News Column

TPG SPECIALTY LENDING, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 8, 2014

The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the "Cautionary Statement Regarding Forward Looking Statements" set forth on page 3 of this Quarterly Report on Form 10-Q.



Overview

TPG Specialty Lending, Inc. is a Delaware corporation formed on July 21, 2010. The Adviser is our external manager. We have two wholly owned subsidiaries, TC Lending, LLC, a Delaware limited liability company, which holds a California finance lender and broker license, and TPG SL SPV, LLC, a Delaware limited liability company, in which we hold assets to support our asset-backed credit facility. Our results reflect our ramp-up of initial investments, which is now complete, as well as the ongoing measured growth of our portfolio of investments.



We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code. We made our BDC election on April 15, 2011. As a result, we are required to comply with various statutory and regulatory requirements, such as:

the requirement to invest at least 70% of our assets in "qualifying assets";

source of income limitations; asset diversification requirements; and the requirement to distribute (or be treated as distributing) in each taxable year at least 90% of our investment company taxable income and tax-exempt interest for that taxable year. On March 21, 2014, the Company completed its IPO, issuing 7,000,000 shares at $16.00 per share, and its concurrent private placement, issuing 3,124,984 shares at $16.00 per share. Net of underwriting fees and offering costs, the Company received total cash proceeds of $151.6 million. In April 2014, an additional 1,050,000 shares of stock were issued pursuant to the exercise of the underwriters' over-allotment option. Net of underwriting fees and offering costs, we received additional total cash proceeds of approximately $15.4 million.



Our shares are currently listed on the NYSE under the symbol "TSLX".

Our Investment Framework

We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities in July 2011, we have originated more than $2.6 billion aggregate principal amount of investments and retained approximately $1.8 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine loans and investments in corporate bonds and equity securities. By "middle-market companies," we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of $10 million to $250 million, although we may invest in larger or smaller companies on occasion. As of March 31, 2014, based on fair value, our borrowers had weighted average annual revenue of $169 million and weighted average annual EBITDA of $33 million. 34



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We invest in first-lien debt, second-lien debt, mezzanine debt and equity securities. Our first-lien debt may include stand-alone first-lien loans; "last out" first-lien loans, which are loans that have a secondary priority behind super-senior "first out" first-lien loans; "unitranche" loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt.



As of March 31, 2014, our average investment size in our portfolio companies was $40 million.

The companies in which we invest use our capital to support organic growth, acquisitions, market or product expansion and recapitalizations. We expect that no single investment will represent more than 15% of our total investment portfolio. The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3).



Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:

Business and sector selection. We focus on companies with enterprise value between $50 million and $1 billion. When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio. We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our portfolio companies by end-market (such as healthcare and pharmaceuticals, and business services) and not by the products or services (such as software) directed to those end-markets.



As of March 31, 2014, no industry represented more than 11.6% of our total investment portfolio.

Investment Structuring. We focus on investing at the top of the capital structure and protecting that position. As of March 31, 2014, approximately 99.4% of our portfolio at fair value was invested in secured debt, including 82.4% in first-lien debt investments. We carefully diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to six years after origination. For the three months ended March 31, 2014, the weighted average term on new investment commitments in new portfolio companies was 4.7 years. Deal Dynamics. We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships. Risk Mitigation. We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future payment income. As of March 31, 2014, we had call protection on 94.9% of our debt investments, with weighted average call prices of 107.0% for the first year, 103.3% for the second year and 101.3% for the third year, in each case from the date of the initial investment. As of March 31, 2014, 98.6% of our debt investments bore interest at floating rates, subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.



Relationship with our Adviser, TSSP and TPG

Our Adviser is a Delaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with the SEC under the Advisers Act. Our Adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on us. Our Investment Team is led by our Co-Chief Executive Officer and our Adviser's Co-Chief Investment Officer Joshua Easterly, our Co-Chief Executive Officer Michael Fishman and our Adviser's Co-Chief Investment Officer Alan Waxman, all of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of TPG Special Situations Partners, LLC ("TSSP") and TPG Global, LLC ("TPG"). TSSP, which encompasses TPG Specialty Lending, TPG Opportunities Partners and TPG Institutional Credit Partners, is TPG's special situations and credit platform. TSSP had over $9.1 billion of assets under management as of March 31, 2014. TSSP has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 80 investment and operating professionals. Twenty three of these personnel are dedicated to our business, including 17 investment professionals. Our Adviser consults with TSSP and TPG in connection with a substantial number of our investments. The TSSP and TPG platforms provide us with a breadth of large and scalable investment resources. We believe we benefit from their market expertise, insights into sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. TSSP and TPG will refer all middle-market loan origination activities for companies domiciled in the United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us by TSSP and TPG. 35



