Financial Services/Real Estate: Commercial Finance Important disclosures can be found at the end of this report.

Transcription

1 Tier 4 Tier 3 Tier 2 Tier 1 Financial Services/Real Estate: Commercial Finance Important disclosures can be found at the end of this report. June 16, / - Combined 06/14/16 from Weighted Company Ticker Rating Price/NAV Jan-4 Score Monroe Capital Corp.* MRCC OP 0.97x Main Street Capital Corp. MAIN OP 1.53x TCP Capital TCPC OP 1.00x Triangle Capital Corp. TCAP NR 1.22x TPG Specialty Lending Inc. TSLX NR 1.08x Medallion Financial Corp. MFIN NR 0.62x Golub Capital BDC Inc. GBDC NR 1.08x Hercules Capital Inc HTGC OP 1.22x Saratoga Investment Corp. SAR NR 0.74x Fidus Investment Corp. FDUS NR 0.97x OFS Capital Corp OFS NR 0.84x THL Credit Inc. TCRD NR 0.86x Goldman Sachs BDC Inc GSBD NR 1.06x Capital Southwest Corp. CSWC NR 0.80x Harvest Capital Credit Corp. HCAP NR 0.95x Alcentra Capital Corp. ABDC NR 0.84x Equus Total Return Inc. EQS NR 0.57x FS Investment Corp. FSIC NR 1.01x CM Finance Inc CMFN NR 0.81x Ares Capital Corp. ARCC NR 0.85x TriplePoint Venture Growth BDC TPVG NR 0.79x Stellus Capital Investment SCM NR 0.76x Gladstone Investment Corp. GAIN NR 0.77x Horizon Technology Finance HRZN NR 0.87x PennantPark Floating Rate PFLT NR 0.90x Rand Capital Corp. RAND NR 0.74x New Mountain Finance Corp. NMFC NR 0.94x Apollo Investment Corp. AINV NR 0.77x Medley Capital Corp. MCC MP 0.64x Garrison Capital Inc. GARS NR 0.73x Prospect Capital Corp. PSEC OP 0.78x Capitala Finance Corp. CPTA MP 0.85x American Capital Senior ACSF NR 0.90x BlackRock Capital Investment BKCC NR 0.82x American Capital Ltd. ACAS NR 0.79x Fifth Street Finance Corp. FSC NR 0.58x Solar Senior Capital Ltd. SUNS NR 0.96x Solar Capital Ltd. SLRC NR 0.89x WhiteHorse Finance WHF NR 0.81x KCAP Financial Inc. KCAP NR 0.67x Fifth Street Senior Floating FSFR NR 0.71x PennantPark Investment Corp. PNNT OP 0.75x Gladstone Capital Corp. GLAD NR 0.90x Harris & Harris Group Inc. TINY NR 0.65x Firsthand Technology Value SVVC NR 0.34x TICC Capital Corp. TICC NR 0.90x Full Circle Capital Corp. FULL NR 0.75x GSV Capital Corp. GSVC NR 0.46x Crossroads Capital, Inc. XRDC NR 0.49x OHA Investment Corp. OHAI NR 0.52x BDC's highlighted in blue currently have an activist shareholder BDC's highlighted in grey are internally managed Priced as of 6/14/2016. *Alpha Generator FBR Financial Services/Real Estate Research Commercial Finance Christopher Nolan, CFA cnolan@fbr.com Matthew Brotman mbrotman@fbr.com Industry Update Updated BDC Rankings for Shareholder Returns and Compensation Structures Summary and Recommendation We have revisited and updated our rankings for 50 publicly traded business development companies (BDCs) through 1Q16 to reflect (1) trailing shareholder returns relative to BDC averages and (2) external manager compensation structures. We have weighted and combined these two scores to create a tiered ranking of BDCs overall investment competitiveness. On this basis, the highest-scoring BDCs are in Tier 1 and are newly led by Monroe Capital Corp., which is an FBR Alpha Generator; Main Street Capital Corp. is ranked second, and TCP Capital is ranked third all three are Outperform rated. BDCs with the lowest combined scores are in Tier 4. Key Points BDC total return performance correlated with tiers. Tier 1 BDCs had average total returns of 0.9% in 2015 and 8.6% in YTD In comparison, average total returns for the broader BDC sector were 5.2% in 2015 and 2.0% in YTD Top-ranked Monroe Capital Corp. had total returns of 0.5% in 2015 and 13.1% in YTD The top three ranked BDCs have all seen YTD total return and share price outperformance relative to BDC peer averages. Activist shareholders had mixed success, but we expect them to return. While no BDC external managers were replaced, activists gained board representation in some cases, and in one case, succeeded in having its shares purchased at a premium by the target s external manager and an affiliate. Given this, and the fact that most BDC shares still trade at a discount to their NAV/share, we believe activists are likely to return in 2H16, in time to get on the voting ballots for BDCs 2017 annual shareholder meetings. We believe they will likely target lower-ranked Tier 3 and potentially all Tier 4 BDCs. BDC management fee modifications pick up the pace. Following Medley Capital Corp. s fee modification in 4Q15, Fifth Street Finance modified its agreement, Apollo Investment Corp. announced a temporary fee modification, and TICC Capital Corp. changed its fees. Capitala Finance Corp., PennantPark Investment Corp., and CM Finance Inc. each have instituted temporary fee waivers for part of their management incentive fees. Further consolidation ahead? We note that Gladstone Capital Corp., OFS Capital Corp., TriplePoint Venture Growth BDC Corp., and Full Circle Capital Corp. have been de-leveraging their balance sheets over the past year. This could potentially indicate preparation for a sale given this was also the trend for American Capital Ltd. and MCG Capital Corp. prior to their announced sales in May 2016 and August 2015, respectively FBR & Co. Institutional Brokerage, Research, and Investment Banking

2 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Table of Contents BDC Universe... 3 Ranking BDCs by Shareholder Returns and Management Compensation... 4 Ranking BDCs on Shareholder Returns Ranking BDC Management Compensation Structures BDC Shareholder Return Metric Calculations Industry Risks Page 2

