Investor and Analyst Luncheon - May 2018 FINANCING FOR LOWER MIDDLE-MARKET COMPANIES

Transcription

1 Investor and Analyst Luncheon - May 2018 FINANCING FOR LOWER MIDDLE-MARKET COMPANIES

2 Legal Disclaimer Forward-Looking Statements: This presentation may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may include comments with respect to our objectives and strategies, and the results of our operations and our business. These forward-looking statements inherently involve numerous risks, assumptions, and uncertainties, both general and specific. The risk exists that these statements may not be fulfilled. Although these statements are based on information available to us as of the date of this presentation, which we believe is reasonable, we caution readers of this presentation not to place undue reliance on these forward-looking statements as a number of known and unknown factors could cause future results to differ materially from these statements, including those factors listed under the caption Risk Factors in our Form 10-K and Form 10-Q filings, our registration statement, and other filings we may make with the Securities and Exchange Commission, all of which can be found on our web site at or the SEC s web site, Forward-looking statements may be influenced in particular by factors such as fluctuations in interest rates and stock indices, the effects of competition in the areas in which we operate, and changes in economic, political, regulatory and technological conditions. We caution that the foregoing list is not exhaustive. When considering forward-looking statements when making decisions, investors should carefully consider the aforementioned factors as well as other uncertainties and events. Past or Present Performance Disclaimer: This presentation includes information regarding our past or present performance. Please note, past or present performance is not a guarantee of future performance or future results. We undertake no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations. **Amounts in tables and charts in thousands, except for share and per share amounts and as otherwise stated. Page 2

3 Gladstone Capital Team Presenting Bob Marcotte President Mike McQuigg Managing Director Page 3

4 Gladstone Capital Presentation Agenda I. Overview & Strategy II. III. Origination Activity Performance IV. Investment Considerations Page 4

5 I. Overview & Strategy Page 5

6 Gladstone Capital Highlights Established lender within attractive lower middle market sector (EBITDA under $10MM) Completed repositioning of fund over past three years Dedicated team focused on lower middle market (LMM) investment strategy and BDC performance, not affiliated private debt or JV activities Operating performance trends out-pacing BDC peers Shareholder friendly advisor with record of supporting dividend Page 6

7 Competitive Operating Performance Gladstone Capital Comparables ($ in millions) Rank BDC Assets Rank BDC WT Avg. Yield Rank BDC Expense Ratio Rank BDC ROE (NII) LTM 1 Medley Capital $826 1 OFS Capital 12.6% 1 Alcentra Capital 2.4% 1 THL Credit Inc. 10.7% 2 THL Credit Inc. $624 2 Capitala Finance 12.0% 2 Garrison Capital 2.6% 2 Monroe Capital 10.7% 3 Capitala Finance $533 3 Gladstone Capital 11.5% 3 THL Credit Inc. 2.7% 3 Alcentra Capital 10.4% 4 Monroe Capital $513 4 Saratoga Invest. 11.3% 4 Medley Capital 2.8% 4 OFS Capital 10.0% 5 Stellus Capital $481 5 Stellus Capital 11.1% 5 Gladstone Capital 2.9% 5 Gladstone Capital 9.9% 6 Garrison Capital $423 6 THL Credit Inc. 11.0% 6 Capitala Finance 3.0% 6 Garrison Capital 9.5% 7 Gladstone Capital $412 7 Monroe Capital 10.6% 7 Stellus Capital 3.3% 7 Stellus Capital 9.3% 8 OFS Capital $375 8 Alcentra Capital 10.6% 8 OFS Capital 3.5% 8 Saratoga Invest. 7.9% 9 Saratoga Invest. $352 9 Medley Capital 10.4% 9 Monroe Capital 3.5% 9 Medley Capital 6.7% 10 Alcentra Capital $ Garrison Capital 10.0% 10 Saratoga Invest. 4.2% 10 Capitala Finance 5.9% Rank BDC D / E Rank BDC ROE (GAAP) Rank BDC Div. Coverage 1 Alcentra Capital 69.5% 1 Gladstone Capital 12.6% 1 Alcentra Capital * 150.0% 2 Gladstone Capital 76.7% 2 Stellus Capital 12.1% 2 Monroe Capital 120.0% 5 THL Credit Inc. 80.8% 3 Saratoga Invest. 10.1% 3 Capitala Finance * 112.0% 4 Monroe Capital 85.7% 4 Garrison Capital 6.5% 4 Garrison Capital * 110.7% 6 OFS Capital 103.2% 5 Monroe Capital 4.4% 5 Saratoga Invest % 7 Medley Capital 113.5% 6 OFS Capital 4.0% 6 Gladstone Capital 100.0% 3 Stellus Capital 113.5% 7 Capitala Finance NM 7 THL Credit Inc. * 100.0% 8 Garrison Capital 126.6% 8 THL Credit Inc. NM 8 Stellus Capital 82.6% 9 Capitala Finance 138.7% 9 Alcentra Capital NM 9 OFS Capital 85.3% 10 Saratoga Invest % 10 Medley Capital NM 10 Medley Capital * 43.8% * Cut dividend within past two years Source: Raymond James BDC Weekly Insight (05/10/2018) Page 7