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If the SEC grants the exemptive relief we have requested, to the extent the size of the opportunity exceeds the amount our Adviser independently determines is appropriate for us to invest, our affiliates may be able to co-invest with us. We believe our ability to co-invest with TPG affiliates would be particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We would be able to provide "one-stop" financing to a potential portfolio company in these circumstances, which could allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors. We cannot assure you, however, when or whether the SEC will grant our exemptive relief request. Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser's services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the Management Fee and may also pay the Incentive Fee. Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement. The Adviser has entered into an agreement with Goldman, Sachs & Co., which we refer to as the 10b5-1 Plan, in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, under which Goldman, Sachs & Co., as agent for the Adviser, will buy up to $25 million in the aggregate of our common stock, subject to certain conditions, during the period beginning April 24, 2014 and ending on the earlier of the date on which all the capital committed to the 10b5-1 Plan has been exhausted or December 31, 2014.



Key Components of Our Results of Operations

Investments

We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.

Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.



In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.

Revenues

We generate revenues primarily in the form of interest income from the investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. Our debt investments typically have a term of two to six years, and, as of March 31, 2014, 98.6% bear interest at a floating rate, subject to interest rate floors. Interest on debt securities is generally payable quarterly or semiannually. Some of our investments provide for deferred interest payments or PIK interest. For the three months ended March 31, 2014, 2.0% of our total investment income was comprised of PIK interest income. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. The frequency or volume of these repayments may fluctuate significantly. We record prepayment premiums on loans as interest income. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees.



Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations. 36



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Expenses

Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:



calculating individual asset values and our net asset value (including the

cost and expenses of any independent valuation firms); expenses, including travel expenses, incurred by the Adviser, or members



of our Investment Team, or payable to third parties, in respect of due

diligence on prospective portfolio companies and, if necessary, in respect

of enforcing our rights with respect to investments in existing portfolio

companies; the costs of any public offerings of our common stock and other securities, including registration and listing fees; the Management Fee and any Incentive Fee;



certain costs and expenses relating to distributions paid on our shares;

administration fees payable under our Administration Agreement;



debt service and other costs of borrowings or other financing arrangements;

the Adviser's allocable share of costs incurred in providing significant

managerial assistance to those portfolio companies that request it;



amounts payable to third parties relating to, or associated with, making

or holding investments; transfer agent and custodial fees; costs of hedging; commissions and other compensation payable to brokers or dealers; taxes; Independent Director fees and expenses;



costs of preparing financial statements and maintaining books and records

and filing reports or other documents with the SEC (or other regulatory

bodies) and other reporting and compliance costs, and the compensation of

professionals responsible for the preparation of the foregoing, including

the allocable portion of the compensation of our chief financial officer

and chief compliance officer and their respective staffs; the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders' meetings and the compensation of investor relations



personnel responsible for the preparation of the foregoing and related

matters; our fidelity bond; directors and officers/errors and omissions liability insurance, and any

other insurance premiums; indemnification payments;



direct costs and expenses of administration, including audit, accounting,

consulting and legal costs; and all other expenses reasonably incurred by us in connection with making



investments and administering our business.

We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.

Leverage

While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions. In any period, our interest expense will depend largely on the extent of our borrowing. In addition, we may continue to dedicate assets to financing facilities, such as the Amended and Restated Revolving Credit and Security Agreement between our wholly owned subsidiary, TPG SL SPV, LLC and Natixis, which we refer to as the SPV Asset Facility. 37



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Market Trends

We believe trends in the middle-market lending environment, including the limited availability of capital, strong demand for debt capital and specialized lending requirements, are likely to continue to create favorable opportunities for us to invest at attractive risk-adjusted rates. The limited number of providers of capital to middle-market companies, combined with expected increases in required capital levels for financial institutions, reduce the capacity of traditional lenders to serve middle-market companies. We believe that the limited availability of capital creates a large number of opportunities for us to originate direct investments in companies. We also believe that the large amount of uninvested capital held by private equity firms will continue to drive deal activity, which may in turn create additional demand for debt capital. The limited number of providers is further exacerbated by the specialized due diligence and underwriting capabilities, as well as extensive ongoing monitoring, required for middle-market lending. We believe middle-market lending is generally more labor-intensive than lending to larger companies due to smaller investment sizes and the lack of publicly available information on these companies. An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower's distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders.



Portfolio and Investment Activity

As of March 31, 2014, our portfolio at fair value consisted of 82.4% first-lien debt investments, 17.0% second-lien debt investments, 0.4% mezzanine debt investments, and 0.2% equity investments. As of December 31, 2013, our portfolio at fair value consisted of 86.3% first-lien debt investments, 13.5% second-lien debt investments, and 0.2% equity investments. As of March 31, 2014 and December 31, 2013, our weighted average total yield of debt and income producing securities at fair value (which includes interest income and amortization of fees and discounts) was 10.2% and 10.4%, respectively, and our weighted average total yield of debt and income producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 10.4% and 10.6%, respectively.



