Business Context and Reporting Period
Company: HMS Income Fund, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 30, 2018
Reporting Period: The filing addresses events occurring in late October 2018, specifically regarding the Third Quarter 2018 (July 1, 2018 – September 30, 2018) and the upcoming distribution payable on November 1, 2018.
Key Financial Metrics
This filing does not contain standard financial statements (revenue, profit, cash flow, or debt levels). The primary financial data points disclosed are:
- Reinvestment Purchase Price: Increased from $8.30 to $8.35 per share.
- Fee Waiver Scope: Covers the "subordinated incentive fee on income" for Q3 2018.
- Repayment Terms: Previously waived fees and expense support payments may be repaid within a period not to exceed three years from the date of the respective waiver.
Material Changes
The filing details two material changes:
- Fee Waiver Agreement: The Company entered into a conditional income incentive fee waiver agreement with its Advisers (HMS Adviser LP and MSC Adviser I, LLC). This agreement waives the subordinated incentive fee on income for Q3 2018 if deemed necessary by the Advisers. It establishes a priority for repaying previously waived expense support payments and fees from future surpluses.
- DRP Price Adjustment: The price for issuing shares under the Distribution Reinvestment Plan (DRP) was raised to $8.35 to ensure it remains at or above the Net Asset Value (NAV) per share, adhering to the policy that the price must not exceed 2.5% above NAV.
Guidance, Outlook, and Risks
Management Commentary: The increase in the DRP price is intended to prevent the issuance of shares at a price below the NAV per share. The fee waiver agreement is conditional and subject to the Advisers' sole discretion regarding necessity.
Contingencies and Risks:
- Repayment Obligation: The Company faces a potential contingent liability to repay previously waived expense support payments and fees if a surplus exists in future quarters. Repayment is prioritized first to expense support payments, then to waived fees.
- Discretionary Nature: The fee waiver is conditional upon events deemed necessary by the Advisers, introducing uncertainty regarding future fee structures.
Investor Verification Checklist
- Verify the current Net Asset Value (NAV) per share to confirm the $8.35 DRP price remains compliant with the 2.5% cap above NAV.
- Review the full text of the "Third Quarter 2018 Conditional Income Incentive Fee Waiver Agreement" (Exhibit 10.1) to understand specific triggers for fee repayment.
- Assess the Company's historical surplus generation to evaluate the likelihood of repaying previously waived fees within the three-year window.
- Confirm the total amount of "Expense Support Payments" and waived fees currently outstanding that are eligible for reimbursement.