3 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking BDC Universe Universe of Publicly Traded BDCs Int/ FBR Price Close 52-Week Mkt. Cap. EPS Estimates Price/Earnings 1Q16 Price/ Dividend Company Ticker Ext Rating Target 06/14/16 Low High ($M) 2016E 2017E Est # 2016E 2017E NAV/Sh NAV $ Yield PennantPark Investment Corp. PNNT Ext OP $7.00 $6.62 $5 - $9 $470 $1.06 $ $ x $ % Hercules Capital Inc HTGC Int OP $12.50 $11.92 $10 - $13 $881 $1.21 $ $ x $ % Main Street Capital Corp. MAIN Int OP $35.00 $32.41 $24 - $33 $1,673 $2.20 $ $ x $ % Medley Capital Corp. MCC Ext MP $7.00 $6.26 $5 - $9 $343 $1.05 $ $ x $ % Monroe Capital Corp. MRCC Ext OP $17.00 $14.07 $10 - $15 $183 $1.70 $ $ x $ % Prospect Capital Corp. PSEC Ext OP $9.00 $7.47 $5 - $8 $2,663 $1.04 $ $ x $ % TCP Capital TCPC Ext OP $16.00 $14.71 $12 - $16 $746 $1.64 $ $ x $ % Capitala Finance Corp. CPTA Ext MP $14.00 $13.88 $10 - $17 $219 $1.85 $ $ x $ % Fifth Street Finance Corp. FSC Ext NR NA $4.85 $4 - $7 $705 $0.70 $ $ x $ % Fifth Street Senior Floating FSFR Ext NR NA $7.95 $7 - $10 $234 $0.90 $ $ x $ % Garrison Capital Inc. GARS Ext NR NA $9.87 $10 - $15 $160 $1.45 $ $ x $ % Ares Capital Corp. ARCC Ext NR NA $14.01 $11 - $17 $4,398 $2.05 $ $ x $ % BlackRock Capital Investment BKCC Ext NR NA $7.75 $6 - $10 $561 $1.01 $ $ x $ % Apollo Investment Corp. AINV Ext NR NA $5.57 $4 - $8 $1,260 $0.84 $ $ x $ % Gladstone Investment Corp. GAIN Ext NR NA $7.07 $6 - $8 $214 $0.71 $ $ x $ % Golub Capital BDC Inc. GBDC Ext NR NA $17.16 $15 - $18 $884 $1.26 $ $ x $ % Horizon Technology Finance HRZN Ext NR NA $11.91 $9 - $14 $138 $1.42 $ $ x $ % American Capital Ltd. ACAS Int NR NA $15.89 $12 - $16 $3,406 $0.85 $ $ x $ New Mountain Finance Corp. NMFC Ext NR NA $12.10 $11 - $15 $773 $1.37 $ $ x $ % PennantPark Floating Rate PFLT Ext NR NA $12.20 $10 - $15 $326 $1.55 $ $ x $ % Goldman Sachs BDC Inc GSBD Ext NR NA $19.85 $17 - $25 $721 $2.12 $ $ x $ % Stellus Capital Investment SCM Ext NR NA $9.87 $7 - $12 $123 $1.33 $ $ x $ % TICC Capital Corp. TICC Ext NR NA $5.32 $4 - $7 $274 $0.50 $ $ x $ % TriplePoint Venture Grow th BDC TPVG Ext NR NA $10.53 $9 - $14 $172 $1.46 $ $ x $ % THL Credit Inc. TCRD Ext NR NA $10.48 $9 - $13 $349 $1.42 $ $ x $ % Solar Capital Ltd. SLRC Ext NR NA $18.70 $15 - $19 $790 $1.68 $ $ x $ % Full Circle Capital Corp. FULL Ext NR NA $2.69 $2 - $4 $60 $ $ x $ FS Investment Corp. FSIC Ext NR NA $8.94 $7 - $11 $2,177 $0.89 $ $ x $ % Triangle Capital Corp. TCAP Int NR NA $18.38 $15 - $24 $617 $1.76 $ $ x $ % Alcentra Capital Corp. ABDC Ext NR NA $12.07 $9 - $14 $163 $1.48 $ $ x $ % American Capital Senior ACSF Ext NR NA $10.54 $8 - $13 $105 $1.12 $ $ x $ % Crossroads Capital, Inc. XRDC Int NR NA $2.08 $2 - $5 $20 $ x $ Capital Southw est Corp. CSWC Int NR NA $13.86 $13 - $51 $218 $ x $ % CM Finance Inc CMFN Ext NR NA $9.66 $6 - $14 $132 $1.46 $ $ x $ % Equus Total Return Inc. EQS Int NR NA $1.68 $1 - $2 $21 $ x $ Fidus Investment Corp. FDUS Ext NR NA $14.74 $7 - $16 $277 $1.66 $ $ x $ % Firsthand Technology Value SVVC Ext NR NA $7.48 $6 - $14 $57 $ x $ Gladstone Capital Corp. GLAD Ext NR NA $7.10 $5 - $9 $166 $0.84 $ $ x $ % GSV Capital Corp. GSVC Ext NR NA $5.02 $5 - $11 $111 ($0.50) $ $ x $ Harvest Capital Credit Corp. HCAP Ext NR NA $13.15 $10 - $14 $83 $1.47 $ $ x $ % KCAP Financial Inc. KCAP Int NR NA $3.69 $3 - $6 $137 $0.54 $ $ x $ % Medallion Financial Corp. MFIN Int NR NA $7.09 $6 - $10 $173 $1.02 $ $ x $ % OFS Capital Corp OFS Ext NR NA $12.32 $10 - $14 $119 $1.49 $ $ x $ % OHA Investment Corp. OHAI Ext NR NA $2.53 $2 - $6 $51 $ x $ % Rand Capital Corp. RAND Int NR NA $3.93 $3 - $5 $25 $ x $ Saratoga Investment Corp. SAR Ext NR NA $16.41 $13 - $18 $95 $1.76 $ $ x $ % Solar Senior Capital Ltd. SUNS Ext NR NA $15.98 $13 - $17 $184 $1.41 $ $ x $ % Harris & Harris Group Inc. TINY Int NR NA $1.75 $2 - $3 $54 $ x $ TPG Specialty Lending Inc. TSLX Ext NR NA $16.32 $13 - $18 $970 $1.68 $ $ x $ % WhiteHorse Finance WHF Ext NR NA $10.79 $9 - $14 $197 $1.43 $ $ x $ % Average $10.53 $8 - $14 $578 $1.26 $ $ x $ % Note: FBR estimates for FBR-rated stocks; all others are consensus. *Alpha Generator Source: FBR Research and SNL Financial Page 3