As of March 31, 2014 and December 31, 2013, we had investments in 30 and 27 portfolio companies, respectively, with an aggregate fair value of $1,195.5 million and $1,016.5 million, respectively.

For the three months ended March 31, 2014, we made new investment commitments of $314.6 million, $303.8 million in six new portfolio companies and $10.8 million in two existing portfolio companies. For this period, we had $101.2 million aggregate principal amount in exits and repayments, resulting in net portfolio growth of $187.0 million aggregate principal amount. For the three months ended March 31, 2013, we made new investment commitments of $58.5 million, $58.0 million in two new portfolio companies and $0.5 million in one existing portfolio company. For this period, we had $84.5 million aggregate principal amount in exits and repayments, resulting in a net portfolio decrease of $26.0 million aggregate principal amount. 38



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Our investment activity for the three months ended March 31, 2014 and 2013 is presented below (information presented herein is at par value unless otherwise indicated). For the three Months Ended March 31, March 31, ($ in millions) 2014 2013 New investment commitments: Gross originations $ 369.6$ 92.5 Less: syndications/sell downs 55.0 34.0 Total new investment commitments $ 314.6$ 58.5 Principal amount of investments funded: First-lien $ 218.0$ 48.0 Second-lien 65.0 10.5 Mezzanine 4.7 - Equity 0.5 - Total $ 288.2$ 58.5 Principal amount of investments sold or repaid: First-lien $ 101.2$ 81.5 Second-lien - 3.0 Mezzanine - - Equity - - Total $ 101.2$ 84.5 Number of new investment commitments in new portfolio companies 6 2 Average new investment commitment amount in new portfolio companies $ 50.6$ 29.0 Weighted average term for new investment commitments in new portfolio companies (in years) 4.7 5.3 Percentage of new debt investment commitments at floating rates 98.5 % 100.0 % Percentage of new debt investment commitments at fixed rates 1.5 % - % Weighted average interest rate of new investment commitments 9.1 % 8.6 % Weighted average spread over LIBOR of new floating rate investment commitments 7.8 % 7.5 % Weighted average interest rate on investments sold or paid down 9.4 %



10.6 %

As of March 31, 2014 and December 31, 2013, our investments consisted of the following: March 31, 2014 December 31, 2013 ($ in millions) Fair Value Amortized Cost Fair Value Amortized Cost First-lien debt investments $ 984.7 $ 970.4 $ 877.2 $ 863.4 Second-lien debt investments 203.8 194.1 137.5 131.1 Mezzanine debt investments 4.7 4.6 - - Equity investments 2.3 3.3 1.8 2.8 Total $ 1,195.5$ 1,172.4$ 1,016.5 $ 997.3 39



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The following table shows the amortized cost of our performing and non-accrual investments as of March 31, 2014 and December 31, 2013:

March 31, 2014 December



31, 2013

($ in millions) Amortized Cost Percentage Amortized Cost

Percentage Performing $ 1,172.4 100.0 % $ 997.3 100.0 % Non-accrual (1) - - - - Total $ 1,172.4 100.0 % $ 997.3 100.0 %



(1) Loans are generally placed on non-accrual status when principal or interest

payments are past due 30 days or more or when there is reasonable doubt that

principal or interest will be collected in full. Non-accrual loans are

restored to accrual status when past due principal and interest is paid

current and, in management's judgment, are likely to remain current.

Management may determine to not place a loan on non-accrual status if the

loan has sufficient collateral value and is in the process of collection.

The weighted average yields and interest rates of our debt investments at fair value as of March 31, 2014 and December 31, 2013 were as follows:

March 31, 2014 December 31, 2013 Weighted average total yield of debt and income producing securities 10.2 % 10.4 % Weighted average interest rate of debt and income producing securities 9.8 % 10.0 % Weighted average spread over LIBOR of all floating rate investments 8.5 % 8.7 % The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:



assessment of success of the portfolio company in adhering to its business

plan and compliance with covenants; periodic and regular contact with portfolio company management and, if



appropriate, the financial or strategic sponsor, to discuss financial

position, requirements and accomplishments; comparisons to other companies in the industry; attendance at, and participation in, board meetings; and



review of monthly and quarterly financial statements and financial

projections for portfolio companies.

As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:

An investment is rated 1 if, in the opinion of the Adviser, it is

performing as agreed and there are no concerns about the portfolio

company's performance or ability to meet covenant requirements. For these

investments, the Adviser generally prepares monthly reports on loan performance and intensive quarterly asset reviews.



