Leverage Ratio and Adjusted EBITDA, are the significant Level 3 inputs to the Income Approach model. For investments where the Leverage Ratio and Adjusted EBITDA have not fluctuated significantly from the date the investment was made or have not fluctuated significantly from the Company’s expectations as of the date the investment was made, and where there have been no significant fluctuations in the market pricing for such investments, the Company may conclude that the Required Rate of Return is equal to the stated rate on the investment and therefore, the debt security is appropriately priced. In instances where the Company determines that the Required Rate of Return is different from the stated rate on the investment, the Company discounts the contractual cash flows on the debt instrument using the Required Rate of Return in order to estimate the fair value of the debt security.
Fair value measurements using the Income Approach model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in the Required Rate of Return or Leverage Ratio inputs for a particular debt security may result in a lower (higher) fair value for that security. A significant increase (decrease) in the Adjusted EBITDA input for a particular debt security may result in a higher (lower) fair value for that security.
The fair value of the Company’s royalty rights are calculated based on specific provisions contained in the pertinent operating or royalty agreements. The determination of the fair value of such royalty rights is not a significant component of the Company’s valuation process.

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The ranges and weighted average values of the significant Level 3 inputs used in the valuation of the Company’s debt and equity securities at March 31, 2014 and December 31, 2013 are summarized as follows:
March 31, 2014:
Fair Value
 
Valuation
Model
 
Level 3
Inputs
 
Range of
Inputs
 
Weighted
Average
Subordinated debt and 2nd lien notes
$
515,383,970

 
Income
Approach
 
Required Rate of Return
 
7.0% – 30.0%
 
14.4%
 
 
 
 
Leverage Ratio
 
0.8x – 7.5x
 
3.8x
 
 
 
 
Adjusted EBITDA
 
$1.3 million – $77.0 million
 
$16.1 million
Subordinated debt and 2nd lien notes
13,498,000

 
Enterprise
Value Waterfall
Approach
 
Adjusted EBITDA Multiple
 
5.3x – 6.0x
 
5.7x
 
 
 
 
Adjusted EBITDA
 
$0.5 million – $4.6 million
 
$0.9 million
Senior debt and 1st lien notes
46,190,878

 
Income
Approach
 
Required Rate of Return
 
4.7% – 19.0%
 
13.3%
 
 
 
 
Leverage Ratio
 
0.0x – 5.8x
 
2.6x
 
 
 
 
Adjusted EBITDA
 
$1.3 million – $4.7 million
 
$3.3 million
Equity shares and warrants
114,937,571

 
Enterprise
Value Waterfall
Approach
 
Adjusted EBITDA Multiple
 
3.8x – 10.0x
 
6.3x
 
 
 
 
Adjusted EBITDA
 
$0.5 million – $77.0 million
 
$13.8 million
 
 
 
 
 
Revenue Multiple
 
1.3x – 4.2x
 
3.9x
 
 
 
 
 
Revenues
 
$8.8 million – $59.5 million
 
$50.9 million

December 31, 2013:
Fair Value
 
Valuation
Model
 
Level 3
Input
 
Range of
Inputs
 
Weighted
Average
Subordinated debt and 2nd lien notes
$
508,522,575

 
Income
Approach
 
Required Rate of Return
 
8.3% – 30.0%
 
14.7%
 
 
 
 
Leverage Ratio
 
0.8x – 6.7x
 
3.9x
 
 
 
 
Adjusted EBITDA
 
$1.0 million – $77.0 million
 
$17.0 million
Subordinated debt and 2nd lien notes
5,945,000

 
Enterprise
Value Waterfall
Approach
 
Adjusted EBITDA Multiple
 
4.5x – 5.5x
 
4.9x
 
 
 
 
Adjusted EBITDA
 
$0.5 million – $4.7 million
 
$1.4 million
Senior debt and 1st lien notes
45,968,765

 
Income
Approach
 
Required Rate of Return
 
4.8% – 19.0%
 
12.9%
 
 
 
 
Leverage Ratio
 
0.0x – 6.4x
 
2.9x
 
 
 
 
Adjusted EBITDA
 
$1.0 million – $4.7 million
 
$2.8 million
Equity shares and warrants
103,863,849

 
Enterprise
Value Waterfall
Approach
 
Adjusted EBITDA Multiple
 
3.8x – 10.0x
 
6.4x
 
 
 
 
Adjusted EBITDA
 
$0.5 million – $77.0 million
 
$15.9 million
 
 
 
 
 
Revenue Multiple
 
1.5x – 4.2x
 
3.9x
 
 
 
 
 
Revenues
 
$8.5 million – $59.5 million
 
$50.8 million




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The following table presents the Company’s investment portfolio at fair value as of March 31, 2014 and December 31, 2013, categorized by the ASC Topic 820 valuation hierarchy, as previously described:
 
Fair Value as of March 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
Subordinated debt and 2nd lien notes
$

 
$

 
$
528,881,970

 
$
528,881,970

Senior debt and 1st lien notes

 

 
46,190,878

 
46,190,878

Equity shares

 

 
92,612,571

 
92,612,571

Equity warrants

 

 
22,325,000

 
22,325,000

Royalty rights

 

 

 

 
$

 
$

 
$
690,010,419

 
$
690,010,419

 
 
 
 
 
 
 
 
 
Fair Value as of December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
Subordinated debt and 2nd lien notes
$

 
$

 
$
514,467,575

 
$
514,467,575

Senior debt and 1st lien notes

 

 
45,968,765

 
45,968,765

Equity shares

 

 
79,935,246

 
79,935,246

Equity warrants

 

 
23,928,603

 
23,928,603

Royalty rights

 

 
73,000

 
73,000

 
$

 
$

 
$
664,373,189

 
$
664,373,189


The following tables reconcile the beginning and ending balances of the Company’s investment portfolio measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2014 and 2013:
Three Months Ended
March 31, 2014:
Subordinated
Debt and 2nd
Lien Notes
 
Senior Debt
and 1st Lien
Notes
 
Equity
Shares
 
Equity
Warrants
 
Royalty
Rights
 
Total
Fair value, beginning of period
$
514,467,575

 
$
45,968,765

 
$
79,935,246

 
$
23,928,603

 
$
73,000

 
$
664,373,189

New investments
69,887,760

 
3,985,889

 
3,624,833

 

 

 
77,498,482

Reclassifications
(6,055,524
)
 
(3,872,476
)
 
9,928,000

 

 

 

Proceeds from sales of investments

 

 
(1,700,120
)
 
(1,020,255
)
 

 
(2,720,375
)
Loan origination fees received
(1,290,041
)
 
(77,778
)
 

 

 

 
(1,367,819
)
Principal repayments received
(48,991,007
)
 
(97,404
)
 

 

 

 
(49,088,411
)
PIK interest earned
3,494,150

 
240,271

 

 

 

 
3,734,421

PIK interest payments received
(2,262,217
)
 

 

 

 

 
(2,262,217
)
Accretion of loan discounts
346,201

 

 

 

 

 
346,201

Accretion of deferred loan origination revenue
801,938

 
33,598

 

 

 

 
835,536

Realized gain
(549,180
)
 

 
89,083

 
523,745

 

 
63,648

Unrealized gain (loss)
(967,685
)
 
10,013

 
735,529

 
(1,107,093
)
 
(73,000
)
 
(1,402,236
)
Fair value, end of period
$
528,881,970

 
$
46,190,878

 
$
92,612,571

 
$
22,325,000

 
$

 
$
690,010,419



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Three Months Ended
March 31, 2013:
Subordinated
Debt and 2nd
Lien Notes
 
Senior Debt
and 1st Lien
Notes
 
Equity
Shares
 
Equity
Warrants
 
Royalty
Rights
 
Total
Fair value, beginning of period
$
559,355,550

 
$
46,576,994

 
$
78,979,179

 
$
21,759,000

 
$
132,000

 
$
706,802,723

New investments
5,513,545

 
1,500,000

 
1,100,000

 
2,146,000

 

 
10,259,545

Reclassifications
18,570,523

 
(18,570,523
)
 

 

 

 

Proceeds from sales of investments

 

 
(1,437,000
)
 
(37,000
)
 

 
(1,474,000
)
Loan origination fees received
(255,159
)
 

 

 

 

 
(255,159
)
Principal repayments received
(7,577,746
)
 
(223,200
)
 

 

 

 
(7,800,946
)
PIK interest earned
4,017,911

 
196,883

 

 

 

 
4,214,794

PIK interest payments received
(529,733
)
 

 

 

 

 
(529,733
)
Accretion of loan discounts
396,661

 

 

 

 

 
396,661

Accretion of deferred loan origination revenue
706,745

 
27,349

 

 

 

 
734,094

Realized gains
578,782

 

 
1,237,000

 
37,000

 

 
1,852,782

Unrealized gain (loss)
595,323

 
5,622

 
929,217

 
(181,006
)
 
(24,000
)
 
1,325,156

Fair value, end of period
$
581,372,402

 
$
29,513,125

 
$
80,808,396

 
$
23,723,994

 
$
108,000

 
$
715,525,917


All realized and unrealized gains and losses are included in earnings (changes in net assets) and are reported on separate line items within the Company’s Statements of Operations. Pre-tax net unrealized losses on investments of $0.8 million during the three months ended March 31, 2014 were related to portfolio company investments that were still held by the Company as of March 31, 2014. Pre-tax net unrealized gains on investments of $2.6 million during the three months ended March 31, 2013 were related to portfolio company investments that were still held by the Company as of March 31, 2013.