4 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Ranking BDCs by Shareholder Returns and Management Compensation Scoring BDCs on their cost and benefit to shareholders. As a follow-up to our January 4, 2016 ranking of publicly traded BDCs, we have revisited and updated our BDC rankings. We compare BDCs to each other in terms of cost (i.e., management compensation) and benefit (i.e. shareholder returns) to equity investors. We combine these two separate rankings of BDC shareholder returns into a total combined, tiered ranking. This ranking quantifies how BDCs compare to each other at a time when BDC share price valuations have been recovering with tightening high-yield bond spreads. It also follows the increased activist shareholder activity in the BDC space over the last 12 months, which generally targeted BDCs with subpar performance and/or overly management-friendly compensation arrangements relative to BDC peer averages. Shareholder return rankings based on trailing performance. We provide detail into this scoring that is based on trailing return on invested capital, economic income (i.e., growth in NAV/share + dividends declared), and dividend coverage. Management compensation rankings focus primarily on externally managed BDCs. This ranking focuses on externally managed BDCs and is based on how a given BDC s management compensation structure compares to BDC peer averages (or medians in some metrics). BDC combined ranking is broken into four tiers. We combine our shareholder return ranking and our management compensation ranking to create a combined ranking, which is shown on the front page of this report. This combined ranking is divided into four tiers, with Tier 1 representing BDCs with the highest combined score and Tier 4 the lowest. Score Weightings in Combined BDC Ranking Weighting for Combined Ranking Scores Shareholder Return Score Weight 67% Management Score Weight 33% Source: FBR Research and SNL Financial Weighting combined score toward shareholder returns. In our combined rankings, we weight the overall ranking results as follows: two-thirds for shareholder returns and one-third for management compensation structure. Because shareholder returns are affected by management compensation, we are trying, by weighting, to minimize double-counting the effect of a manager-friendly compensation agreement in our overall scoring. Investment Performance in 2015 and Year-to-Date 2016 Total Return Source: FBR Research and SNL Financial Share Price YTD YTD Tier 1 0.9% 8.6% -8.9% 3.5% Tier 2-0.1% 4.0% -13.7% 0.1% Tier 3-5.4% 2.8% -13.6% -1.8% Tier % -6.7% -23.4% -11.7% Avg. -5.2% 2.0% -15.0% -2.6% S&P % 2.6% -0.7% 1.5% Page 4

5 Activist Targets 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Correlation between higher combined score and share price appreciation. In 2015 and year-todate 2016, shares of BDCs that we categorize as Tier 1 have outperformed peers on a total return basis (dividend plus share price appreciation), as well as on an absolute share price appreciation basis. We also note that BDC share price valuation multiples are generally correlated with the tiers, with Tier 1 companies having the higher price/nav multiples and Tier 4 having the lowest. Average Price/NAV Multiples for BDCs in Each Tier of the Combined Score Matrix Average Price/NAV Tier x Tier x Tier x Tier x Source: FBR Research and SNL Financial BDCs Approached by Activist Shareholders in 2H15 Shareholder Return Score Management Score + / - Combined 06/14/16 Economic Dividend Look from Weighted Company Ticker Rating Price/NAV ROIC Income Coverage Total Mgt. Type Base Fee 1 Hurdle Back Score Jan-4 Score American Capital Ltd. ACAS NR 0.79x Internal N/A N/A N/A Fifth Street Finance Corp. FSC NR 0.58x External 1.75% 8.0% No KCAP Financial Inc. KCAP NR 0.67x Internal N/A N/A N/A Fifth Street Senior Floating FSFR NR 0.71x External 1.00% 6.0% No TICC Capital Corp. TICC NR 0.90x External 1.50% 7.00% Yes Full Circle Capital Corp. FULL NR 0.75x External 1.75% 7.0% No Crossroads Capital, Inc. XRDC NR 0.49x Internal N/A N/A N/A BDC's highlighted in blue currently have an activist shareholder BDC's highlighted in grey are internally managed (1) Base management fee is a percentage of gross balance sheet assets. Priced as of 6/14/2016. Source: SNL Financial, company reports, and FBR Research Lower-ranking BDCs attracted activist attention in 2H15 and are likely to do so again in 2H16. The second half of 2015 saw increased activist shareholder attention on the BDC sector as activists, in general, sought to replace the external managers of publicly traded BDCs whose shares were trading at a material discount to NAV/share and whose external manager agreements had terms more favorable to management relative to other BDCs. The affected BDCs are generally ranked Tier 4 and included TICC Capital Corp., Crossroads Capital, Fifth Street Senior Floating Rate, KCAP Financial Inc., and Full Circle Capital Corp., as well as Tier 3 ranked Fifth Street Finance and American Capital Ltd. In our view, the activists saw mixed results but with some notable successes. We believe this will likely propel further activist activity in the BDC sector in 2016 given that many BDCs are still trading at a material discount to NAV/share, have seen NAV/share deterioration over the last 12 months, and may have external management compensation agreements that do not effectively align their interests with those of shareholders. The activists mixed results. TICC Capital Corp. s activist activity has yet to be resolved, while Full Circle Capital Corp. has since announced that it is exploring strategic alternatives. For Fifth Street Senior Floating Rate, the activist (Ironsides Partners LLC) was partially successful by securing a board seat, but it did not succeed in replacing the external manager. KCAP Financial s thirdlargest shareholder suggested that a sale of the company would maximize shareholder value, but nothing has been heard recently. American Capital Ltd. was acquired by Ares Capital Corp. in May In the case of Crossroads Capital (which played out entirely in 2H15), the activist won two board seats in a shareholder vote but did not displace the external manager. Subsequently, Page 5

