PhenixFIN Corp

Previous wording

In 2023, the Federal Reserve raised short-term interest rates and has indicated additional interest rate increases may come. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from our performance to the extent we are exposed to such interest rates and/or volatility. In periods of rising interest rates, such as the current interest rate environment, to the extent we borrow money subject to a floating interest rate, our cost of funds would increase, which could reduce our net investment income. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as a SOFR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.

Current wording

In recent years, the Federal Reserve raised short-term interest rates and has indicated additional interest rate increases may come. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and may detract from our performance to the extent we are exposed to such interest rates and/or volatility. In periods of rising interest rates, such as the current interest rate environment, to the extent we borrow money subject to a floating interest rate, our cost of funds would increase, which could reduce our net investment income. Further, rising interest rates could also adversely affect our performance if such increases cause our borrowing costs to rise at a rate in excess of the rate that our investments yield. Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as a SOFR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.

Previous wording

As of December 31, 2023 and September 30, 2023, our portfolio had a fair market value of approximately $222.2 million and $226.5 million, respectively.

Current wording

As of March 31, 2024 and September 30, 2023, our portfolio had a fair market value of approximately $220.0 million and $226.5 million, respectively.

Previous wording

During the three months ended December 31, 2023, we received proceeds from sale and settlements of investments of $22.1 million, including principal proceeds, net realized gains on investments of $0.2 million and invested $14.3 million.

Current wording

During the six months ended March 31, 2024, we received proceeds from sale and settlements of investments of $45.6 million, including principal proceeds, net realized losses on investments of $1.6 million and invested $30.8 million.

Previous wording

During the three months ended December 31, 2022, we received proceeds from sale and settlements of investments of $19.2 million including principal and dividend proceeds, net realized gains (losses) on investments of $0.01 million and invested $6.9 million.

Current wording

During the six months ended March 31, 2023, we received proceeds from sale and settlements of investments of $26.9 million, including principal and dividend proceeds, realized net losses on investments of $0.8 million, and invested $26.0 million.

Previous wording

As of December 31, 2023, our income-bearing investment portfolio based upon cost represented 87.2% of our total portfolio of which 61.2% bore interest based on floating rates, such as SOFR or LIBOR, 14.3% bore interest at fixed rates, and 24.6% are income-producing equity investments. As of December 31, 2022, our income-bearing investment portfolio based upon cost represented 62.5% of our total portfolio of which 81.6% bore interest based on floating rates, such as SOFR or LIBOR, while 18.4% bore interest at fixed rates. As of December 31, 2023, the Company had a weighted average yield of 13.0% on debt and other income producing investments. The weighted average yield of our total portfolio does not represent the total return to our stockholders.

Current wording

As of March 31, 2024, our income-bearing investment portfolio based upon cost represented 84.0% of our total portfolio of which 57.6% bore interest based on floating rates, such as SOFR or LIBOR, 16.8% bore interest at fixed rates, and 25.6% are income-producing equity investments. As of September 30, 2023, our income-bearing investment portfolio based upon cost represented 88.2% of our total portfolio of which 59.5% bore interest based on floating rates, such as LIBOR or SOFR, 13.9% bore interest at fixed rates, and 26.6% are income-producing equity investments. As of March 31, 2024, the Company had a weighted average yield of 13.6% on debt and other income producing investments. The weighted average yield of our total portfolio does not represent the total return to our stockholders.

Previous wording

Operating results for three months ended December 31, 2023 and 2022 are as follows (dollars in thousands):

Current wording

Operating results for three and six months ended March 31, 2024 and 2023 are as follows (dollars in thousands):

Previous wording

For the three months ended December 31, 2023, investment income totaled $5.7 million, of which $3.7 million was attributable to portfolio interest, approximately $2.0 million was attributable to dividend income, $0.0 thousand was attributable to fee and other income, and $41.1 thousand was attributable to interest on cash and cash equivalents. Dividend income was received from 10 investments during the three months ended December 31, 2023.

Current wording

For the three months ended March 31, 2024, investment income totaled $4.7 million, of which $2.7 million was attributable to portfolio interest, approximately $1.7 million was attributable to dividend income, $0.1 million was attributable to fee and other income, and $0.2 million was attributable to interest on cash and cash equivalents. For the six months ended March 31, 2024, investment income totaled $10.4 million, of which $6.4 million was attributable to portfolio interest, approximately $3.7 million was attributable to dividend income, $0.1 million was attributable to fee and other income, and $0.2 million was attributable to interest on cash and cash equivalents. Dividend income was received from eight investments during the six months ended March 31, 2024.