8 Lower Middle Market Focus Benefits of LMM Strategy GLAD s Investment Criteria Growth oriented LMM businesses put a premium on flexible debt and equity solutions Smaller average investment provides natural insulation from large institutional private debt funds Consistency of deal opportunities and diversity of industries LMM PE sponsors driven by equity appreciation and lender stability to support growth/value accretion plan Proven business model Limited market and/or technology risk Organic growth potential Diversified customer relationships Sponsored or Management with institutional investor experience Revenue: $20 - $150MM EBITDA: $3 - $15MM+ Investment: $8 - $30MM Term: Five+ years Collateral: Secured Competitive Considerations Bank cash flow loans are at best a partial solution for growing businesses based on current EV multiples SBICs constrained by limited fund size, investment limitations and equity co-investments Few mezzanine funds are open to companies with EBITDA below $10MM The average private debt fund at $800MM is not staffed to make LMM investments of $15-20MM within expected deployment window Page 8

9 Investment Strategy and Risk Management Investment Strategy: Direct origination of secured floating rate debt investments Generalist industry approach with borrower and sector diversity Growth oriented industries with sustainable margins/cash flows or revenue visibility to provide multiple paths to exit Flex structure to accommodate unique business/sponsor growth plans and achieve accretive returns to shareholders Due Diligence: Multi-disciplinary underwriting approach comparable to an equity investor including onsite visits, management assessments, third party diligence reports and quality of earnings reviews, industry/market/customer assessments, management background checks, legal and insurance investigations. Risk Management: Require board level observation rights to monitor performance outlook Monthly financial reporting, quarterly third party asset valuations reviewed by external GLAD board members Page 9

10 GLAD Investment Team Investing Experience Individuals Title W / GLAD Industry Prior Experience Education Bob Marcotte President MCG Capital, Goldman Sachs, Merrill Lynch, GE Capital Georgetown Univ. (BSBA) John Freal Managing Director American Capital, RDS Capital Partners George Mason (BBA, MBA) Laura Gladstone Managing Director ING Barings, Solomon Smith Barney, HSBC George Washington Univ. (BBA) Eric Maloy Managing Director <1 23 MUFG Union Bank, BAML, CIT, E&Y SMU (MBA), Univ. Of Oklahoma (BBA) Mike McQuigg Managing Director 3 15 Deerpath Capital, HIG Columbia Univ. (MBA), Johns Hopkins (BBA) John Sateri Managing Director Independent Consultant, Wells Fargo Univ. of MD (MBA), Univ of Hawaii (BBA) Andrew Ahlberg Principal 3 10 MCG Capital, Fifth Third Bank Duke Univ. (MBA), Ohio State Univ. (BS) Paul Cobuzzi Principal 3 10 Harren Equity Partners, BIA Digital Partners, BAML Washington & Lee (BSBA) Josh DiBiasi Senior Analyst 2 4 D.A. Davidson Univ. of Arizona (BSBA) Richard Lee Senior Analyst 1 3 Houlihan Lokey Univ. of VA (BBA) Resources 100% dedicated to GLAD investment mandate Deep bench of experience to engage and differentiate offering Broad range of financial experiences and contact base Healthy infusion of resources post 2008/2009 recession consistent with current investment focus Page 10