The Company’s primary investment objective is to generate current income and capital appreciation by investing directly in privately-held lower middle market companies to help these companies fund acquisitions, growth or refinancing. During the three months ended March 31, 2014, the Company made investments of approximately $13.7 million in portfolio companies to which it was not previously contractually committed to provide the financial support. During the three months ended March 31, 2014, the Company made investments of $0.6 million in companies to which it was previously committed to provide the financial support. The details of the Company’s investments have been disclosed on the Unaudited Consolidated Schedule of Investments. In addition to the investments that the Company has made, the Company has unfunded commitments to provide additional financings totaling approximately $9.3 million as of March 31, 2014.
Warrants
When originating a debt security, the Company will sometimes receive warrants or other equity-related securities from the borrower. The Company determines the cost basis of the warrants or other equity-related securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity-related securities received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from the assignment of value to the warrant or other equity instruments is treated as original issue discount and accreted into interest income over the life of the loan.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gains or losses are recorded upon the sale or liquidation of investments and are calculated as the difference between the net proceeds from the sale or liquidation, if any, and the cost basis of the investment using the specific identification method. Unrealized appreciation or depreciation reflects the difference between the fair value of the investments and the cost basis of the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level of control. As defined in the 1940 Act, “Control Investments” are investments in those companies that the Company is deemed to “Control.” “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, other than Control Investments. “Non-Control / Non-Affiliate Investments” are those that are neither Control Investments nor

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Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to control a company in which it has invested if the Company owns more than 25.0% of the voting securities of such company, has greater than 50.0% representation on its board or has the power to exercise control over management or policies of such portfolio company. The Company is deemed to be an affiliate of a company in which the Company has invested if it owns between 5.0% and 25.0% of the voting securities of such company.
Investment Income
Interest income, adjusted for amortization of premium and accretion of original issue discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes, until all principal and interest has been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The Company writes off any previously accrued and uncollected interest when it is determined that interest is no longer considered collectible. Dividend income is recorded on the ex-dividend date.
Fee Income
Origination, facility, commitment, consent and other advance fees received in connection with loan agreements ("Loan Origination Fees") are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized Loan Origination Fees are recorded as investment income. In the general course of its business, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, certain investment banking and structuring fees and loan waiver and amendment fees, and are recorded as investment income when earned.
Payment-in-Kind Interest
The Company currently holds, and expects to hold in the future, some loans in its portfolio that contain a payment-in-kind ("PIK") interest provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan, rather than being paid to the Company in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment.
PIK interest, which is a non-cash source of income, is included in the Company’s taxable income and therefore affects the amount the Company is required to distribute to its stockholders to maintain its qualification as a regulated investment company ("RIC") for federal income tax purposes, even though the Company has not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the loan on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The Company writes off any accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible.
Concentration of Credit Risk
The Company’s investments are generally in lower middle market companies in a variety of industries. As of both March 31, 2014 and December 31, 2013, there were no individual investments greater than 10% of the fair value of the Company’s portfolio. As of March 31, 2014 and December 31, 2013, the Company’s largest single portfolio company investment represented approximately 4.0% and 4.2%, respectively, of the fair value of the Company’s portfolio. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses on equity interests, can fluctuate dramatically upon repayment of an investment or sale of an equity interest and in any given year can be highly concentrated among several investees.
The Company’s investments carry a number of risks including, but not limited to: (i) investing in lower middle market companies which may have limited financial resources and may have limited operating histories, (ii) investing in senior subordinated debt which ranks equal to or lower than debt held by other investors and (iii) holding investments that are not publicly traded and are subject to legal and other restrictions on resale and other risks common to investing in below investment grade debt and equity instruments.


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Investments Denominated in Foreign Currency
As of both March 31, 2014 and December 31, 2013, the Company held investments in one portfolio company that were denominated in Canadian dollars.
At each balance sheet date, portfolio company investments denominated in foreign currencies are translated into United States dollars using the spot exchange rate on the last business day of the period. Purchases and sales of foreign portfolio company investments, and any income from such investments, are translated into United States dollars using the rates of exchange prevailing on the respective dates of such transactions.
Although the fair values of foreign portfolio company investments and the fluctuation in such fair values are translated into United States dollars using the applicable foreign exchange rates described above, the Company does not isolate that portion of the change in fair values resulting from foreign currency exchange rates fluctuations from the change in fair values of the underlying investment. All fluctuations in fair value are included in net unrealized appreciation (depreciation) of investments in the Company's Unaudited Consolidated Statements of Operations.
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the United States dollar.

3. INCOME TAXES
The Company elected for federal income tax purposes to be treated as a RIC under the Internal Revenue Code of 1986, as amended (the "Code") commencing with its taxable year ended December 31, 2007. In order to maintain its qualification as a RIC, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute (actually or constructively) and certain built-in gains. The Company has historically met its minimum distribution requirements and continually monitors its distribution requirements with the goal of ensuring compliance with the Code.
The minimum distribution requirements applicable to RICs require the Company to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year distributions into the next tax year and pay a 4% excise tax on such excess. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. The Company may be required to recognize ICTI in certain circumstances in which it does not receive cash. For example, if the Company holds debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants), the Company must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by the Company in the same taxable year. The Company may also have to include in ICTI other amounts that it has not yet received in cash, such as (i) PIK interest income and (ii) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in the Company’s ICTI for the year of accrual, the Company may be required to make a distribution to its stockholders in order to satisfy the minimum distribution requirements, even though the Company will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
The Company has certain wholly-owned taxable subsidiaries (the “Taxable Subsidiaries”), each of which holds one or more of its portfolio investments that are listed on the Consolidated Schedule of Investments. The Taxable Subsidiaries are consolidated for financial reporting purposes, such that the Company’s consolidated financial statements reflect the Company’s investments in the portfolio companies owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to permit the Company to hold certain portfolio companies that are organized as limited liability companies (“LLCs”) (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of the RIC’s gross revenue for income tax purposes must consist of investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of an LLC (or other pass-through entity) portfolio investment would flow through directly to the RIC. To the extent that such income did not consist of investment income, it could jeopardize the Company’s ability to qualify as a RIC and therefore cause the Company to incur significant amounts of federal income taxes. When LLCs (or other pass-through entities) are owned by

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the Taxable Subsidiaries, their income is taxed to the Taxable Subsidiaries and does not flow through to the RIC, thereby helping the Company preserve its RIC status and resultant tax advantages. The Taxable Subsidiaries are not consolidated for income tax purposes and may generate income tax expense as a result of their ownership of the portfolio companies. This income tax expense is reflected in the Company’s Consolidated Statements of Operations.
For federal income tax purposes, the cost of investments owned as of March 31, 2014 and December 31, 2013 was approximately $683.2 million and $656.6 million, respectively.

4. BORROWINGS
The Company had the following borrowings outstanding as of March 31, 2014 and December 31, 2013: 
Issuance/Pooling Date
Maturity Date
 
Interest Rate as of March 31, 2014
 
March 31, 2014
 
December 31, 2013
SBA-Guaranteed Debentures:
 
 
 
 
 
 
 
March 25, 2009
March 1, 2019
 
5.337%
 
22,000,000

 
22,000,000

March 24, 2010
March 1, 2020
 
4.825%
 
6,800,000

 
6,800,000

September 22, 2010
September 1, 2020
 
3.687%
 
32,590,000

 
32,590,000

March 29, 2011
March 1, 2021
 
4.474%
 
75,400,000

 
75,400,000

September 21, 2011
September 1, 2021
 
3.392%
 
19,100,000

 
19,100,000

March 27, 2013
March 1, 2023
 
3.155%
 
30,000,000

 
30,000,000

SBA-Guaranteed LMI Debenture:
 
 
 
 
 
 
 
September 14, 2010
March 1, 2016
 
2.508%
 
7,440,441

 
7,395,211

Credit Facility:
 
 
 
 
 
 
 
June 26, 2013
September 17, 2017
 
4.014%
 
10,860,711

 
11,221,246

Notes:
 
 
 
 
 
 
 
March 2, 2012
March 15, 2019
 
7.000%
 
69,000,000

 
69,000,000

October 19, 2012
December 15, 2022
 
6.375%
 
80,500,000

 
80,500,000

 
 
 
 