Previous wording

Operating expenses for the three months ended December 31, 2023 and 2022 are as follows (dollars in thousands):

Current wording

Operating expenses for the three and six months ended March 31, 2024 and 2023 are as follows (dollars in thousands):

Previous wording

For the three months ended December 31, 2023, total operating expenses increased by $1.0 million, or 31.4% compared to the three months ended December 31, 2022.

Current wording

For the three months ended March 31, 2024, total operating expenses increased by $1.0 million, or 30.3% compared to the three months ended March 31, 2023. For the six months ended March 31, 2024, total operating expenses increased by $1.9 million, or 30.8% compared to the six months ended March 31, 2023.

Previous wording

Interest and financing expenses for the three months ended December 31, 2023 increased by $0.3 million, or 25.0% compared to the three months ended December 31, 2022. The increase in interest and financing expenses for the three months ended December 31, 2023 was primarily due to increased borrowings on Credit Facility.

Current wording

Interest and financing expenses for the three months ended March 31, 2024 increased by $0.2 million, or 13.4% compared to the three months ended March 31, 2023. Interest and financing expenses for the six months ended March 31, 2024 increased by $0.5 million, or 18.9% compared to the six months ended March 31, 2023. The increase in interest and financing expenses for the six months ended March 31, 2024 was primarily due to increased borrowings on the credit facility.

Previous wording

Professional fees and general and administrative expenses for the three months ended December 31, 2023 increased by $0.1 million, or 20.2% compared to the three months ended December 31, 2022.

Current wording

Professional fees and general and administrative expenses for the three months ended March 31, 2024 increased by $0.1 million, or 13.1% compared to the three months ended March 31, 2023. Professional fees and general and administrative expenses for the six months ended March 31, 2024 increased by $0.2 million, or 16.7% compared to the six months ended March 31, 2023.

Previous wording

For the three months ended December 31, 2023, we had $2.6 million of net unrealized appreciation on investments. The net unrealized appreciation was comprised of $6.0 million of net unrealized appreciation that resulted from fair market value appreciation primarily attributable to Maritime Wireless, 1888 Industrial Services, and level one investments, and $3.4 million of net unrealized depreciation primarily attributable to Kemmerer Operations and JFL-NGS-WCS Partners.

Current wording

For the three months ended March 31, 2023, we had $5.7 million of net unrealized appreciation on investments. The net unrealized appreciation resulted from fair market value appreciation primarily attributable to Kemmerer Operations, Maritime Wireless, the reversal of the realized loss on Walker Edison which was offset by the unrealized depreciation on Lucky Bucks.

Previous wording

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three months ended December 31, 2023 and 2022, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments.

Current wording

Certain consolidated subsidiaries of ours are subject to U.S. federal and state income taxes. These taxable subsidiaries are not consolidated with the Company for income tax purposes, but are consolidated for GAAP purposes, and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries. For the three and six months ended March 31, 2024 and 2023, the Company did not record a change in provision for deferred taxes on the unrealized (appreciation)/depreciation on investments.

Previous wording

For the three months ended December 31, 2023, we recorded a net increase in net assets resulting from operations of $4.5 million compared to a net increase in net assets resulting from operations of $3.9 million for the three months ended December 31, 2022. Total Net Assets increased from the last quarter primarily due to share repurchases in the amount of $0.5 million and the net change in unrealized losses on investments of $2.6 million. Based on 2,072,694 and 2,100,876 weighted average common shares outstanding for the three months ended December 31, 2023 and 2022, respectively, our per share net increase/(decrease) in net assets resulting from operations was $2.19 for the three months ended December 31, 2023 and $1.88 for the three months ended December 31, 2022.

Current wording

For the three months ended March 31, 2024, we recorded a net increase in net assets resulting from operations of $5.4 million compared to a net increase in net assets resulting from operations of $6.7 million for the three months ended March 31, 2023. Total Net Assets decreased from the last quarter due to share repurchases in the amount of $1.8 million. Based on 2,048,622 and 2,095,193 weighted average common shares outstanding for the three months ended March 31, 2024 and 2023, respectively, our per share net increase in net assets resulting from operations was $2.62 for the three months ended March 31, 2024 and $3.20 for the three months ended March 31, 2023.

Previous wording

As of December 31, 2023 and September 30, 2023, we had $12.2 million and $6.0 million, respectively, in cash and cash equivalents.

Current wording

As of March 31, 2024 and September 30, 2023, we had $19.1 million and $6.0 million, respectively, in cash and cash equivalents.