11 II. Origination Activity Page 11

12 Origination Activities CY2016 CY /31/18 LTM Deals Sourced Deal Sourced GLAD sources ~430 deals per year from sponsors, investment bankers, lending partners, and direct from business owners 1/3 of deals sourced come from private equity sponsors IOIs Issued LOIs Issued Indications/Term Sheets GLAD issues an average of Indications and 5 LOIs per quarter Indications and LOIs increased by 41% and 22% in CY2017 over CY2016 Deals Executed Deals Closed Closing an average of three new deals or follow-ons per quarter In the last eight quarters, 18 investments were made, 13 of which were new portfolio companies and 5 were follow-ons (1) (1) Includes Proprietary New Investments and Add-on s greater than $1MM for the Last 8 Quarters ($ s committed) Page 12

13 Deal Flow at Attractive Leverage & Yields Proprietary Originations, Credit Metrics (1)(2) 100% 75% Closing LTV Equity Interest Yield D-IRR 16.0% 14.0% 12.0% 50% 25% 10.0% 8.0% 6.0% 4.0% 2.0% Avg. LTV 49% 0% % 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x 0.0x Closing Leverage 2.2x 2.9x 3.2x 1.7x 3.0x 3.8x 4.1x 3.7x 4.0x 4.5x 3.4x 3.5x 3.9x 2.0x 3.1x 1.9x 3.8x 3.9x Investments, Most Recent Avg. 3.25x EBITDA Recent originations validate LMM yield and lower leverage strategy (1) Includes Proprietary New Investments and Add-on s greater than $1MM for the Last eight Quarters as of 3/31/2018 ($ s committed) (2) Projected Debt IRR under Gladstone s Base Case over projected life of investment Page 13

14 and Diversified by Industry and Structure Proprietary Originations by Industry (1) Proprietary Originations by Loan Structure (1)(2) $7.2M, 3% $7.0M, 3% $8.0M, 4% $10.0M, 5% $10.0M, 4% $65.1M, 30% $77.4M, 35% $141.9M, 65% 1st Lien Debt 2nd Lien Debt $16.6M, 8% $22.5M, 10% $24.8M, 11% $48.1M, 22% Deal Source Composition: 03/31/18 Fair Value Diversified / Service Telecommunications Manufacturing Healthcare Non-durable products Automobile 10.9% 5.6% 3.0% Sponsor Backed (64.7%) Non-Sponsor Backed (15.7%) Education Oil & Gas E-Commerce Traveler Accommodation 15.7% 64.7% Syndication (10.9%) Affiliated Sponsor (GAIN) (5.6%) GLAD Controlled (3%) (1) Includes Proprietary New Investments and Add-on s greater than $1MM for the Last eight Quarters as of 3/31/2018 ($ s committed) (2) Includes equity investments, which are all minority equity positions Page 14

15 Origination Activity Summarized Origination Activity: FY2010 to FYTD 03/31/18 $200,000 $160, % 11.2% 11.3% 11.6% 11.5% 10.9% 11.1% 11.6% 11.5% 12.0% 11.0% $120, % 9.0% $80, % $40, % $- 6.0% FY-2010 FY-2011 FY-2012 FY-2013 FY-2014 FY-2015 FY-2016 FY-2017 FYTD 03/18 1st Lien 2nd Lien Preferred Equity / Unsecured Common Equity / Other Weighted Average Yield Page 15