 
$
353,691,152

 
$
354,006,457


SBA and SBA LMI Debentures
Interest payments on SBA-guaranteed debentures are payable semi-annually and there are no principal payments required on these debentures prior to maturity, nor do the debentures carry any prepayment penalties. The Company’s SBA-guaranteed Low or Moderate Income (“LMI”) debenture is a five-year deferred interest debenture that was issued at a discount to par. The accretion of discount on the SBA-guaranteed LMI debenture is classified as interest expense in the Company’s consolidated financial statements.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC (or group of SBICs under common control) can have outstanding at any time, SBA-guaranteed debentures and SBA-guaranteed LMI debentures (collectively, SBA-guaranteed debentures) up to two times (and in certain cases, up to three times) the amount of its regulatory capital. As of March 31, 2014, the maximum statutory limit on the dollar amount of outstanding SBA-guaranteed debentures that can be issued by a single SBIC was $150.0 million and by a group of SBICs under common control was $225.0 million. As of March 31, 2014, Triangle SBIC had issued $118.7 million of SBA-guaranteed debentures and had the current capacity to issue up to the statutory maximum of $150.0 million, subject to SBA approval. As of March 31, 2014, Triangle SBIC II had issued $75.0 million in face amount of SBA-guaranteed debentures. The weighted average interest rate for all SBA-guaranteed debentures as of both March 31, 2014 and December 31, 2013 was 4.07%. As of both March 31, 2014 and December 31, 2013, all SBA debentures were pooled.
In addition to a one-time 1.0% fee on the total commitment from the SBA, the Company also pays a one-time 2.425% fee on the amount of each SBA-guaranteed debenture issued and a one-time 2.0% fee on the amount of each SBA-guaranteed LMI debenture issued. These fees are capitalized as deferred financing costs and are amortized over the term of the debt agreements using the effective interest method. Upon prepayment of an SBA-guaranteed debenture, any unamortized deferred financing costs related to the SBA-guaranteed debenture are written off and recognized as a loss on extinguishment of debt in the Consolidated Statements of Operations. In the three months ended March 31, 2013 the Company prepaid approximately $20.5

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million of SBA-guaranteed debentures and recognized losses on extinguishment of debt of approximately $0.4 million. respectively.
The fair values of the SBA-guaranteed debentures are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. As of both March 31, 2014 and December 31, 2013, the carrying amounts of the SBA-guaranteed debentures were approximately $193.3 million. As of March 31, 2014 and December 31, 2013, the fair values of the SBA-guaranteed debentures were $204.4 million and $206.6 million, respectively.
Credit Facility
In June 2013, the Company entered into a second amended and restated senior secured credit facility (the “Credit Facility”) to provide liquidity in support of its investment and operational activities. The Credit Facility, which has an initial commitment of $165.0 million supported by nine financial institutions, replaced the Company's $165.0 million senior secured credit facility entered into in September 2012. The Credit Facility, which matures on September 17, 2017, allows the Company to borrow foreign currencies (initially Canadian dollars) directly under the Credit Facility.
The Credit Facility has an accordion feature that allows for an increase in the total commitment size up to $215.0 million, subject to certain conditions, and also contains a one-year extension option to September 17, 2018. The Credit Facility, which is structured to operate like a revolving credit facility, is secured primarily by the Company's assets, excluding the assets of Triangle SBIC and Triangle SBIC II.
Borrowings under the Credit Facility bear interest, subject to the Company's election, on a per annum basis equal to (i) the applicable base rate plus 1.75%, (ii) the applicable LIBOR rate plus 2.75%, or (iii) for borrowings denominated in Canadian dollars, the applicable Canadian Dealer Offered Rate plus 2.75%. The applicable base rate is equal to the greater of (i) the prime rate, (ii) the federal funds rate plus 0.5% or (iii) the adjusted one-month LIBOR rate plus 2.0%. The Company pays a commitment fee of 0.375% per annum on undrawn amounts, which is included with interest and other financing fees on the Company's Consolidated Statements of Operations. Borrowings under the Credit Facility are also limited to a borrowing base, which includes certain cash and a portion of eligible debt investments. 
As of March 31, 2014, the Company had non-United States dollar borrowings denominated in Canadian dollars of $12.0 million ($10.9 million United States dollars) outstanding under the Credit Facility with an interest rate of 4.01%. The borrowings denominated in Canadian dollars are translated into United States dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign exchange rates on the Credit Facility borrowings is included in unrealized appreciation (depreciation) on foreign currency borrowings in the Company's Consolidated Statements of Operations. The borrowings denominated in Canadian dollars may be positively or negatively affected by movements in the rate of exchange between the United States dollar and the Canadian dollar. This movement is beyond the control of the Company and cannot be predicted. As of December 31, 2013, the Company had non-United States dollar borrowings denominated in Canadian dollars of $12.0 million ($11.2 million United States dollars) outstanding under the Credit Facility with an interest rate of 4.03%,
The fair value of the borrowings outstanding under the Credit Facility are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. As of March 31, 2014 and December 31, 2013, the fair values of the borrowings outstanding under the Credit Facility were $10.9 million and $11.2 million, respectively.
The Credit Facility contains certain affirmative and negative covenants, including but not limited to (i) maintaining a minimum interest coverage ratio, (ii) maintaining minimum consolidated tangible net worth and (iii) maintaining its status as a regulated investment company and as a BDC. As of March 31, 2014, the Company was in compliance with all covenants of the Credit Facility.
Notes
In March 2012, the Company issued $69.0 million of unsecured notes due 2019 (the “2019 Notes”). The 2019 Notes mature on March 15, 2019, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after March 15, 2015. The 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning June 15, 2012. The net proceeds to the Company from the sale of the 2019 Notes, after underwriting discounts and offering expenses, were approximately $66.7 million. As of both March 31, 2014 and December 31, 2013, the carrying amount of the 2019 Notes was approximately $69.0 million. As of March 31, 2014 and December 31, 2013, the fair values of the 2019 Notes were $70.8 million and $71.6 million, respectively.
In October 2012, the Company issued $70.0 million of unsecured notes due 2022 (the "2022 Notes") and in November 2012, issued $10.5 million of 2022 Notes pursuant to the exercise of an over-allotment option. The 2022 Notes mature on

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December 15, 2022, and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after December 15, 2015.  The 2022 Notes bear interest at a rate of 6.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning December 15, 2012. The net proceeds to the Company from the sale of the 2022 Notes, after underwriting discounts and offering expenses, were approximately $77.8 million. As of both March 31, 2014 and December 31, 2013, the carrying amount of the 2022 Notes was approximately $80.5 million. As of March 31, 2014 and December 31, 2013, the fair values of the 2022 Notes were $79.5 million and $76.7 million, respectively. The fair values of the 2019 Notes and the 2022 Notes are based on the closing prices of each respective security on the New York Stock Exchange, which are Level 1 inputs under ASC 820.
The indenture and supplements thereto relating to the 2019 Notes and the 2022 Notes contain certain covenants, including but not limited to (i) a requirement that the Company comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii) a requirement to provide financial information to the holders of the notes and the trustee under the indenture if the Company should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended.

5. EQUITY-BASED AND OTHER COMPENSATION PLANS
The Company’s Board of Directors and stockholders have approved the Triangle Capital Corporation Amended and Restated 2007 Equity Incentive Plan (the “Plan”), under which there are 2,400,000 shares of the Company’s Common Stock authorized for issuance. Under the Plan, the Board (or compensation committee, if delegated administrative authority by the Board) may award stock options, restricted stock or other stock-based incentive awards to executive officers, employees and directors. Equity-based awards granted under the Plan to independent directors generally will vest over a one-year period and equity-based awards granted under the Plan to executive officers and employees generally will vest ratably over a four-year period.
The Company accounts for its equity-based compensation plan using the fair value method, as prescribed by ASC Topic 718, Stock Compensation. Accordingly, for restricted stock awards, the Company measures the grant date fair value based upon the market price of the Company’s common stock on the date of the grant and amortizes this fair value to compensation expense ratably over the requisite service period or vesting term.
The following table presents information with respect to the Plan for the three months ended March 31, 2014 and 2013:
 
Three Months Ended
March 31, 2014
 
Three Months Ended
March 31, 2013
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value per Share
 
Number of
Shares
 
Weighted Average
Grant Date Fair
Value per Share
Unvested shares, beginning of period
592,173

 
$23.80
 
290,198

 
$18.52
Shares granted during the period
273,000

 
$26.09
 
250,000

 
$28.47
Shares vested during the period
(193,224
)
 
$21.03
 

 
$—
Unvested shares, end of period
671,949

 
$25.53
 
540,198

 
$23.13

In the three months ended March 31, 2014, the Company recognized equity-based compensation expense of approximately $1.3 million. In the three months ended March 31, 2013, the Company recognized equity-based compensation expense of approximately $0.6 million. This expense is included in general and administrative expenses in the Company’s Unaudited Consolidated Statements of Operations.

As of March 31, 2014, there was approximately $16.0 million of total unrecognized compensation cost, related to the Company’s non-vested restricted shares. This cost is expected to be recognized over a weighted average period of approximately 2.6 years.
The Company’s Board of Directors has adopted a nonqualified deferred compensation plan covering the Company’s executive officers and key employees. Any compensation deferred and the Company’s contributions will earn a return based on the returns on certain investments designated by the Compensation Committee of the Company’s Board of Directors. Participants are 100% vested in amounts deferred under the deferred compensation plan and the earnings thereon. Contributions to the plan and earnings thereon vest ratably over a four-year period.
The Company maintains a 401(k) plan in which all full-time employees who are at least 21 years of age and have 90 days of service are eligible to participate and receive employer contributions. Eligible employees may contribute a portion of their

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compensation on a pretax basis into the 401(k) plan up to the maximum amount allowed under the Code, and direct the investment of their contributions.

6. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2014 and 2013:
 
Three Months Ended March 31,
 
2014
 
2013
Per share data:
 
 
 
Net asset value at beginning of period
$
16.10

 
$
15.30

Net investment income(1)
0.50

 
0.56

Net realized gain on investments(1)

 
0.07

Net unrealized appreciation on investments / foreign currency(1)
(0.04
)
 
0.06

Total increase from investment operations(1)
0.46

 
0.69

Cash dividends/distributions
(0.69
)
 
(0.54
)
Shares issued pursuant to Dividend Reinvestment Plan
0.01

 
0.01

Stock-based compensation
(0.15
)
 
(0.12
)
Loss on extinguishment of debt(1)

 
(0.02
)
Provision for taxes(1)
(0.01
)
 

Other(2)

 

Net asset value at end of period
$
15.72

 
$
15.32

Market value at end of period(3)
$
25.89

 
$
27.99

Shares outstanding at end of period
27,903,696

 
27,563,375

Net assets at end of period
$
438,631,024

 
$
422,313,302

Average net assets
$
449,549,621

 
$
423,635,444

Ratio of total expenses to average net assets (annualized)
9.07
 %
 
8.70
%
Ratio of net investment income to average net assets (annualized)
12.32
 %
 
14.40
%
Portfolio turnover ratio
7.95
 %
 
1.40
%
Total return(4)
(3.87
)%
 
11.90
%
Supplemental Data:
 
 
 
Efficiency ratio(5)
21.03
 %
 
16.84
%
(1)
Weighted average basic per share data.
(2)
Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.
(3)
Represents the closing price of the Company’s common stock on the last day of the period.
(4)
Total return equals the change in the ending market value of the Company’s common stock during the period, plus dividends declared per share during the period, divided by the market value of the Company’s common stock on the first day of the period. Total return is not annualized.
(5)
Efficiency ratio equals general and administrative expenses divided by total investment income.

7. SUBSEQUENT EVENTS
 
In April 2014, the Company invested $23.0 million in the subordinated debt and equity of PCX Aerostructures, LLC ("PCX"). PCX manufacturers components and assemblies used in military and civilian aircraft, primarily helicopters. Under the terms of the investment, PCX will pay interest on the subordinated debt at a rate of 14.0%.

In April 2014, the Company exited its investments in Workforce Software, LLC. In connection with the exit, the company received proceeds of $21.4 million and recognized capital gains totaling approximately $11.1 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is designed to provide a better understanding of our financial statements, including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results. The following discussion should be read in conjunction with the Unaudited Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2013. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.
Forward-Looking Statements
Some of the statements in this Quarterly Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. Forward-looking statements may include, among other things, statements as to our future operating results, our business prospects and the prospects of our portfolio companies, the impact of the investments that we expect to make, the ability of our portfolio companies to achieve their objectives, our expected financings and investments, the adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the operations of our portfolio companies. Words such as “expect,” “anticipate,” “target,” “goals,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “continue,” “forecast,” “may,” “should,” “potential,” variations of such words, and similar expressions indicate a forward-looking statement, although not all forward-looking statements include these words. Readers are cautioned that the forward-looking statements contained in this Quarterly Report are only predictions, are not guarantees of future performance, and are subject to risks, events, uncertainties and assumptions that are difficult to predict. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors discussed herein and in Item 1A entitled “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2013. Other factors that could cause actual results to differ materially include, but are not limited to, changes in the economy, risks associated with possible disruption due to terrorism in our operations or the economy generally, and future changes in laws or regulations and conditions in our operating areas. These statements are based on our current expectations, estimates, forecasts, information and projections about the industry in which we operate and the beliefs and assumptions of our management as of the date of this Quarterly Report. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless we are required to do so by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview of Our Business
We are a Maryland corporation which has elected to be treated and operates as an internally managed business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. Our wholly-owned subsidiaries, Triangle Mezzanine Fund LLLP, or Triangle SBIC, and Triangle Mezzanine Fund II LP, or Triangle SBIC II, are licensed as small business investment companies, or SBICs, by the United States Small Business Administration, or SBA. In addition, Triangle SBIC has also elected to be treated as a BDC under the 1940 Act. We, Triangle SBIC and Triangle SBIC II invest primarily in debt instruments, equity investments, warrants and other securities of lower middle market privately-held companies located primarily in the United States.
Our business is to provide capital to lower middle market companies located primarily in the United States. We focus on investments in companies with a history of generating revenues and positive cash flows, an established market position and a proven management team with a strong operating discipline. Our target portfolio company has annual revenues between $20.0 million and $200.0 million and annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $3.0 million and $35.0 million.
We invest primarily in subordinated debt securities secured by second lien security interests in portfolio company assets, coupled with equity interests. On a more limited basis, we also invest in senior debt securities secured by first lien security interests in portfolio companies. Our investments generally range from $5.0 million to $35.0 million per portfolio company. In certain situations, we have partnered with other funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily from our investments in debt securities, loan origination and other fees and dividend income. Fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital gains, if any, on warrants or other equity-related securities that we acquire from our portfolio companies. Our debt

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investments generally have a term of between three and seven years and typically bear interest at fixed rates between 12.0% and 17.0% per annum. Certain of our debt investments have a form of interest, referred to as payment-in-kind, or PIK, interest, that is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term. In our negotiations with potential portfolio companies, we generally seek to minimize PIK interest. Cash interest on our debt investments is generally payable monthly; however, some of our debt investments pay cash interest on a quarterly basis. As of March 31, 2014 and December 31, 2013, the weighted average yield on our outstanding debt investments other than non-accrual debt investments was approximately 13.9% and 14.1%, respectively. The weighted average yield on all of our outstanding investments (including equity and equity-linked investments but excluding non-accrual debt investments) was approximately 12.4% and 12.8% as of March 31, 2014 and December 31, 2013, respectively. The weighted average yield on all of our outstanding investments (including equity and equity-linked investments and non-accrual debt investments) was approximately 12.0% and 12.4% as of March 31, 2014 and December 31, 2013 respectively.
Triangle SBIC and Triangle SBIC II are eligible to issue debentures to the SBA, which pools these with debentures of other SBICs and sells them in the capital markets at favorable interest rates, in part as a result of the guarantee of payment from the SBA. Triangle SBIC and Triangle SBIC II invest these funds in portfolio companies. We intend to continue to operate Triangle SBIC and Triangle SBIC II as SBICs, subject to SBA approval, and to utilize the proceeds from the issuance of SBA-guaranteed debentures, referred to herein as SBA leverage, to enhance returns to our stockholders.
Portfolio Investment Composition
The total value of our investment portfolio was $690.0 million as of March 31, 2014, as compared to $664.4 million as of December 31, 2013. As of March 31, 2014, we had investments in 83 portfolio companies with an aggregate cost of $680.9 million. As of December 31, 2013, we had investments in 79 portfolio companies with an aggregate cost of $653.8 million. As of both March 31, 2014 and December 31, 2013, none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio.
As of March 31, 2014 and December 31, 2013, our investment portfolio consisted of the following investments:
 
Cost
 
Percentage of
Total
Portfolio
 
Fair Value
 
Percentage of
Total
Portfolio
March 31, 2014:
 
 
 
 
 
 
 
Subordinated debt and 2nd lien notes
$
555,943,162

 
82
%
 
$
528,881,970

 
77
%
Senior debt and 1st lien notes
46,314,233

 
7

 
46,190,878

 
7

Equity shares
68,927,729

 
10

 
92,612,571

 
13

Equity warrants
9,672,127

 
1

 
22,325,000

 
3

Royalty rights

 

 

 

 
$
680,857,251

 
100
%
 
$
690,010,419

 
100
%
December 31, 2013:
 
 
 
 
 
 
 
Subordinated debt and 2nd lien notes
$
540,561,082

 
83
%
 
$
514,467,575

 
77
%
Senior debt and 1st lien notes
46,102,133

 
7

 
45,968,765

 
7

Equity shares
56,985,933

 
9

 
79,935,246

 
12

Equity warrants
10,168,637

 
1

 
23,928,603

 
4

Royalty rights

 

 
73,000

 

 
$
653,817,785

 
100
%
 
$
664,373,189

 
100
%

Investment Activity
During the three months ended March 31, 2014, we made six new investments totaling approximately $63.7 million, debt investments in five existing portfolio companies totaling approximately $13.6 million and an equity investment in one existing portfolio company totaling approximately $0.1 million. We had four portfolio company loans repaid at par of approximately $30.3 million resulting in realized gains totaling approximately $0.1 million and received normal principal repayments and partial loan prepayments totaling approximately $19.3 million in the three months ended March 31, 2014. We converted debt investments in one portfolio company into an equity investment and recognized a net realized loss on such conversion totaling approximately $0.2 million. In addition, we received proceeds related to the sales of certain equity securities totaling approximately $2.3 million and recognized net realized gains on such sales totaling approximately $0.2 million in the three months ended March 31, 2014.