6 Tier FBR & Co. Institutional Brokerage, Research, and Investment Banking Crossroads Capital s CEO resigned, and later the board converted the company to an internally managed BDC. Crossroads Capital is currently seeking shareholder approval to cease being a BDC and become a liquidation trust. Activists scored with Fifth Street Finance. To placate its activist shareholder (RiverNorth Capital Management), Fifth Street Finance s external manager (Fifth Street Asset Management), an affiliate, and the manager s CEO collectively agreed to buy back the activist s 5.1 million of FSC shares, or 8.7% of total shares outstanding then. We note that the buyback price was a 29% premium to the prior day s closing price for Fifth Street Finance shares when the agreement was announced. We also note that RiverNorth owned ~5.7% of outstanding Fifth Street Floating Rate shares, which it agreed to vote in favor of management as part of the deal. We expect renewed activist shareholder activity in 2H16. Given the success activists have had with BDCs, particularly Fifth Street Finance, we expect activists will likely return this autumn. This timing reflects the time needed for an activist s proposal(s) to be included in the BDC shareholder voting proxy for the annual shareholder meeting, which are usually held in the March to May time frame. We think companies that we rank as Tier 4, as well as the lowerranked companies in Tier 3, are at the most risk of being approached by an activist. Lowest-Scoring Tier of BDCs in Our Combined Scoring Matrix Shareholder Return Score Management Score + / - Combined 06/14/16 Economic Dividend Look from Weighted Company Ticker Rating Price/NAV ROIC Income Coverage Total Mgt. Type Base Fee 1 Hurdle Back Score Jan-4 Score Solar Capital Ltd. SLRC NR 0.89x External 2.00% 7.0% No WhiteHorse Finance WHF NR 0.81x External 2.00% 7.0% Yes KCAP Financial Inc. KCAP NR 0.67x Internal N/A N/A N/A Fifth Street Senior Floating FSFR NR 0.71x External 1.00% 6.0% No PennantPark Investment Corp. PNNT OP 0.75x External 2.00% 7.0% No Gladstone Capital Corp. GLAD NR 0.90x External 1.75% 7.0% No Harris & Harris Group Inc. TINY NR 0.65x Internal N/A N/A N/A Firsthand Technology Value SVVC NR 0.34x External 2.00% N/A N/A TICC Capital Corp. TICC NR 0.90x External 1.50% 7.00% Yes Full Circle Capital Corp. FULL NR 0.75x External 1.75% 7.0% No GSV Capital Corp. GSVC NR 0.46x External 2.00% N/A N/A Crossroads Capital, Inc. XRDC NR 0.49x Internal N/A N/A N/A OHA Investment Corp. OHAI NR 0.52x External 1.75% 7.0% No BDC's highlighted in blue currently have an activist shareholder BDC's highlighted in grey are internally managed (1) Base management fee is a percentage of gross balance sheet assets. Priced as of 6/14/2016. Source: SNL Financial, company reports, and FBR Research Potential BDC consolidation ahead. Given that most externally managed BDCs have been trading at a material discount to NAV/share for multiple quarters, we believe that the sector could see consolidation as BDCs seek to sell themselves to competitors. This is illustrated by American Capital Ltd. s recently announced sale to Ares Capital Corp. Looking ahead, we note that similar to American Capital Ltd., other BDCs such as Full Circle Capital Corp., Gladstone Capital Corp., TriplePoint Venture Growth BDC Corp., and OFS Capital Corp. have also been de-leveraging and shrinking their balance sheets over the past 12 months. Since this was the trend seen prior to the announced sale of American Capital Ltd. to Ares Capital Corp. on May 23, 2016, and when MCG Capital Corp. sold to PennantPark Floating Rate Capital Ltd. on August 18, 2015, we believe this could potentially be a leading indicator of management that is positioning to sell a company. A buyer would likely look to purchase an unlevered BDC as a means to raise investable capital and improve its own leverage ratio. Page 6

7 Tier 4 Tier 3 Tier 2 Tier FBR & Co. Institutional Brokerage, Research, and Investment Banking Combined Weighted BDC Ranking Shareholder Return Score Management Score + / - Combined 06/14/16 Economic Dividend Look from Weighted Company Ticker Rating Price/NAV ROIC Income Coverage Total Mgt. Type Base Fee 1 Hurdle Back Score Jan-4 Score Monroe Capital Corp.* MRCC OP 0.97x External 1.75% 8.0% Yes Main Street Capital Corp. MAIN OP 1.53x Internal N/A N/A N/A TCP Capital TCPC OP 1.00x External 1.50% 8.0% Yes Triangle Capital Corp. TCAP NR 1.22x Internal N/A N/A N/A TPG Specialty Lending Inc. TSLX NR 1.08x External 1.50% 6.0% No Medallion Financial Corp. MFIN NR 0.62x Internal N/A N/A N/A Golub Capital BDC Inc. GBDC NR 1.08x External 1.375% 8.0% Yes Hercules Capital Inc HTGC OP 1.22x Internal N/A N/A N/A Saratoga Investment Corp. SAR NR 0.74x External 1.75% 7.5% No Fidus Investment Corp. FDUS NR 0.97x External 1.75% 8.0% No OFS Capital Corp OFS NR 0.84x External 1.75% 8.0% No THL Credit Inc. TCRD NR 0.86x External 1.50% 8.0% Yes Goldman Sachs BDC Inc GSBD NR 1.06x External 1.50% 7.0% Yes Capital Southwest Corp. CSWC NR 0.80x Internal N/A N/A N/A Harvest Capital Credit Corp. HCAP NR 0.95x External 2.00% 8.0% Yes Alcentra Capital Corp. ABDC NR 0.84x External 1.75% 8.0% Yes Equus Total Return Inc. EQS NR 0.57x Internal N/A N/A N/A FS Investment Corp. FSIC NR 1.01x External 1.75% 7.5% Yes CM Finance Inc CMFN NR 0.81x External 1.75% 8.0% Yes Ares Capital Corp. ARCC NR 0.85x External 1.50% 7.0% No TriplePoint Venture Growth BDC TPVG NR 0.79x External 1.75% 8.0% Yes Stellus Capital Investment SCM NR 0.76x External 1.75% 8.0% Yes Gladstone Investment Corp. GAIN NR 0.77x External 2.00% 7.0% No Horizon Technology Finance HRZN NR 0.87x External 2.00% 7.0% Yes PennantPark Floating Rate PFLT NR 0.90x External 1.00% 7.0% No Rand Capital Corp. RAND NR 0.74x Internal N/A N/A N/A New Mountain Finance Corp. NMFC NR 0.94x External 1.75% 8.0% No Apollo Investment Corp. AINV NR 0.77x External 1.50% 7.0% Yes Medley Capital Corp. MCC MP 0.64x External 1.50%-1.75% 6.0% Yes Garrison Capital Inc. GARS NR 0.73x External 1.75% 8.0% Yes Prospect Capital Corp. PSEC OP 0.78x External 2.00% 7.0% No Capitala Finance Corp. CPTA MP 0.85x External 1.75% 8.0% Yes American Capital Senior ACSF NR 0.90x External 0.80% N/A N/A BlackRock Capital Investment BKCC NR 0.82x External 2.00% 8.0% Yes American Capital Ltd. ACAS NR 0.79x Internal N/A N/A N/A Fifth Street Finance Corp. FSC NR 0.58x External 1.75% 8.0% No Solar Senior Capital Ltd. SUNS NR 0.96x External 1.00% 7.0% No Solar Capital Ltd. SLRC NR 0.89x External 2.00% 7.0% No WhiteHorse Finance WHF NR 0.81x External 2.00% 7.0% Yes KCAP Financial Inc. KCAP NR 0.67x Internal N/A N/A N/A Fifth Street Senior Floating FSFR NR 0.71x External 1.00% 6.0% No PennantPark Investment Corp. PNNT OP 0.75x External 2.00% 7.0% No Gladstone Capital Corp. GLAD NR 0.90x External 1.75% 7.0% No Harris & Harris Group Inc. TINY NR 0.65x Internal N/A N/A N/A Firsthand Technology Value SVVC NR 0.34x External 2.00% N/A N/A TICC Capital Corp. TICC NR 0.90x External 1.50% 7.00% Yes Full Circle Capital Corp. FULL NR 0.75x External 1.75% 7.0% No GSV Capital Corp. GSVC NR 0.46x External 2.00% N/A N/A Crossroads Capital, Inc. XRDC NR 0.49x Internal N/A N/A N/A OHA Investment Corp. OHAI NR 0.52x External 1.75% 7.0% No BDC's highlighted in blue currently have an activist shareholder BDC's highlighted in grey are internally managed (1) Base management fee is a percentage of gross balance sheet assets. Priced as of 6/14/2016. *Alpha Generator Source: SNL Financial, company reports, and FBR Research Page 7

