Business Context and Reporting Period
This Form 8-K was filed by GSV Growth Credit Fund Inc. (the "Company") on December 19, 2016. The filing reports the entry into several material definitive agreements on December 15 and 16, 2016, establishing the operational framework for the Company as a Business Development Company (BDC). Key agreements include an Investment Advisory Agreement with GSV Growth Credit LLC, an Administration Agreement, a Stockholder Agreement with OCM Growth Holdings, LLC, and a Custody Agreement with U.S. Bank National Association.
Key Financial Metrics and Agreements
The filing details the fee structures and capital commitments rather than historical financial performance metrics such as revenue or cash flow, as the Company is in its initial funding phase.
- Capital Commitment: OCM Growth Holdings, LLC has committed $125.0 million to the Company.
- Recent Capital Drawdown: On December 16, 2016, the Company issued 333,333.33 shares of common stock for an aggregate offering price of $5,000,000.
- Base Management Fee:
- Pre-IPO/Spin-Off: The lesser of 0.4375% per quarter (1.75% annualized) of Gross Assets or actual operating expenses incurred.
- Post-IPO/Spin-Off (Tiered): 0.4375% (1.75% annualized) on Gross Assets under $500 million; 0.40% (1.60% annualized) on assets between $500 million and $1 billion; 0.375% (1.50% annualized) on assets over $1 billion.
- Administration Fee Cap: Annual payments to the Administrator are capped at the greater of 0.75% of aggregate capital commitments or $1 million.
- Incentive Fee Hurdle: The investment-income component requires a quarterly hurdle rate of 2.0% (8.0% annualized) before fees are payable. The capital-gains component requires an 8.0% cumulative return hurdle.
Material Changes and Corporate Actions
The filing reports the following material changes and actions:
- Advisory Structure: Establishment of GSV Growth Credit LLC as the external investment adviser with a two-year initial term and automatic one-year renewals.
- Board Composition: OCM Growth Holdings, LLC secured the right to nominate one director to the Company's board (Brian Laibow) as long as it maintains a commitment of at least 33.3% of its $125 million commitment.
- Corporate Governance: The Company filed Articles of Amendment and Restatement with the State of Maryland on December 14, 2016, though the changes were deemed non-material.
- Spin-Off Plan: The Advisory Agreement outlines a potential future "Spin-Off transaction" where shareholders may exchange shares for a newly formed Public Fund (BDC) or a Liquidating Fund, with a target IPO for the Public Fund no later than three years after the final private placement closing (expected by December 31, 2017).
Outlook, Risks, and Contingencies
Outlook and Strategy: The Company is currently in a private placement phase, with a final closing expected no later than December 31, 2017. The management strategy involves a potential transition to a public BDC structure via a Spin-Off transaction.
Risks and Contingencies:
- Fee Deferral: Incentive fees are contingent on performance hurdles. If cumulative net realized losses exceed 2.0% of total non-control/non-affiliate investments, the investment-income incentive fee is suspended until losses fall below this threshold.
- Capital Call Timing: Investors are required to fund drawdowns on an as-needed basis with a minimum of 5 business days' prior notice.
- Spin-Off Uncertainty: The execution of the Spin-Off transaction and the subsequent IPO of the Public Fund are subject to market conditions and regulatory approvals.
Key Facts for Investor Verification
- Verify the total amount of capital commitments secured by the Company to date versus the $125 million commitment from OCM.
- Confirm the timeline for the final closing of the private placement (targeted by December 31, 2017) and the feasibility of the subsequent IPO.
- Review the specific terms of the "Spin-Off transaction" to understand the potential dilution or liquidation risks for current shareholders.
- Monitor the Company's ability to meet the 2.0% quarterly hurdle rate for incentive fees, which impacts the Adviser's compensation and potential alignment of interests.
- Check the status of the $5 million capital drawdown issued on December 16, 2016, and subsequent drawdown notices.