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During the three months ended March 31, 2013, the Company made debt investments in six existing portfolio companies totaling approximately $8.5 million and equity investments in two existing portfolio companies totaling approximately $1.8 million. We had one portfolio company loan repaid at par of approximately $5.8 million and received normal principal repayments and partial loan prepayments totaling approximately $2.0 million in the three months ended March 31, 2013. In addition, we received proceeds related to the sales of certain equity securities totaling $1.5 million and realized gains totaling approximately $1.3 million in the three months ended March 31, 2013.
Total portfolio investment activity for the three months ended March 31, 2014 and 2013 was as follows:
Three Months Ended
March 31, 2014:
Subordinated
Debt and 2nd
Lien Notes
 
Senior Debt
and 1st Lien
Notes
 
Equity
Shares
 
Equity
Warrants
 
Royalty
Rights
 
Total
Fair value, beginning of period
$
514,467,575

 
$
45,968,765

 
$
79,935,246

 
$
23,928,603

 
$
73,000

 
$
664,373,189

New investments
69,887,760

 
3,985,889

 
3,624,833

 

 

 
77,498,482

Reclassifications
(6,055,524
)
 
(3,872,476
)
 
9,928,000

 

 

 

Proceeds from sales of investments

 

 
(1,700,120
)
 
(1,020,255
)
 

 
(2,720,375
)
Loan origination fees received
(1,290,041
)
 
(77,778
)
 

 

 

 
(1,367,819
)
Principal repayments received
(48,991,007
)
 
(97,404
)
 

 

 

 
(49,088,411
)
PIK interest earned
3,494,150

 
240,271

 

 

 

 
3,734,421

PIK interest payments received
(2,262,217
)
 

 

 

 

 
(2,262,217
)
Accretion of loan discounts
346,201

 

 

 

 

 
346,201

Accretion of deferred loan origination revenue
801,938

 
33,598

 

 

 

 
835,536

Realized gain
(549,180
)
 

 
89,083

 
523,745

 

 
63,648

Unrealized gain (loss)
(967,685
)
 
10,013

 
735,529

 
(1,107,093
)
 
(73,000
)
 
(1,402,236
)
Fair value, end of period
$
528,881,970

 
$
46,190,878

 
$
92,612,571

 
$
22,325,000

 
$

 
$
690,010,419

Weighted average yield on debt investments at end of period(1)
 
 
 
 
 
13.9
%
Weighted average yield on total investments at end of period(1)
 
 
 
 
 
12.4
%
Weighted average yield on total investments at end of period
 
 
 
 
 
12.0
%
(1)
Excludes non-accrual debt investments.
 

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Three Months Ended
March 31, 2013:
Subordinated
Debt and 2nd
Lien Notes
 
Senior Debt
and 1st Lien
Notes
 
Equity
Shares
 
Equity
Warrants
 
Royalty
Rights
 
Total
Fair value, beginning of period
$
559,355,550

 
$
46,576,994

 
$
78,979,179

 
$
21,759,000

 
$
132,000

 
$
706,802,723

New investments
5,513,545

 
1,500,000

 
1,100,000

 
2,146,000

 

 
10,259,545

Reclassifications
18,570,523

 
(18,570,523
)
 

 

 



Proceeds from sales of investments

 

 
(1,437,000
)
 
(37,000
)
 

 
(1,474,000
)
Loan origination fees received
(255,159
)
 

 

 

 

 
(255,159
)
Principal repayments received
(7,577,746
)
 
(223,200
)
 

 

 

 
(7,800,946
)
PIK interest earned
4,017,911

 
196,883

 

 

 

 
4,214,794

PIK interest payments received
(529,733
)
 

 

 

 

 
(529,733
)
Accretion of loan discounts
396,661

 

 

 

 

 
396,661

Accretion of deferred loan origination revenue
706,745

 
27,349

 

 

 

 
734,094

Realized gains
578,782

 

 
1,237,000

 
37,000

 

 
1,852,782

Unrealized gain (loss)
595,323

 
5,622

 
929,217

 
(181,006
)
 
(24,000
)
 
1,325,156

Fair value, end of period
$
581,372,402

 
$
29,513,125

 
$
80,808,396

 
$
23,723,994

 
$
108,000

 
$
715,525,917

Weighted average yield on debt investments at end of period(1)
 
 
 
 
 
14.8
%
Weighted average yield on total investments at end of period(1)
 
 
 
 
 
13.4
%
Weighted average yield on total investments at end of period
 
 
 
 
 
12.8
%
(1)
Excludes non-accrual debt investments.

Non-Accrual Assets
Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As of March 31, 2014, the fair value of our non-accrual assets was approximately $1.1 million, which comprised 0.2% of the total fair value of our portfolio, and the cost of our non-accrual assets was approximately $15.0 million, which comprised 2.2% of the total cost of our portfolio. As of December 31, 2013, the fair value of our non-accrual assets was approximately $7.1 million, which comprised 1.1% of the total fair value of our portfolio, and the cost of our non-accrual assets was approximately $27.0 million, which comprised 4.1% of the total cost of our portfolio.
Our non-accrual assets as of March 31, 2014 were as follows:
Gerli and Company
In November 2008, we placed our debt investment in Gerli and Company, or Gerli, on non-accrual status. As a result, under generally accepted accounting principles in the United States, or U.S. GAAP, we no longer recognize interest income on our debt investment in Gerli for financial reporting purposes. Under the terms of the notes, interest on the notes is payable only if Gerli meets certain covenants, which they were not compliant with as of March 31, 2014. In the three months ended March 31, 2014, we recognized unrealized appreciation on our debt investments in Gerli of approximately $0.1 million. As of March 31, 2014, the cost of our debt investments in Gerli was $3.4 million and the fair value of such investments was $0.8 million.
Venture Technology Groups, Inc.
In November 2012, we placed our debt investment in Venture Technology Groups, Inc., or VTG, on non-accrual status. As a result, under U.S. GAAP, we no longer recognize interest income on our debt investment in VTG for financial reporting purposes. During the three months ended March 31, 2014, we recorded unrealized depreciation of $0.1 million on our debt investment in VTG. As of March 31, 2014, the cost of our debt investment in VTG was $5.7 million and the fair value of such investment was $0.3 million.

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Xchange Technology Groups, LLC
In March 2013, we placed our debt investment in Xchange Technology Groups, LLC, or XTG, on non-accrual status. As a result, under U.S. GAAP, we no longer recognize interest income on our debt investment in XTG for financial reporting purposes. In October 2013, XTG filed for bankruptcy protection under Canada's Bankruptcy and Insolvency Act and under Chapter 15 of the United States Bankruptcy Code. As of March 31, 2014, the cost of our debt investment in XTG was $5.9 million and the fair value of such investment was zero.
PIK Non-Accrual Assets
In addition to our non-accrual assets, as of March 31, 2014, we had debt investments in four portfolio companies (our subordinated notes to DCWV Acquisition Corporation, Frozen Specialties, Inc., Minco Technology Labs, LLC, and FCL Holding SPV, LLC) that were on non-accrual only with respect to the PIK interest component of the loans. As of March 31, 2014, the fair value of these debt investments was approximately $13.5 million, or 2.0% of the total fair value of our portfolio and the cost of these assets was approximately $23.5 million, or 3.5% of the total cost of our portfolio.

Results of Operations
Comparison of three months ended March 31, 2014 and March 31, 2013
Investment Income
For the three months ended March 31, 2014, total investment income was $24.0 million, a 2% decrease from $24.5 million of total investment income for the three months ended March 31, 2013. This decrease was primarily attributable to a $0.5 million decrease in total loan interest (including PIK interest), fee and dividend income. The decrease in total loan interest, fee and dividend income was due to a net decrease in our outstanding loan balances from March 31, 2013 to March 31, 2014, partially offset by (i) an increase in non-recurring fee income of approximately $1.0 million and (ii) an increase in non-recurring dividend income of approximately $1.1 million. Non-recurring fee income was $1.5 million for the three months ended March 31, 2014 as compared to $0.5 million for the three months ended March 31, 2013, and non-recurring dividend income was $1.2 million for the three months ended March 31, 2014 as compared to $0.1 million for the three months ended March 31, 2013.
Operating Expenses
For the three months ended March 31, 2014, operating expenses increased by 10% to $10.2 million from $9.2 million for the three months ended March 31, 2013. Our operating expenses consist of interest and other financing fees and general and administrative expenses. For both the three months ended March 31, 2014 and March 31, 2013, interest and other financing fees was $5.1 million.
Our general and administrative expenses are primarily influenced by compensation, headcount and levels of business activity. Our compensation expenses include salaries, discretionary compensation, equity-based compensation and benefits. Discretionary compensation is significantly impacted by our level of total investment income, our investment results including investment realizations, prevailing labor markets and the external environment. As a result of these and other factors, our compensation expense can fluctuate materially from period to period. Accordingly, the amount of compensation expense recognized in any particular period may not be indicative of compensation expense in a future period.
For the three months ended March 31, 2014, general and administrative expenses increased by 23% to $5.1 million from $4.1 million for the three months ended March 31, 2013. In addition, our efficiency ratio (defined as general and administrative expenses as a percentage of total investment income) increased to 21.0% for the three months ended March 31, 2014 from 16.8% for the three months ended March 31, 2013. The increase in general and administrative expenses in the quarter ended March 31, 2014 was primarily related to increased cash and equity-based compensation expenses.
Net Investment Income
As a result of the $0.4 million decrease in total investment income and the $1.0 million increase in expenses, net investment income decreased by 9% to $13.8 million for the three months ended March 31, 2014 as compared to $15.2 million for the three months ended March 31, 2013.
Net Increase in Net Assets Resulting from Operations
In the three months ended March 31, 2014, we realized gains on the sales/repayments of two non-control/non-affiliate investments totaling approximately $0.7 million, a loss relating to the sale of one non-control/non-affiliate investment totaling approximately $0.4 million and a loss on the restructuring of one control investment totaling approximately $0.2 million. In addition, during the three months ended March 31, 2014, we recorded net unrealized depreciation of investments totaling $1.5

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million, consisting of unrealized depreciation on our current portfolio of approximately $0.9 million and unrealized depreciation reclassification adjustments of $0.6 million related to the realized gains and losses noted above.
In the three months ended March 31, 2013, we realized a gain on the sale of one affiliate investment of approximately $1.3 million and a gain on the refinancing of one non-control/non-affiliate investments totaling approximately $0.6 million. In addition, during the three months ended March 31, 2013, we recorded net unrealized depreciation of investments totaling approximately $1.8 million, consisting of unrealized appreciation on our current portfolio of approximately $3.1 million and unrealized depreciation reclassification adjustments of $1.3 million million related to the realized gains and losses noted above.
In the three months ended March 31, 2013, we recognized a non-cash loss on the extinguishment of debt of approximately $0.4 million related to the prepayment of SBA-guaranteed debentures.
As a result of these events, our net increase in net assets resulting from operations was $12.5 million for the three months ended March 31, 2014, a decrease of 32% from the net increase in net assets resulting from operations of $18.4 million for the three months ended March 31, 2013.