8 Price/NAV 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Positive Correlation of Combined Weighted BDC Scores and Price/NAV Multiples 1.60x 1.50x 1.40x 1.30x 1.20x 1.10x 1.00x 0.90x 0.80x 0.70x 1.00x 0.95x 0.90x 0.85x 0.80x 0.75x ACAS BKCC Price/NAV vs. Combined Weighted BDC Score TICC FULL GLAD PNNT SLRC WHF FSFR Combined Weighted BDC Score HTGC GSBD GBDC TSLX SUNS FSIC FDUS NMFC HCAP ACSF PFLT CPTA HRZN ARCC ABDC TCRD BKCC OFS ACAS TPVG CMFN PSEC CSWC AINVGAIN GARSRAND SCM SAR MAIN TCAP TCPC MRCC TINY KCAP MCC 0.60x MFIN OHAI FSC EQS 0.50x XRDC GSVC Combined weighted BDC score is the sum of 0.40x two-thirds of a BDC's shareholder return Regression SVVC 0.30x score and one-third of the management Line compensation score. 0.20x Group Average: ACSF CPTA PSEC GARS AINV NMFC HRZN RAND PFLT GAIN TPVG SCM ARCC CMFN ABDC HCAP CSWC TCRD OFS 0.70x Source: SNL Financial and FBR Research Page 8

9 2016 YTD Price Change (%) 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Positive Correlation of Combined Weighted BDC Scores and 2016 YTD Price Change 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% -30.0% -35.0% 2016 YTD Price Change (%) vs. Combined Weighted BDC Score Combined weighted BDC score is the sum of two-thirds of a BDC's shareholder return score and one-third of the management compensation score. OHAI XRDC TICC FULL GLAD SVVC TINY PNNT FSFR SLRC KCAP SUNS WHF BKCC FSC ACAS CPTA HCAP MAIN ACSF PFLT OFS MRCC AINV FDUS SAR PSEC RAND ABDC GSBD TCPC CSWC GBDC HRZN SCM FSIC MFIN TCRD TSLX CMFNARCC HTGC TCAP NMFC EQS GAIN -40.0% ARCC TCRD -2.5% HTGC Regression CMFN -45.0% Line GSVC -5.0% -50.0% Group Average: GARS MCC 10.0% 7.5% 5.0% 2.5% 0.0% Combined Weighted BDC Score SCM TPVG FSIC ABDC CSWC GSBD OFS FDUS SAR MFIN GBDC TSLX Source: SNL Financial and FBR Research Page 9

10 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Ranking BDCs on Shareholder Returns Average and Median Shareholder Return Scores TOTAL SCORE Source: SNL Financial and FBR Research Monroe Capital Corp. is the new top-scoring BDC based on shareholder returns. Our top five scoring BDCs for shareholder returns alone as of 1Q16 are: Monroe Capital Corp. (up from No. 4 ranking previously), TPG Specialty Lending, TCP Capital, Saratoga Investment Corp., and Fidus Investment Corp. All five had trailing ROIC and total economic income yields (i.e., incremental growth in NAV/share + dividend declared as a percentage of NAV/share) above the BDC average. Monroe Capital Corp. and Fidus Investment Corp. showed strong economic income generation over the last 12 months with high dividends and NAV/share expansion. TPG Specialty Lending and TCP Capital were supported by consistent, substantial dividend coverage. Saratoga Investment Corp. was driven primarily by economic income generation from high dividends in excess of NAV/share decline. A breakdown of the calculations used in computing the shareholder return score is provided at the end of the report. Correlation between higher scores and BDC price/nav multiple. We note a positive correlation between BDCs with a higher score for our shareholder return matrix and the stocks share price valuations. Three outliers in terms of high price/nav multiples relative to shareholder return scores are internally managed (Main Street Capital Corp., Hercules Capital Inc, and Triangle Capital Corp.). Shareholder return total scores driven by ROIC metric. For both internally and externally managed BDCs, scoring for return on invested capital is the primary point driver. For externally managed BDCs, this is followed by dividend coverage, which is the largest source of negative points on average for internally managed BDCs. Both internally and externally managed BDCs are penalized for negative economic income generation over the last 12 months on average. Shareholder Return Ranking Top Five Scoring BDCs Source: SNL Financial and FBR Research Return on Invested Capital +/- from Jan Q16 Points LTM NAV/Share Growth and Cash Dividends Last 12 Months (LTM) NAV/Share Growth Dividends Total % of NAV/Share Points Q16 Points Average % -0.5% 0.84 ($1.03) + $1.12 = $ % % 102% 99% Median % 0.5% 0.50 ($0.83) + $1.26 = $ % % 100% 100% Internally Managed (Avg.) % -2.3% 0.86 ($0.58) + $0.74 = $ % % 47% 83% Externally Managed (Avg.) % -0.1% 0.83 ($1.16) + $1.22 = $ % % 113% 101% Externally managed BDCs score better in shareholder returns. All of the five top scoring BDCs for shareholder returns are externally managed (sixth-ranked Main Street Capital Corp. is internally managed and was previously ranked No. 1). Among the top 10 BDCs ranked, the only other internally managed BDC is Triangle Capital Corp., which is ranked eighth. Overall, the average score for externally managed BDCs, 0.46, was higher than the internally managed average of This reflects a smaller population of internally managed BDCs, accounting for 11 out of the 50 publicly traded BDCs we survey, and the fact that internally managed BDCs, on average, have lower dividend Dividend Coverage of Reported EPS Return on Invested Capital LTM NAV/Share Growth and Cash Dividends Dividend Coverage of Reported EPS Last 12 Months (LTM) TOTAL +/- from NAV/Share % of Company Ticker Rating SCORE Jan-4 Mgt Q16 Points Growth Dividends Total NAV/Share Points Q16 Points Monroe Capital Corp. MRCC OP Ext 5.2% 2.2% 1.50 $ $1.40 = $ % % 114% 126% 0.36 TPG Specialty Lending Inc. TSLX NR Ext 4.2% 1.1% 1.50 ($0.49) + $1.56 = $1.07 7% % 113% 108% 0.96 TCP Capital TCPC OP Ext 6.3% 1.3% 1.50 ($0.37) + $1.44 = $1.07 7% % 142% 131% 0.86 Saratoga Investment Corp. SAR NR Ext 4.4% -0.1% 1.50 ($0.63) + $2.36 = $1.73 8% % 450% 135% 0.59 Fidus Investment Corp. FDUS NR Ext 5.8% 1.6% 1.50 $ $1.61 = $ % % 106% 110% 0.16 Page 10