Previous wording

On January 11, 2021, the Company announced that its board of directors approved a share repurchase program. On February 9, 2022, the Board of Directors approved the expansion of the amount authorized for repurchase under the Company’s share repurchase program from $15 million to $25 million. On February 8, 2023, the Board of Directors approved the further expansion of the amount authorized for repurchase under the Company’s share repurchase program from $25 million to $35 million. Under the share repurchase program, the Company repurchased an aggregate of 663,219 shares of common stock through December 31, 2023, or 24.3% of shares outstanding as of the program’s inception, with a total cost of $26.3 million. The total remaining amount authorized under the expanded share repurchase program at December 31, 2023 was approximately $8.7 million.

Current wording

On January 11, 2021, the Company announced that its board of directors approved a share repurchase program. On February 9, 2022, the Board of Directors approved the expansion of the amount authorized for repurchase under the Company’s share repurchase program from $15 million to $25 million. On February 8, 2023, the Board of Directors approved the further expansion of the amount authorized for repurchase under the Company’s share repurchase program from $25 million to $35 million. Under the share repurchase program, the Company repurchased an aggregate of 703,219 shares of common stock through March 31, 2024, or 25.8 % of shares outstanding as of the program’s inception, with a total cost of $28.1 million. The total remaining amount authorized under the expanded share repurchase program at March 31, 2024 was approximately $6.9 million.

Previous wording

As of December 31, 2023 and September 30, 2023, we had commitments under loan and financing agreements to fund up to $2.6 million to two portfolio companies and $3.4 million to four portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and the determination of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of December 31, 2023 and September 30, 2023 is shown in the table below (dollars in thousands):

Current wording

As of March 31, 2024 and September 30, 2023, we had commitments under loan and financing agreements to fund up to $3.1 million to three portfolio companies and $3.4 million to four portfolio companies, respectively. These commitments are primarily composed of senior secured term loans and revolvers, and the determination of their fair value is included in the Consolidated Schedule of Investments. The commitments are generally subject to the borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. The terms of the borrowings and financings subject to commitment are comparable to the terms of other loan and equity securities in our portfolio. A summary of the composition of the unfunded commitments as of March 31, 2024 and September 30, 2023 is shown in the table below (dollars in thousands):

Previous wording

We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax or excise tax, described below.

Current wording

We have elected, and intend to continue to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, in any taxable year with respect to which we timely distribute at least 90 percent of the sum of our (i) investment company taxable income (which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses) determined without regard to the deduction for dividends paid and (ii) net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions), we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. We intend to distribute annually all or substantially all of such income, but we may also elect to periodically spill over certain excess undistributed taxable income from one tax year to the next tax year. To the extent that we retain our net capital gains or any investment company taxable income, we will be subject to U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the associated federal corporate income tax or excise tax, described below.

Previous wording

The Company did not declare any distribution payments during the three months ended December 31, 2023 and 2022.

Current wording

The Company did not declare any distribution payments during the three and six months ended March 31, 2024 and 2023.

Previous wording

*Non-accrual:*We place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At December 31, 2023, certain investments in four portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $8.9 million, or 4.0% of the fair value of our portfolio. At September 30, 2023, certain investments in four portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $6.5 million, or 2.9% of the fair value of our portfolio.

Current wording

*Non-accrual:*We place loans on non-accrual status when principal and interest payments are past due by 90 days or more, or when there is reasonable doubt that we will collect principal or interest. Accrued interest is generally reversed when a loan is placed on non-accrual. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. At March 31, 2024, certain investments in three portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $21.1 million, or 9.6% of the fair value of our portfolio. At September 30, 2023, certain investments in four portfolio companies held by the Company were on non-accrual status with a combined fair value of approximately $6.5 million, or 2.9% of the fair value of our portfolio.

Previous wording

The Company has elected, and intends to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code and it intends to operate in a manner so as to maintain its RIC tax treatment. To do so, among other things, the Company is required to meet certain source of income and asset diversification requirements and must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. 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.

Current wording

The Company has elected, and intends to continue to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code and it intends to operate in a manner so as to maintain its RIC tax treatment. To do so, among other things, the Company is required to meet certain source of income and asset diversification requirements and must timely distribute to its stockholders at least 90% of the sum of investment company taxable income (“ICTI”) including PIK, as defined by the Code, and net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for each taxable year. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if it does not distribute at least 98% of its net ordinary income for any calendar year and 98.2% of its capital gain net income for each one-year period ending on October 31 of such calendar year and any income realized, but not distributed, in preceding years and on which it did not pay federal income tax. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions for excise tax purposes, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. 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.