16 Recent Investments Line of Credit Senior Term Loan Refinancing & Merger December 2017 Oilfield Services Subordinated Debt Sponsor Recapitalization November 2017 Diversified Services Line of Credit Senior Term Loan Equity Co-Investment Sponsor Recapitalization November 2017 Machinery Compelling structure: Double digit yield on a first lien security with moderate leverage High quality sponsor / management: fourth transaction with this sponsor Awarded on speed to close and flexibility to fund the transaction in two stages over two months Attractive high growth industrial consulting business Awarded based on ability to flex structure to accommodate earn-out and small post close acquisition New sponsor relationship and significant roll-over management equity Sophisticated industrial customers with pending growth/ deleveraging potential New sponsor with sector experience and invested with GLAD previously Led unitranche loan and partnered with two other lenders to complete capital structure Page 16

17 Case Study Slide: Southern Petroleum Labs. Houston, TX Deal Terms Investment & Story Outcome Date of Investment: July 2014 Debt: $8.0MM Second Lien Term Loan Closing leverage: 2.2x (thru GLAD) Pricing: L+10.00%, 11.50% floor; plus 1.0% exit fee Amortization: None Term: 5.5 years Equity: $750k minority equity +$81k follow-on Closing fees: 2.0% / $160k Subordinated to: $3.0MM revolver, $13.0MM senior term loan Business Description: Family owned domestic oil and gas laboratory business providing assay analysis, measurement, and field services essential to support refining and energy production valuation. Transaction Type: Sponsor buyout Financing Support: GLAD provided turnkey support for sponsor buyout by introducing senior bank and providing second lien loan and equity co-invest. Sponsor supplemented senior management, added local branch resources to grow revenues, and standardized systems and practices across locations to improve margins GLAD exited on Sponsor sale of the business Loan IRR: 14.6% Equity Return Realized: $1.7MM on $831k investment for cash-on-cash return of 2.1x Blended IRR: 20.5% Page 17

18 Case Study Slide: LCR Contractors Dallas, TX Deal Terms Investment & Story Outcome Date of Investment: January 2016 Debt: $8.5MM First Lien Term Loan Closing leverage: 2.7x Pricing: Grid, at the high end was L+10.50%, 11.00% floor Amortization: 0.0%, 5.0%, 5.0%, 10.0%, 10.0% Prepayment: 3.0%, 2.0%, 1.0% Term: 5.0 years Closing fees: 2.0% / $170k Subordinated to: $2.0MM revolver Business Description: Regional provider of spray fireproofing and spray insulation services for nonresidential construction projects in growing region. Transaction Type: Sponsor buyout Financing Support: GLAD provided a first lien loan to support the company acquisition with an expectation of future acquisitions to expand services and market coverage. Sponsor was able to capitalize on organic growth and deleverage quickly Exit: In March 2017, GLAD was refinanced by a local bank Loan IRR: 12.4% senior secured debt facility Page 18

19 Case Study Slide: Flight Fit N Fun Springfield, VA Deal Terms Investment & Story Outcome Date of Investment: September 2015 Debt: $7.8MM First Lien Term Loan Closing leverage: 2.1x Pricing: Closed at L+11.00%, 12.00% floor with step-down based on leverage performance Amortization: None Prepayment: 3.0%, 2.0%, 1.0% Term: 5.0 years Equity: $700k minority equity Closing fees: 2.0% / $156k Business Description: Owns and operates three trampoline parks based in CT, VA, and PA with plans to develop additional parks. Transaction Type: Acquisition led by three experienced managers Financing Support: GLAD provided unitranche loan and equity coinvestment to support acquisition Exit: Management team brought in deep pocketed PE firm with debt/equity to support acquisition and expansion. GLAD loan was refinanced and equity was purchased in transaction Loan IRR: 14.5% Equity Return: Sold for $1.94MM; realized cash-on-cash return of 2.8x Blended IRR: 20% including all fees Page 19