11 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking coverage scores than externally managed BDCs. Four of the 10 lowest-scoring BDCs, and two of the bottom five, are internally managed. Externally managed BDCs generated better economic income yields than internally managed BDCs. From 1Q15 to 1Q16, internally managed BDCs saw NAV/share decline 8% on average, versus 9% for externally managed BDCs on average. In part, this discrepancy is due to internally managed BDCs having stronger ROIC scores on average, offset by larger dividend payments by externally managed BDCs. When combining both NAV/share growth and dividends/share declared (i.e., economic income), we see externally managed BDCs generally performing better than the internally managed BDCs. Internally managed BDCs score lower on dividend coverage ratios. In comparison to externally managed BDCs, internally managed BDCs had lower dividend coverage ratios on average in 2014, 2015, and 1Q16. In addition, five of the six BDCs that have not declared any base cash dividend from 2Q15 through 1Q16 are internally managed. Internally managed BDC scores declined less since last ranking report. Since our last update on January 4, the average score for internally managed BDCs declined by 0.01x, while the average score for externally managed BDCs declined by 0.18x. This was driven primarily by decreases in the economic income scores. Shareholder Returns Breakdown of Internally and Externally Managed BDCs and Score Averages Publicly Traded BDCs Count Externally Managed 39 Internally Managed 11 Total Score for Publicly Traded BDCs Average Score 0.28x Internally Managed (Avg.) -0.39x Externally Managed (Avg.) 0.46x Source: FBR Research Most improved BDCs. BDCs that have seen the most dramatic shareholder return improvement since our last ranking report are Equus Total Return Inc., Full Circle Capital Corp, and OFS Capital Corp. For Equus Total Return Inc. and OFS Capital Corp., the increase was driven by an improved ROIC score and LTM economic income score; ROIC for both BDCs trailed peers in 2014, a time frame that is no longer included in our calculation, but was above peers in 1Q16, and LTM NAV/share growth increased while peer NAV/share growth declined on average. For Full Circle Capital Corp., the improvement was driven by the LTM economic income score as NAV/share declined steeply in 2H14, a time period that is no longer included in our calculation. Shareholder Return Ranking BDCs with the Most Improved Scores since Our Last Ranking Report Return on Invested Capital LTM NAV/Share Growth and Cash Dividends Dividend Coverage of Reported EPS Last 12 Months (LTM) TOTAL +/- from NAV/Share % of Company Ticker Rating SCORE Jan-4 Mgt Q16 Points Growth Dividends Total NAV/Share Points Q16 Points Equus Total Return Inc. EQS NR Int 6.2% 1.2% 1.50 $ $0.00 = $0.17 6% Full Circle Capital Corp. FULL NR Ext -3.5% -0.8% 0.00 ($0.83) + $0.32 = ($0.51) -12% % 85% 76% OFS Capital Corp OFS NR Ext 7.2% 0.9% 1.50 $ $1.36 = $ % % 102% 112% Triangle Capital Corp. TCAP NR Int 4.8% 1.3% 1.50 ($0.62) + $2.31 = $ % % 100% 54% Goldman Sachs BDC Inc GSBD NR Ext 4.2% 0.5% 1.50 ($0.77) + $1.80 = $1.03 5% % 129% 0.41 BDCs highlighted in blue currently have an activist shareholder. Source: SNL Financial and FBR Research Bottom-scoring BDCs. Our bottom-scoring BDCs for shareholder returns alone as of 1Q16 are TICC Capital Corp., GSV Capital Corp., Harris & Harris Group Inc., OHA Investment Corp., and Crossroads Capital. All have demonstrated 1Q16 ROIC returns and LTM economic income yields below the BDC averages of 0.5% for ROIC and 0.8% for LTM economic income yield. The key driver for this is Page 11

12 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking NAV/share erosion. Each of these BDCs was further harmed by either low dividend coverage or the absence of a base cash dividend. Low scores driven by negative economic income yield. The scores for the five lowest-scoring BDCs were primarily driven by negative economic income yields (i.e., a decline in NAV/share more than cash dividends declared). Each of these lower-scoring companies had economic income yields of 19% or less during the measurement period (below the 4% for the bottom five in the last ranking report published on January 4, 2016, indicating accelerating NAV/share erosion in most cases). OHA Investment Corp. and Crossroads Capital showed particularly low yields of 28% and 37%, driven by the largest LTM NAV/share decline of all of the BDCs we rank. Shareholder Return Ranking Bottom-Scoring BDCs Return on Invested Capital LTM NAV/Share Growth and Cash Dividends Dividend Coverage of Reported EPS Last 12 Months (LTM) TOTAL +/- from NAV/Share % of Company Ticker Rating SCORE Jan-4 Mgt Q16 Points Growth Dividends Total NAV/Share Points Q16 Points TICC Capital Corp. TICC NR Ext -8.1% -2.2% 0.00 ($2.83) + $1.16 = ($1.67) -19% % 57% 28% GSV Capital Corp. GSVC NR Ext 3.2% -9.3% 0.50 ($4.70) + $1.37 = ($3.34) -21% Harris & Harris Group Inc. TINY NR Int -17.5% -5.3% 0.00 ($0.71) + $0.00 = ($0.71) -21% OHA Investment Corp. OHAI NR Ext -11.7% -4.2% 0.00 ($2.42) + $0.42 = ($2.00) -28% % 94% 75% Crossroads Capital, Inc. XRDC NR Int -27.4% -18.9% 0.00 ($2.46) + $0.00 = ($2.46) -37% % -22% BDCs highlighted in blue currently have an activist shareholder. Source: SNL Financial and FBR Research Page 12