Liquidity and Capital Resources
We believe that our current cash and cash equivalents on hand, our available leverage under our Credit Facility (as defined below) and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months.
In the future, depending on the valuation of Triangle SBIC’s assets and Triangle SBIC II’s assets pursuant to SBA guidelines, Triangle SBIC and Triangle SBIC II may be limited by provisions of the Small Business Investment Act of 1958, and SBA regulations governing SBICs, from making certain distributions to Triangle Capital Corporation that may be necessary to enable Triangle Capital Corporation to make the minimum required distributions to its stockholders and qualify as a RIC.
Cash Flows
For the three months ended March 31, 2014, we experienced a net decrease in cash and cash equivalents in the amount of $42.5 million. During that period, our operating activities used $21.4 million in cash, consisting primarily of new portfolio investments of $77.5 million, partially offset by repayments received from portfolio companies and proceeds from sales of portfolio investments of approximately $51.8 million. In addition, financing activities reduced cash by $21.0 million, consisting primarily of cash dividends paid in the amount of $14.5 million and cash distributions of capital gains paid in the amount of $4.0 million. As of March 31, 2014, we had $90.8 million of cash and cash equivalents on hand.
For the three months ended March 31, 2013, we experienced a net decrease in cash and cash equivalents in the amount of $35.3 million. During that period, our operating activities used $0.7 million in cash, consisting primarily of portfolio investments of $10.3 million, partially offset by repayments received from portfolio companies totaling $9.3 million. In addition, financing activities reduced cash by $34.6 million, consisting primarily of cash dividends paid in the amount of $14.1 million and voluntary prepayments of SBA-guaranteed debentures of $20.5 million. As of March 31, 2013, we had $37.0 million of cash and cash equivalents on hand.
Financing Transactions
Due to Triangle SBIC’s and Triangle SBIC II’s status as licensed SBICs, Triangle SBIC and Triangle SBIC II have the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the Small Business Investment Act and the SBA rules applicable to SBICs, an SBIC (or group of SBICs under common control) can have outstanding at any time debentures guaranteed by the SBA up to two times (and in certain cases, up to three times) the amount of its regulatory capital, which generally is the amount raised from private investors. The maximum statutory limit on the dollar amount of outstanding debentures guaranteed by the SBA issued by a single SBIC is currently $150.0 million and by a group of SBICs under common control is $225.0 million. Debentures guaranteed by the SBA have a maturity of ten years, with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity but may be prepaid at any time, without penalty. Our SBA-guaranteed debentures are collateralized by the assets of Triangle SBIC and Triangle SBIC II.
As of March 31, 2014, Triangle SBIC had issued $118.7 million of SBA-guaranteed debentures and had the current capacity to issue up to the statutory maximum of $150.0 million, subject to SBA approval. As of March 31, 2014, Triangle SBIC II had issued $75.0 million in face amount of SBA-guaranteed debentures. In addition to the one-time 1.0% fee on the total commitment from the SBA, the Company also pays a one-time 2.425% fee on the amount of each debenture issued (2.0% for SBA LMI debentures). These fees are capitalized as deferred financing costs and are amortized over the term of the debt

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agreements using the effective interest method. The weighted average interest rate for all SBA-guaranteed debentures as of March 31, 2014 was 4.07%. As of March 31, 2014, all SBA-guaranteed debentures were pooled.
In June 2013, we entered into a second amended and restated senior secured credit facility, or Credit Facility, to provide liquidity in support of our investment and operational activities. The Credit Facility, which has an initial commitment of $165.0 million supported by nine financial institutions, replaced our $165.0 million senior secured credit facility entered into in September 2012. The Credit Facility, which matures on September 17, 2017, allows us to borrow foreign currencies (initially Canadian dollars) directly under the Credit Facility.    
The Credit Facility has an accordion feature that allows for an increase in the total commitment size up to $215.0 million, subject to certain conditions, and also contains a one-year extension option to September 17, 2018. The Credit Facility, which is structured to operate like a revolving credit facility, is secured primarily by our assets, excluding the assets of Triangle SBIC and Triangle SBIC II.
Borrowings under the Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the applicable base rate plus 1.75%, (ii) the applicable LIBOR rate plus 2.75%, or (iii) for borrowings denominated in Canadian dollars, the applicable Canadian Dealer Offered Rate plus 2.75%. The applicable base rate is equal to the greater of (i) the prime rate, (ii) the federal funds rate plus 0.5% or (iii) the adjusted one-month LIBOR rate plus 2.0%. We pay a commitment fee of 0.375% per annum on undrawn amounts, which is included with interest and other financing fees on our Consolidated Statements of Operations. Borrowings under the Credit Facility are also limited to a borrowing base, which includes certain cash and a portion of eligible debt investments. 
As of March 31, 2014, we had non-United States dollar borrowings denominated in Canadian dollars of $12.0 million ($10.9 million United States dollars) outstanding under the Credit Facility with an interest rate of 4.01%. The borrowings denominated in Canadian dollars are translated into United States dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign exchange rates on the Credit Facility borrowings is included in unrealized appreciation (depreciation) on foreign currency borrowings in our Unaudited Consolidated Statements of Operations. The borrowings denominated in Canadian dollars may be positively or negatively affected by movements in the rate of exchange between the United States dollar and the Canadian dollar. This movement is beyond our control and cannot be predicted.
The Credit Facility contains certain affirmative and negative covenants, including but not limited to (i) maintaining a minimum interest coverage ratio, (ii) maintaining minimum consolidated tangible net worth and (iii) maintaining its status as a regulated investment company and as a BDC. As of March 31, 2014 we were in compliance with all covenants of the Credit Facility.
In March 2012, we issued $69.0 million of 2019 Notes. The 2019 Notes mature on March 15, 2019, and may be redeemed in whole or in part at any time or from time to time at our option on or after March 15, 2015. The 2019 Notes bear interest at a rate of 7.00% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning June 15, 2012. The net proceeds from the sale of the 2019 Notes, after underwriting discounts and offering expenses, were approximately $66.7 million.
In October 2012, we issued $70.0 million of 2022 Notes and in November 2012, we issued $10.5 million of 2022 Notes pursuant to the exercise of an over-allotment option. The 2022 Notes mature on December 15, 2022, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 15, 2015. The 2022 Notes bear interest at a rate of 6.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning December 15, 2012. The net proceeds from the sale of the 2022 Notes, after underwriting discounts and offering expenses, were approximately $77.8 million.
The indenture and supplements thereto relating to the 2019 Notes and the 2022 Notes contain certain covenants, including but not limited to (i) a requirement that we comply with the asset coverage requirements of the 1940 Act or any successor provisions, and (ii) a requirement that we provide financial information to the holders of the notes and the trustee under the indenture if we should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

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Distributions to Stockholders
We elected to be treated as a RIC under the Internal Revenue Code of 1986, as amended, or the Code, commencing with our taxable year ended December 31, 2007. In order to maintain our qualification as a RIC and to obtain RIC tax benefits, we must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then we are generally required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains. We have historically met our minimum distribution requirements and continually monitor our distribution requirements with the goal of ensuring compliance with the Code. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.
The minimum distribution requirements applicable to RICs require us to distribute to our stockholders each year at least 90% of our investment company taxable income, or ICTI, as defined by the Code. Depending on the level of ICTI earned in a tax year, we may choose to carry forward ICTI in excess of current year distributions into the next tax year and pay a 4% excise tax on such excess. Any such carryover ICTI must be distributed before the end of the next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.
ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. We may be required to recognize ICTI in certain circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants), we must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in ICTI other amounts that we have not yet received in cash, such as (i) PIK interest income and (ii) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in our ICTI for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
Current Market Conditions
We were able to secure access to additional liquidity in 2012, including public offerings of common stock and debt securities, new leverage through SBA-guaranteed debentures and entering into an expanded credit facility, and in 2013, were able to amend our credit facility to extend the term by one year. There can be no assurances, however, that the current market conditions will continue and that debt or equity capital will be available to us in the future on favorable terms, if it all. In 2008, the debt and equity capital markets in the United States were severely impacted by significant write-offs in the financial services sector relating to subprime mortgages and the re-pricing of credit risk in the broadly syndicated bank loan market, among other factors. These events, along with the deterioration of the housing market, led to an economic recession in the U.S. and abroad. Banks, investment companies and others in the financial services industry reported significant write-downs in the fair value of their assets, which led to the failure of a number of banks and investment companies, a number of distressed mergers and acquisitions and the government take-over of the nation's two largest government-sponsored mortgage companies. These events significantly impacted the financial and credit markets and reduced the availability of debt and equity capital for the market as a whole, and for financial firms in particular. Notwithstanding recent gains across both the equity and debt markets, recent U.S. budget deficit concerns and uncertainty regarding potential federal spending cuts and the federal debt ceiling, together with continued signs of deteriorating sovereign debt conditions in Europe, have increased the possibility that these unfavorable conditions in the debt and equity capital markets may reoccur in the future and could then continue for a prolonged period of time.