20 Snapshot of Portfolio Companies AVERAGE GLAD PORTFOLIO COMPANY (1) EBITDA: $10,668k Total Leverage: 3.88x Current Yield: 11.68% Chain of Pre-K Education Centers (1) Weighted average metrics based on each investment s outstanding principal and performance as of 12/31/2017; calculations exclude syndications, equity investments, and non-performing assets Page 20

21 III. Performance Page 21

22 Growing Portfolio and Strong Yield Total Investments: Fair Value by Security & WAVG Investment Yield $525, % $450, % 11.4% 11.5% 11.6% 12.0% 11.5% 12.0% $375,000 $300,000 $225,000 $17,895 $114,021 $18,387 $121,097 $21,273 $23,228 $152,861 $155,249 $24,545 $26,300 $171,690 $180, % 10.0% 9.0% $150, % $75,000 $156,330 $174,033 $171,369 $173,896 $196,195 $195, % $0 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 1st Lien 2nd Lien Preferred & Common Equity / Other WAVG Investment Yield 6.0% *At fair value as of March 31, 2018 Page 22

23 Supported by Diverse Investments Portfolio Diversification Across 18 Industries (1) Portfolio Loan Structure (1) Beverage, food and tobacco (3.4%) Other (Under 3% of FV) - (11.4%) 6.5% 93% secured loans 11.5% WAVG yield Cargo Transportation (3.4%) Automobile (4.8%) Diversified natural resources, precious metals and minerals (5.8%) Diversified/Conglomerate Service (23.1%) Oil and gas (14.8%) 48.7% 44.8% First Lien Debt Second Lien Debt Equity / Other Debt Interest Rate Composition (2) Diversified/Conglomer ate Manufacturing (10.3%) Healthcare, education and childcare (10.8%) Telecommunications (12.2%) 10.0% 100 bps LIBOR raise represents 5% NII lift Top 5 $116MM or 29% FV WAVG. portfolio leverage of 3.88x EBITDA (3) (1) At fair value as of March 31, 2018 (2) At Principal as of March 31, 2018 (3) Weighted average metric based on each investment s outstanding principal and performance as of 12/31/2017; calculations exclude syndications, equity investments, and non-performing assets 90.0% Fixed Rate Variable Rate Page 23

24 with Stable Credit Profiles Performing vs. Non-Performing Loans (Fair Value) 100.0% 98.0% 1.6% 1.6% 2.3% 1.9% 1.1% 2.4% 2.3% 1.7% 1.5% 1.3% Avg. 96.0% 94.0% 98.4% 98.4% 97.7% 98.1% 98.9% 97.6% 97.7% 98.3% 98.5% 98.7% 92.0% 90.0% Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Performing % FV (Debt) Non-Performing % FV (Debt) Since December 2015, non-performing loans have averaged less than 1.8% of the portfolio on a fair value basis Page 24

25 Asset Base Transition Rebuilt Asset Base While Maintaining WAY and Lowering Costs 12.50% $400MM $350MM $300MM $313MM $326MM $315MM $311MM $338MM $357MM $383MM $411MM 11.50% 10.50% 9.50% 8.50% 7.50% 6.50% 5.50% 10.90% 11.10% 11.30% 11.40% 11.50% 11.57% 7.41% 7.31% 6.87% 6.61% 6.60% 6.20% 12.00% 11.50% 6.02% 5.91% $250MM Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar % Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Average Assets Weighted Average Yield Financing Cost Page 25