13 Price/NAV 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Positive Correlation of Shareholder Return Scores versus Price/NAV Multiples Price/NAV vs. Shareholder Return Score 1.60x 1.00x 1.50x 0.95x SUNS NMFC MAIN 1.40x 1.30x 1.20x 0.90x 0.85x 0.80x ACSF CPTA WHF BKCC AINV SLRC TPVG SCM CMFN CSWC PSEC PFLT ABDC HRZN TCRD 0.75x RAND PNNT 1.10x GBDC TSLX FSFR GARS GSBD 0.70x FSIC TCPC 1.00x HCAP MRCC ACSF SUNS NMFC PFLT FDUS 0.90x TICC GLAD SLRC TCRD CPTA BKCC ABDC HRZN ARCC CSWC OFS 0.80x WHF ACAS RAND AINV TPVG CMFNPSEC FULL GAIN SAR 0.70x FSFR PNNT SCM GARS TINY KCAP MCC 0.60x MFIN FSC EQS XRDC 0.50x OHAI GSVC BDC ranking is based on three measures: return 0.40x Regression on invested capital, economic income per share, Line SVVC and dividend coverage by reported EPS. 0.30x Internally Managed: Group Average: BDC Shareholder Return Score Externally Managed: HTGC TCAP Source: SNL Financial and FBR Research Page 13

14 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Publicly Traded BDC Shareholder Return Rankings Company Ticker Rating BDCs highlighted in blue currently have an activist shareholder. (1) NAV/share growth for Capital Southwest Corp. is from 3Q15 to 1Q16 and does not include NAV/share from prior to the spin-off of CSW Industrials Inc. Source: SNL Financial and FBR Research TOTAL SCORE Return on Invested Capital LTM NAV/Share Growth and Cash Dividends Dividend Coverage of Reported EPS +/- from Jan-4 Mgt Q16 Points Last 12 Months (LTM) NAV/Share % of Growth Dividends Total NAV/Share Points Q16 Points Monroe Capital Corp. MRCC OP Ext 5.2% 2.2% 1.50 $ $1.40 = $ % % 114% 126% 0.36 TPG Specialty Lending Inc. TSLX NR Ext 4.2% 1.1% 1.50 ($0.49) + $1.56 = $1.07 7% % 113% 108% 0.96 TCP Capital TCPC OP Ext 6.3% 1.3% 1.50 ($0.37) + $1.44 = $1.07 7% % 142% 131% 0.86 Saratoga Investment Corp. SAR NR Ext 4.4% -0.1% 1.50 ($0.63) + $2.36 = $1.73 8% % 450% 135% 0.59 Fidus Investment Corp. FDUS NR Ext 5.8% 1.6% 1.50 $ $1.61 = $ % % 106% 110% 0.16 Main Street Capital Corp. MAIN OP Int 6.1% 1.0% 1.50 ($0.65) + $2.70 = $2.04 9% % 104% 100% 0.14 OFS Capital Corp OFS NR Ext 7.2% 0.9% 1.50 $ $1.36 = $ % % 102% 112% Triangle Capital Corp. TCAP NR Int 4.8% 1.3% 1.50 ($0.62) + $2.31 = $ % % 100% 54% Gladstone Investment Corp. GAIN NR Ext 9.8% 4.3% 1.50 $ $0.75 = $0.78 9% % 104% 85% 0.11 Golub Capital BDC Inc. GBDC NR Ext 4.4% 0.9% 1.50 $ $1.28 = $ % % 94% 103% Goldman Sachs BDC Inc GSBD NR Ext 4.2% 0.5% 1.50 ($0.77) + $1.80 = $1.03 5% % 129% 0.41 Harvest Capital Credit Corp. HCAP NR Ext 4.3% -0.1% 1.50 ($0.41) + $1.35 = $0.94 7% % 114% 121% 0.19 Ares Capital Corp. ARCC NR Ext 4.2% 1.4% 1.50 ($0.21) + $1.52 = $1.31 8% % 107% 95% Medallion Financial Corp. MFIN NR Int 4.6% 1.0% 1.50 $ $1.00 = $ % % 70% THL Credit Inc. TCRD NR Ext 3.7% 0.0% 1.50 ($0.97) + $1.36 = $0.39 3% % 104% 118% 0.13 Horizon Technology Finance HRZN NR Ext 4.6% 0.5% 1.50 ($0.56) + $1.38 = $0.82 6% % 91% 110% Hercules Capital Inc HTGC OP Int 3.4% 1.1% 1.50 ($0.66) + $1.24 = $0.58 6% % 84% 90% PennantPark Floating Rate PFLT NR Ext 3.2% 0.5% 1.50 ($0.76) + $1.14 = $0.38 3% % 97% 95% 0.00 Alcentra Capital Corp. ABDC NR Ext 4.2% 1.6% 1.50 ($0.49) + $1.36 = $0.87 6% % 121% Prospect Capital Corp. PSEC OP Ext 5.3% 1.2% 1.50 ($0.69) + $1.00 = $0.31 3% % 85% 100% FS Investment Corp. FSIC NR Ext 0.9% -0.3% 0.50 ($1.07) + $0.89 = ($0.18) -2% % 148% 94% 1.10 Capital Southwest Corp. 1 CSWC NR Int 75.2% 6.6% 1.50 ($0.35) + $0.14 = ($0.21) -1% % -80% CM Finance Inc CMFN NR Ext 4.7% 0.6% 1.50 ($2.46) + $1.82 = ($0.64) -4% % 109% 89% 0.31 Equus Total Return Inc. EQS NR Int 6.2% 1.2% 1.50 $ $0.00 = $0.17 6% New Mountain Finance Corp. NMFC NR Ext 2.1% 0.5% 0.50 ($1.02) + $1.36 = $0.34 2% % 101% 100% 0.15 TriplePoint Venture Growth BDC TPVG NR Ext 7.6% -3.4% 0.50 ($1.08) + $1.44 = $0.36 2% % 101% 0.10 Stellus Capital Investment SCM NR Ext 2.1% 0.7% 0.50 ($0.98) + $1.36 = $0.38 3% % 98% 97% 0.05 Solar Capital Ltd. SLRC NR Ext 1.3% 2.6% 0.50 ($0.83) + $1.60 = $0.77 4% % 95% 100% Solar Senior Capital Ltd. SUNS NR Ext 0.4% 3.0% 0.50 ($0.94) + $1.41 = $0.47 3% % 94% 99% Apollo Investment Corp. AINV NR Ext 2.1% -0.7% 0.00 ($0.91) + $0.80 = ($0.11) -1% % 120% 100% 0.34 PennantPark Investment Corp. PNNT OP Ext -0.7% 0.3% 0.50 ($1.41) + $1.12 = ($0.29) -3% % 98% 104% BlackRock Capital Investment BKCC NR Ext 3.4% -3.1% 0.50 ($1.12) + $0.84 = ($0.28) -3% % 115% 110% WhiteHorse Finance WHF NR Ext -0.7% 1.3% 0.50 ($1.72) + $1.42 = ($0.30) -2% % 96% 104% Fifth Street Finance Corp. FSC NR Ext 0.6% 0.2% 0.50 ($0.85) + $0.54 = ($0.31) -3% % 95% 89% Medley Capital Corp. MCC MP Ext -1.2% 0.0% 0.50 ($1.87) + $1.20 = ($0.67) -6% % 100% 87% 0.03 Garrison Capital Inc. GARS NR Ext -0.8% -0.6% 0.00 ($1.91) + $1.40 = ($0.51) -3% % 128% 103% 0.22 Rand Capital Corp. RAND NR Int 5.7% -0.8% 0.50 $ $0.00 = $0.17 3% Capitala Finance Corp. CPTA MP Ext 2.4% -0.7% 0.00 ($2.06) + $1.88 = ($0.18) -1% % 89% 100% American Capital Senior ACSF NR Ext -5.7% 0.9% 0.50 ($2.79) + $1.16 = ($1.63) -11% % 94% 100% 0.41 Fifth Street Senior Floating FSFR NR Ext 2.5% -0.1% 0.50 ($1.31) + $0.68 = ($0.63) -5% % 70% 89% Gladstone Capital Corp. GLAD NR Ext 2.0% -1.6% 0.00 ($1.63) + $0.84 = ($0.79) -8% % 100% 100% 0.04 American Capital Ltd. ACAS NR Int -3.4% -1.6% 0.00 $ $0.00 = $0.03 0% Full Circle Capital Corp. FULL NR Ext -3.5% -0.8% 0.00 ($0.83) + $0.32 = ($0.51) -12% % 85% 76% KCAP Financial Inc. KCAP NR Int -4.1% -1.6% 0.00 ($1.66) + $0.72 = ($0.94) -13% % 74% 87% Firsthand Technology Value SVVC NR Ext -7.6% -4.7% 0.00 ($3.16) + $0.00 = ($3.16) -13% TICC Capital Corp. TICC NR Ext -8.1% -2.2% 0.00 ($2.83) + $1.16 = ($1.67) -19% % 57% 28% GSV Capital Corp. GSVC NR Ext 3.2% -9.3% 0.50 ($4.70) + $1.37 = ($3.34) -21% Harris & Harris Group Inc. TINY NR Int -17.5% -5.3% 0.00 ($0.71) + $0.00 = ($0.71) -21% OHA Investment Corp. OHAI NR Ext -11.7% -4.2% 0.00 ($2.42) + $0.42 = ($2.00) -28% % 94% 75% Crossroads Capital, Inc. XRDC NR Int -27.4% -18.9% 0.00 ($2.46) + $0.00 = ($2.46) -37% % -22% Page 14