Recent Developments

In April 2014, we invested $23.0 million in the subordinated debt and equity of PCX Aerostructures, LLC, or PCX. PCX manufacturers components and assemblies used in military and civilian aircraft, primarily helicopters. Under the terms of the investment, PCX will pay interest on the subordinated debt at a rate of 14%.

In April 2014, we exited our investments in Workforce Software, LLC. In connection with the exit, we received proceeds of $21.4 million and recognized capital gains totaling approximately $11.1 million.


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Critical Accounting Policies and Use of Estimates
The preparation of our unaudited financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods covered by such financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an on-going basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investment Valuation
The most significant estimate inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. We have established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring (quarterly) basis in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820. Under ASC Topic 820, a financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. The three levels of valuation inputs established by ASC Topic 820 are as follows:
Level 1 Inputs – include quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs – include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs – include inputs that are unobservable and significant to the fair value measurement.
Our investment portfolio is comprised of debt and equity instruments of privately held companies for which quoted prices or other inputs falling within the categories of Level 1 and Level 2 are not available. Therefore, we determine the fair value of our investments in good faith using Level 3 inputs, pursuant to a valuation policy and process that is established by our management with the assistance of certain third-party advisors and subsequently approved by our Board of Directors. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of our investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.
Our valuation process is led by our executive officers and managing directors. The valuation process begins with a quarterly review of each investment in our investment portfolio by our executive officers and our investment committee. Valuations of each portfolio security are then prepared by our investment professionals, who have direct responsibility for the origination, management and monitoring of each investment. Under our valuation policy, each investment valuation is subject to (i) a review by the lead investment officer responsible for the portfolio company investment and (ii) a peer review by a second investment officer or executive officer. Generally, any investment that is valued below cost is subjected to review by one of our executive officers. After the peer review is complete, we engage two independent valuation firms, Duff & Phelps, LLC and Lincoln Partners Advisors LLC, collectively, the "Valuation Firms," to provide third-party reviews of certain investments, as described further below. Finally, the Board of Directors has the responsibility for reviewing and approving, in good faith, the fair value of our investments in accordance with the 1940 Act.
The Valuation Firms provide third party valuation consulting services to us which consist of certain limited procedures that we identified and requested the Valuation Firms to perform, which we refer herein to as the Procedures. The Procedures are performed with respect to each portfolio company at least once in every calendar year and for new portfolio companies, at least once in the twelve-month period subsequent to the initial investment. In addition, the Procedures are generally performed with respect to a portfolio company when there has been a significant change in the fair value of the investment. In certain instances, we may determine that it is not cost-effective, and as a result is not in our stockholders’ best interest, to request the Valuation Firms to perform the Procedures on one or more portfolio companies. Such instances include, but are not limited to, situations where the fair value of the investment in the portfolio company is determined to be insignificant relative to the total investment portfolio.

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The total number of investments and the percentage of our portfolio on which the Procedures were performed are summarized below by period:
For the quarter ended:
Total
companies
 
Percent of total
investments at
fair value(1)
March 31, 2013
17
 
23%
June 30, 2013
13
 
27%
September 30, 2013
14
 
28%
December 31, 2013
14
 
21%
March 31, 2014
15
 
25%
(1)
Exclusive of the fair value of new investments made during the quarter.
Upon completion of the Procedures, the Valuation Firms concluded that, with respect to each investment reviewed by each Valuation Firm, the fair value of those investments subjected to the Procedures appeared reasonable. Our Board of Directors is ultimately responsible for determining the fair value of our investments in good faith.
Investment Valuation Inputs
Under ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between a willing buyer and a willing seller at the measurement date. For our portfolio securities, fair value is generally the amount that we might reasonably expect to receive upon the current sale of the security. Under ASC Topic 820, the fair value measurement assumes that the sale occurs in the principal market for the security, or in the absence of a principal market, in the most advantageous market for the security. Under ASC Topic 820, if no market for the security exists or if we do not have access to the principal market, the security should be valued based on the sale occurring in a hypothetical market. The securities in which we invest are generally only purchased and sold in merger and acquisition transactions, in which case the entire portfolio company is sold to a third-party purchaser. As a result, unless we have the ability to control such a transaction, the assumed principal market for our securities is a hypothetical secondary market. The Level 3 inputs to our valuation process reflect management’s best estimate of the assumptions that would be used by market participants in pricing the investment in a transaction in a hypothetical secondary market.
Enterprise Value Waterfall Approach
In valuing equity securities (including warrants), we estimate fair value using an “Enterprise Value Waterfall” valuation model. We estimate the enterprise value of a portfolio company and then allocate the enterprise value to the portfolio company’s securities in order of their relative liquidation preference. In addition, the model assumes that any outstanding debt or other securities that are senior to our equity securities are required to be repaid at par. Additionally, we estimate the fair value of a limited number of its debt securities using the Enterprise Value Waterfall approach in cases where we do not expect to receive full repayment.
To estimate the enterprise value of the portfolio company, we primarily use a valuation model based on a transaction multiple, which generally is the original transaction multiple, and measures of the portfolio company’s financial performance. In addition, we consider other factors, including but not limited to (i) offers from third-parties to purchase the portfolio company, (ii) the implied value of recent investments in the equity securities of the portfolio company, (iii) publicly available information regarding recent sales of private companies in comparable transactions and (iv) when management believes there are comparable companies that are publicly traded, we perform a review of these publicly traded companies and the market multiple of their equity securities.
The significant Level 3 inputs to the Enterprise Value Waterfall model are (i) an appropriate transaction multiple and (ii) a measure of the portfolio company’s financial performance, which generally is either earnings before interest, taxes, depreciation and amortization, as adjusted, or Adjusted EBITDA, or revenues. Such inputs can be based on historical operating results, projections of future operating results or a combination thereof. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and may require adjustments for certain non-recurring items. In determining the operating results input, we utilize the most recent portfolio company financial statements and forecasts available as of the valuation date. Management also consults with the portfolio company’s senior management to obtain updates on the portfolio company’s performance, including information such as industry trends, new product development, loss of customers and other operational issues. Additionally, we consider some or all of the following factors:
financial standing of the issuer of the security;
comparison of the business and financial plan of the issuer with actual results;

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the size of the security held;
pending reorganization activity affecting the issuer, such as merger or debt restructuring;
ability of the issuer to obtain needed financing;
changes in the economy affecting the issuer;
financial statements and reports from portfolio company senior management and ownership;
the type of security, the security’s cost at the date of purchase and any contractual restrictions on the disposition of the security;
information as to any transactions or offers with respect to the security and/or sales to third parties of similar securities;
the issuer’s ability to make payments and the type of collateral;
the current and forecasted earnings of the issuer;
statistical ratios compared to lending standards and to other similar securities; 
pending public offering of common stock by the issuer of the security;
special reports prepared by analysts; and
any other factors we deem pertinent with respect to a particular investment.
Fair value measurements using the Enterprise Value Waterfall model can be sensitive to significant changes in one or more of the inputs. A significant increase in either the transaction multiple, Adjusted EBITDA or revenues for a particular equity security would result in a higher fair value for that security.
Income Approach
In valuing debt securities, we utilize an “Income Approach” model that considers factors including, but not limited to, (i) the stated yield on the debt security, (ii) the portfolio company’s current trailing twelve months, or TTM Adjusted EBITDA as compared to the portfolio company’s historical or projected Adjusted EBITDA as of the date the investment was made and the portfolio company’s anticipated Adjusted EBITDA for the next twelve months of operations, (iii) the portfolio company’s current Leverage Ratio (defined as the portfolio company’s total indebtedness divided by Adjusted EBITDA) as compared to its Leverage Ratio as of the date the investment was made, (iv) publicly available information regarding current pricing and credit metrics for similar proposed and executed investment transactions of private companies and (v) when management believes a relevant comparison exists, current pricing and credit metrics for similar proposed and executed investment transactions of publicly traded debt. In addition, we use a risk rating system to estimate the probability of default on the debt securities and the probability of loss if there is a default. This risk rating system covers both qualitative and quantitative aspects of the business and the securities held.
We consider the factors above, particularly any significant changes in the portfolio company’s results of operations and leverage, and develop an expectation of the yield that a hypothetical market participant would require when purchasing the debt investment, which we refer to herein as the Required Rate of Return. The Required Rate of Return, along with the Leverage Ratio and Adjusted EBITDA, are the significant Level 3 inputs to the Income Approach model. For investments where the Leverage Ratio and Adjusted EBITDA have not fluctuated significantly from the date the investment was made or have not fluctuated significantly from management’s expectations as of the date the investment was made, and where there have been no significant fluctuations in the market pricing for such investments, we may conclude that the Required Rate of Return is equal to the stated rate on the investment and therefore, the debt security is appropriately priced. In instances where we determine that the Required Rate of Return is different from the stated rate on the investment, we discount the contractual cash flows on the debt instrument using the Required Rate of Return in order to estimate the fair value of the debt security.
Fair value measurements using the Income Approach model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in the Required Rate of Return or Leverage Ratio inputs for a particular debt security may result in a lower (higher) fair value for that security. A significant increase (decrease) in the Adjusted EBITDA input for a particular debt security may result in a higher (lower) fair value for that security.
The fair value of our royalty rights are calculated based on specific provisions contained in the pertinent operating or royalty agreements. The determination of the fair value of such royalty rights is not a significant component of our valuation process.