26 Driving Double-Digit NIM Growth Net Interest Margin Grew at 17.5% CAGR, Reducing GLAD s Reliance on Fee & Other Income $9,000K $611K $189K $8,415K $86K $8,363K $8,000K $1,341K $1,591K $7,860K $637K $3K $7,423K $7,000K $6,974K $6,775K $205K $6,698K $6,000K $6,303K Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Net Interest Margin Fee & Other Income Page 26

27 Driving ROE Performance Over the last 30 months, GLAD s portfolio performance, as measured by NII / Average Net Assets, has consistently averaged 10% GLAD has outpaced the average BDC return on equity (1) Return on Equity (NII / NAV) 11.00% 10.50% 10.00% 9.50% 9.00% 8.50% 8.00% 7.50% Jun 15 Sept 15 Dec 15 Mar 16 June 16 Sept 16 Dec 16 Mar 17 Jun 17 Sept 17 Dec 17 Mar 18 (1) BDC ROE Source: Raymond James BDC Industry Weekly Newsletters GLAD BDC Mean ROE BDC Median ROE Page 27

28 Financial Highlights Three Months Ended In Thousands, except per share data March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 March 31, 2018 Income: Interest Income $ 8,588 $ 9,629 $ 10,224 $ 10,670 $ 11,000 Other Investment Income Total Investment Income 8,793 9,632 10,835 10,859 11,086 Expenses: Fees to Advisor & Admin 1,195 1,593 2,476 2,480 2,276 Interest Expense ,064 1,231 1,569 Preferred Dividend Expense 1,029 1,029 1, Operating Expense Total Expenses 3,434 4,253 5,347 5,282 5,473 Net Investment Income (NII) $ 5,359 $ 5,379 $ 5,488 $ 5,577 $ 5,613 Weighted Average Shares* 25,518 25,576 26,109 26,523 26,709 NII Per WAVG Share $ 0.21 $ 0.21 $ 0.21 $ 0.21 $ 0.21 Dividend Per WAVG Share $ 0.21 $ 0.21 $ 0.21 $ 0.21 $ 0.21 Weighted Avg Yield** 11.4% 11.5% 11.6% 12.0% 11.5% Return on Equity (NII)*** 10.0% 9.9% 9.9% 10.0% 9.9% Gross Originations $ 40,804 $ 37,099 $ 16,643 $ 56,938 $ 20,794 Portfolio at Fair Value 313, , , , ,138 Debt (LOC & Preferred Stock) 113, , , , ,738 Net Asset Value 212, , , , ,725 NAV Per Share $ 8.33 $ 8.38 $ 8.40 $ 8.48 $ 8.62 *Total Shares outstanding at 3/31/18 was 26,897,761 **Weighted average yield on interest bearing debt investments (excludes non-accruals and reserves on interest receivables) ***Return on Equity (NII) defined as: LTM net investment income divided by LTM average net assets Note: The financial information above is not comprehensive and is without notes, so readers should obtain and carefully review GLAD s Forms 10-K and 10-Q for the corresponding reporting periods as filed with the SEC. Page 28