15 2016 FBR & Co. Institutional Brokerage, Research, and Investment Banking Ranking BDC Management Compensation Structures Seeing renewed emphasis on improving shareholder returns for lower-valued BDCs. While BDC management teams have been reluctant thus far to lower fees, this began to change in 4Q15 with an announcement by Medley Capital Corp., followed by modifications to the management compensation structure by TICC Capital Corp., Fifth Street Finance, and Apollo Investment Corp. Other BDCs have announced management fee reparations in order to better cover the existing dividend/share payout. These include PennantPark Investment Corp. and Capitala Finance Corp. as well as CM Finance Inc. We note that a positive correlation remains (unsurprisingly) between BDC price/nav valuation multiples and shareholder returns. We also note a positive correlation between BDC share price performance year to date and shareholder returns. This could be a catalyst to put a renewed emphasis on cost control (particularly management fees). We group BDCs into four compensation tiers based on management compensation structures. Since most of the parameters that we measure are external-bdc oriented, we focus our analysis only on externally managed BDCs. Comp tier placements are determined by the following key criteria: Base management fees at or below 1.75% of total assets. Overall, base management fees ranged from 0.8% to 2.0% of total balance sheet assets; however, of the 39 companies surveyed, 10 shared the highest base fee of 2.0% (down from 13 on January 4 due to base management fee reductions by Apollo Investment Corp., TICC Capital Corp., and Fifth Street Finance). We view companies with a base management fee of 1.75% or below as being more shareholder friendly. Hurdle rate above 7.25% or incentive fees below 20%. Each BDC with an incentive fee on net investment income also has a hurdle rate below which no incentive fee is paid. All but three BDCs pay a 20% incentive fee (up from two on January 4 due to the temporary management compensation changes by Apollo Investment Corp.), and the median hurdle rate among surveyed BDCs was 7.25% of NAV. We view a hurdle rate above the median or an incentive fee below 20% as being more shareholder friendly. Incentive fee on net investment income contains a look-back provision. We view BDCs that have any form of look-back provision on their net investment income incentive fees as being more shareholder friendly. Of the 39 companies surveyed, 19 have management structures that include a look-back provision, up from 17 on January 4 due to changes by TICC Capital Corp. and Apollo Investment Corp. Companies are sorted into comp tiers by how many criteria their management structures meet. A BDC with a management structure that satisfies all three criteria will be placed in Comp Tier 1, a company meeting two will be placed in Comp Tier 2, a company meeting only one criterion will be placed in Comp Tier 3, and companies meeting none of our criteria are placed in Comp Tier 4. OHA Investment Corp. (OHAI), Full Circle Capital Corp. (FULL), and Gladstone Capital Corp. (GLAD) are ranked in Comp Tier 4 because although they have base management fees below 2.0%, they fail to meet the other two criteria, and they have a base fee at our cut-off point of 1.75%. Compensation is modestly correlated with share price valuations. We note that companies ranked in Comp Tier 1 trade at 0.86x price/nav on average, versus 0.81x for companies in Comp Tier 2, 0.85x for companies in Comp Tier 3, and 0.76x for companies in Comp Tier 4. In our view, while management compensation is an important factor, it is likely only a supporting one in share price valuations relative to BDC peers. We think market confidence in sustaining the current dividend and/or the growth outlook for NAV/share takes precedence. Proposed and prior compensation structures also included. Pressure from activist shareholders increased in the sector in 2H15, resulting in TICC Capital Corp. receiving three different proposals: a sale to Benefit Street Partners proposed by management and alternative offers from NexPoint Advisors and TPG Specialty Lending. We include the management fees proposed by each in our compensation table but note that these proposals were made prior to TICC Capital Corp. s March Page 15