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Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for amortization of premium and accretion of original issue discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The cessation of recognition of such interest will negatively impact the reported fair value of the investment. We write off any previously accrued and uncollected interest when it is determined that interest is no longer considered collectible. Dividend income is recorded on the ex-dividend date.
We may have to include in our ICTI interest income, including OID income, from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements to maintain our RIC status, even though we will not have received and may not ever receive any corresponding cash amount. Additionally, any loss recognized by us for federal income tax purposes on previously accrued interest income will be treated as a capital loss.
Fee Income
Origination, facility, commitment, consent and other advance fees received in connection with the origination of a loan, or Loan Origination Fees, are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized Loan Origination Fees are recorded as investment income. In the general course of our business, we receive certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, certain investment banking and structuring fees and loan waiver and amendment fees, and are recorded as investment income when earned.
Payment-in-Kind (PIK) Interest Income
We currently hold, and we expect to hold in the future, some loans in our portfolio that contain a PIK interest provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal balance of the loan, rather than being paid to us in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment.
PIK interest, which is a non-cash source of income, is included in our taxable income and therefore affects the amount we are required to distribute to our stockholders to maintain our qualification as a RIC for federal income tax purposes, even though we have not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. We write off any previously accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible.
We may have to include in our ICTI, PIK interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to market risk. Market risk includes risks that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies we invest in; conditions affecting the general economy; overall market changes; legislative reform; local, regional, national or global political, social or economic instability; and interest rate fluctuations.

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The U.S economy recently experienced a severe recession. To the extent that recessionary conditions recur, the economy remains stagnant, any further downgrades to U.S. government’s sovereign credit rating occur, the European credit crisis continues, or the economy fails to return to pre-recession levels, the financial position and results of operations of certain of the lower middle market companies in our portfolio could be further affected adversely, which ultimately could lead to difficulty in our portfolio companies meeting debt service requirements and lead to an increase in defaults. There can be no assurance that the performance of our portfolio companies will not be further impacted by economic conditions, which could have a negative impact on our future results.
As of March 31, 2014, the fair value of our non-accrual assets was approximately $1.1 million, which comprised approximately 0.2% of the total fair value of our portfolio, and the cost of our non-accrual assets was approximately $15.0 million, or 2.2% of the total cost of our portfolio.
In addition to our non-accrual assets, as of March 31, 2014, we had debt investments in four portfolio companies (our subordinated notes to DCWV Acquisition Corporation, Frozen Specialties, Inc., Minco Technology Labs, LLC, and FCL Holding SPV, LLC) that were on non-accrual only with respect to the PIK interest component of the loans. As of March 31, 2014, the fair value of these debt investments was approximately $13.5 million, or 2.0% of the total fair value of our portfolio and the cost of these assets was approximately $23.5 million, or 3.5% of the total cost of our portfolio.
In addition, we are subject to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected by fluctuations in various interest rates, including LIBOR, Canadian Dealer Offered Rate and prime rates. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. We regularly measure exposure to interest rate risk and determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. As of March 31, 2014, we were not a party to any hedging arrangements.
As of March 31, 2014, approximately 92.9%, or $559.3 million (at cost), of our debt portfolio investments bore interest at fixed rates and approximately 7.1%, or $42.9 million (at cost), of our debt portfolio investments bore interest at variable rates, which are either prime-based or LIBOR-based, and all of which are subject to certain floors. A hypothetical 200 basis point increase or decrease in the interest rates on our variable-rate debt investments could increase or decrease, as applicable, our investment income by a maximum of approximately $0.9 million on an annual basis. All of our SBA-guaranteed debentures, our 2019 Notes and our 2022 Notes bear interest at fixed rates. Our Credit Facility bears interest, subject to the Company's election, on a per annum basis equal to (i) the applicable base rate plus 1.75%, (ii) the applicable LIBOR rate plus 2.75%, or (iii) for borrowings denominated in Canadian dollars, the applicable Canadian Dealer Offered Rate plus 2.75%. The applicable base rate is equal to the greater of (i) the prime rate, (ii) the federal funds rate plus 0.5% or (iii) the adjusted one-month LIBOR rate plus 2.0%.
Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by our investment portfolio.

We may also have exposure to foreign currencies (Canadian dollar) related to certain investments. Such investments are translated into United States dollars based on the spot rate at each balance sheet date, exposing us to movements in the exchange rate. In order to reduce our exposure to fluctuations in exchange rates, we generally borrow in Canadian dollars under our Credit Facility to finance such investments. As of March 31, 2014, we had non-United States dollar borrowings denominated in Canadian dollars of $12.0 million ($10.9 million United States dollars) outstanding under the Credit Facility with an interest rate of 4.01%.

Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our

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management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the first quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.
Neither Triangle Capital Corporation nor any of its subsidiaries is currently a party to any material pending legal proceedings.

Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I., “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which could materially affect our business, financial condition or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.

Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not applicable.

Item 5. Other Information.
None.


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Item 6. Exhibits.
Number
Exhibit
 
 
3.1
Articles of Amendment and Restatement of the Registrant (Filed as Exhibit (a)(3) to the Registrant’s Registration Statement on Form N-2/N-5 (File No. 333-138418) filed with the Securities and Exchange Commission on December 29, 2006 and incorporated herein by reference).
 
 
3.2
Fourth Amended and Restated Bylaws of the Registrant (Filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2014 and incorporated herein by reference).
 
 
4.1
Form of Common Stock Certificate (Filed as Exhibit (d) to the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form N-2/N-5 (File No. 333-138418) filed with the Securities and Exchange Commission on February 15, 2007 and incorporated herein by reference).
 
 
4.2
Dividend Reinvestment Plan of the Registrant (Filed as Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 12, 2008 and incorporated herein by reference).
 
 
4.3
Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on February 25, 2009 and incorporated herein by reference).
 
 
4.4
Indenture, dated March 2, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit (d)(5) to the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.5
First Supplemental Indenture, dated March 2, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit (d)(6) to the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.6
Form of 7.00% Senior Note Due 2019 (Contained in the First Supplemental Indenture filed as Exhibit (d)(6) to the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.7
Second Supplemental Indenture, dated October 19, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2012 and incorporated herein by reference).
 
 
4.8
Form of 6.375% Senior Note Due 2022 (Contained in the Second Supplemental Indenture filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2012 and incorporated herein by reference).
 
 
31.1
Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
31.2
Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
32.1
Chief Executive Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 
32.2
Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

*
Filed Herewith.
**
Furnished Herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
TRIANGLE CAPITAL CORPORATION
 
 
 
 
Date:
May 7, 2014
 
/s/    Garland S. Tucker, III
 
 
 
Garland S. Tucker, III
 
 
 
Chief Executive Officer and
 
 
 
Chairman of the Board of Directors
 
 
 
 
Date:
May 7, 2014
 
/s/    Steven C. Lilly
 
 
 
Steven C. Lilly
 
 
 
Chief Financial Officer and Director
 
 
 
 
Date:
May 7, 2014
 
/s/    C. Robert Knox, Jr.
 
 
 
C. Robert Knox, Jr.
 
 
 
Principal Accounting Officer


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EXHIBIT INDEX

Number
Exhibit
 
 
3.1
Articles of Amendment and Restatement of the Registrant (Filed as Exhibit (a)(3) to the Registrant's Registration Statement on Form N-2/N-5 (File No. 333-138418) filed with the Securities and Exchange Commission on December 29, 2006 and incorporated herein by reference).
 
 
3.2
Fourth Amended and Restated Bylaws of the Registrant (Filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 7, 2014 and incorporated herein by reference).
 
 
4.1
Form of Common Stock Certificate (Filed as Exhibit (d) to the Registrant's Post-Effective Amendment No. 1 to the Registration Statement on Form N-2/N-5 (File No. 333-138418) filed with the Securities and Exchange Commission on February 15, 2007 and incorporated herein by reference).
 
 
4.2
Dividend Reinvestment Plan of the Registrant (Filed as Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 12, 2008 and incorporated herein by reference).
 
 
4.3
Agreement to Furnish Certain Instruments (Filed as Exhibit 4.19 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on February 25, 2009 and incorporated herein by reference).
 
 
4.4
Indenture, dated March 2, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit (d)(5) to the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.5
First Supplemental Indenture, dated March 2, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit (d)(6) to the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.6
Form of 7.00% Senior Note Due 2019 (Contained in the First Supplemental Indenture filed as Exhibit (d)(6) to the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed with the Securities and Exchange Commission on March 2, 2012 and incorporated herein by reference).
 
 
4.7
Second Supplemental Indenture, dated October 19, 2012 between the Registrant and the Bank of New York Mellon Trust Company, N.A. (Filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2012 and incorporated herein by reference).
 
 
4.8
Form of 6.375% Senior Note Due 2022 (Contained in the Second Supplemental Indenture filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2012 and incorporated herein by reference).
 
 
31.1
Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
31.2
Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
32.1
Chief Executive Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 
32.2
Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
*
Filed Herewith.
**
Furnished Herewith.