29 Historical Earnings & Portfolio Performance ($ are in 000 s) Cumulative Dividend Coverage FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 YTD Regular Dividend $17,690 $17,672 $17,650 $17,640 $17,640 $17,700 $19,487 $21,433 $11,190 Cumulative Regular Dividend $17,690 $35,362 $53,012 $70,652 $88,292 $105,992 $125,479 $146,912 $158,102 Net Investment Income (NII) $17,594 $18,391 $18,766 $17,372 $17,188 $16,333 $18,058 $19,116 $10,334 Add: Advisor Incentive Fee Credit $165 $21 $278 $1,014 $1,180 $1,367 $1,429 $2,317 $856 Total Adj. NII $17,759 $18,412 $19,044 $18,386 $18,368 $17,700 $19,487 $21,433 $11,190 Cumulative Adj. NII $17,759 $36,171 $55,215 $73,601 $91,969 $109,669 $129,156 $150,589 $161,779 Dividend Coverage (Cumulative Adj. NII / Dividend) 100.4% 102.3% 104.2% 104.2% 104.2% 103.5% 102.9% 102.5% 102.3% Average Dividend Coverage excluding Incentive Fee Credits is 96.9% Gains & Losses, Adjusted for Pre-2009 G/Ls FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 YTD Realized Gains (Losses) ($2,893) ($1,280) ($12,819) ($5,231) ($13,410) ($34,176) $7,152 ($4,763) $765 ($66,655) ($50,428) Less: Pre-2009 Gains (Losses), Media/Cyclical Invests. ($2,865) ($22,677) ($5,987) ($6,217) ($13,497) ($26,590) ($6,529) ($5,000) - ($89,361) ($57,832) Less: Pre-2009 Gains (Losses), Other Invests. ($29) ($16) ($7,357) $116 $438 ($8,876) ($1,123) $19 - ($16,828) ($9,427) Total Adj. Realized Gains (Losses) $0 $21,413 $524 $870 ($350) $1,289 $14,804 $218 $765 $39,534 $16,831 Adj. for Unrealized Loss on 2007 Asset - ($21,395) ($21,395) - Adj. for Realized Loss on Extinguish of Debt / Other $1,297 - $64 $1,288 $133 $2,782 $2,649 Total Adj. Gains (Losses) on Investments Post-2009 $0 $18 $524 $870 $947 $1,289 $14,868 $1,506 $898 $20,921 $19,480 Pre-2009 media / cyclical Investments represented >100% of realized losses in the last 8.5 years Page 29

30 Well Positioned for Rising Interest Rates Interest Rate Sensitivity: Annual Impact ($ in 000 s) Basis Point Change Increase Int. Income Incr. (Dec.) in Int. Exp. Net Interest Income Impact Net Interest Income Impact (% Change) Up 300 basis points $ 10,123 $ 3,834 $ 6, % Up 200 basis points 6,567 2,556 4, % Up 100 basis points 3,092 1,278 1, % With expectations for rising interest rates over the next year, the portfolio should generate a rise in net interest income available for distributions GLAD continues to add variable rate loans for further upside in a higher rate environment With 90% of its portfolio representing floating rate loans, GLAD is well positioned to benefit from rising interest rates Note: Sensitivity Analysis above assumes no significant changes in the composition of the portfolio and the continued ability of portfolio companies to service debt obligations. Page 30

31 IV. Investment Considerations Page 31

32 GLAD Investment Considerations Long-tenured BDC with a conservative portfolio and improving credit profile Dedicated lower middle market focus Positive core earnings trends with commitment to support distributions Prospects for NII & distributions growth Proven management team 93.5% of investments in secured loans and 48.7% in lower risk 1 st lien loans Legacy investment exits (pre-2009) largely completed in 2016 and represented >100% of realized losses in period Post-2009 originations totaled $843MM and represent 94.5% of current portfolio with net realized and unrealized losses of only $12MM or ~35 bps of average cost ROE has risen to over 10% and exceeds average BDC performance Consistent deal flow has driven average originations to $28.2MM per quarter for past eight quarters supporting strong asset growth Structurally less competitive market conditions supporting higher yields with current weighted average portfolio yield of 11.5% Asset growth has supported core net interest earnings growth of 20% over the past year and reduced reliance on fee/other income to cover distributions Improving NIM and recent reduction of bank borrowing costs expected to lower financing expenses by additional $150k per quarter Management record of supporting shareholder distributions NII upside from rising interest rates on floating rate portfolio ($232MM in excess of liabilities) Intent to capitalize on regulatory asset coverage relief to prudently increase leverage to increase portfolio diversity and enhance shareholder returns Led by SEC-registered investment adviser with over 60 professionals Benefits from the scale and diversity of four public funds with $2.4B AUM and growing History of managing through credit cycles, shareholder-friendly behavior and insider ownership Page 32