An investment is rated 2 if it is performing as agreed, but, in the

opinion of the Adviser, there may be concerns about the company's

operating performance or trends in the industry. For these investments, in

addition to monthly reports and quarterly asset reviews, the Adviser also

researches any areas of concern with the objective of early intervention

with the borrower.



An investment will be assigned a rating of 3 if it is paying as agreed but

a covenant violation is expected. For these investments, in addition to

monthly reports and quarterly asset reviews, the Adviser also adds the

company to its "watch list" and researches any areas of concern with the

objective of early intervention with the borrower.



An investment will be assigned a rating of 4 if a material covenant has

been violated, but the company is making its scheduled payments. For these

investments, the Adviser prepares a bi-monthly asset review email and

generally has monthly meetings with senior management. For investments

where there have been material defaults, including bankruptcy filings,

failures to achieve financial performance requirements or failure to

maintain liquidity or loan-to-value requirements, the Adviser often will

take immediate action to protect its position. These remedies may include

negotiating for additional collateral, modifying loan terms or structure,

or payment of amendment and waiver fees.



A rating of 5 indicates an investment is in default on its interest or

principal payments. For these investments, our Adviser reviews the loans

on a bi-monthly basis and, where possible, pursues workouts that achieve

an early resolution to avoid further deterioration. The Adviser retains

legal counsel and takes actions to preserve our rights, which may include

working with the borrower to have the default cured, to have the loan

restructured or to have the loan repaid through a consensual workout.

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of March 31, 2014 and December 31, 2013:

March 31, 2014 December 31, 2013 Investment Investments at Investments at Performance Fair Value Percentage of Fair Value Percentage of Rating ($in millions) Total Portfolio ($in millions) Total Portfolio 1 $ 997.4 83.4 % $ 859.4 84.6 % 2 120.5 10.1 % 116.4 11.4 % 3 37.4 3.1 % 40.7 4.0 % 4 40.2 3.4 % - - 5 - - - - Total $ 1,195.5 100.0 % $ 1,016.5 100.0 % Results of Operations Operating results for the three months ended March 31, 2014 and 2013 were as follows: Three Months Ended March 31, ($ in millions) 2014 2013 Total investment income $ 33.5$ 20.8 Net expenses 12.3 7.7 Net investment income before income taxes 21.2



13.1

Income taxes, including excise taxes 0.0



0.0

Net investment income 21.2



13.1

Net realized gains (losses) on investments, including foreign exchange forward contracts (1)

(1.6 ) 0.4 Net change in unrealized gains on investments (1) 5.7



2.0

Net increase in net assets resulting from operations $ 25.3$ 15.5



(1) Includes foreign exchange hedging activity

Investment Income Three Months Ended March 31, ($ in millions) 2014 2013 Interest from investments $ 31.1 $ 20.6 Other income 2.4 0.2 Total investment income $ 33.5 $ 20.8 Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $20.6 million for the three months ended March 31, 2013 to $31.1 million for the three months ended March 31, 2014, primarily due to the increase in the size of our portfolio. The average size of our total investment portfolio increased from $640 million during the three months ended March 31, 2013 to $1.1 billion during the three months ended March 31, 2014. In addition, accelerated amortization of upfront fees primarily from unscheduled paydowns decreased from $1.6 million for the three months ended March 31, 2013 to $1.2 million for the three months ended March 31, 2014; and prepayment fees decreased from $1.4 million for the three months ended March 31, 2013 to $1.0 million for the three months ended March 31, 2014. The accelerated amortization and prepayment fees primarily resulted from full paydowns on two portfolio investments during the three months ended March 31, 2013 and from full paydowns on three portfolio investments during the three months ended March 31, 2014. Other income increased from $0.2 million for the three months ended March 31, 2013 to $2.4 million for the three months ended March 31, 2014, primarily due to higher syndication, amendment and agency fees earned during the first quarter of 2014. 40



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Expenses

Operating expenses for the three months ended March 31, 2014 and 2013 were as follows: Three Months Ended March 31, ($ in millions) 2014 2013 Interest $ 3.8 $ 2.3 Management fees (net of waivers) 1.7 1.5 Incentive fees related to Pre-incentive fee net investment income 3.8 2.4 Incentive fees related to realized/unrealized capital gains 0.6 0.3 Professional fees 1.2 0.6 Directors' fees 0.1 0.1 Other general and administrative 1.0 0.5 Net Expenses $ 12.2 $ 7.7 Interest Interest, including other debt financing expenses, increased from $2.3 million for the three months ended March 31, 2013 to $3.8 million for the three months ended March 31, 2014. This increase was primarily due to an increase in the average debt outstanding from $188 million for the three months ended March 31, 2013 to $471 million for the three months ended March 31, 2014. The average stated interest rate on our debt outstanding decreased from 2.8% for the three months ended March 31, 2013 to 2.5% for the three months ended March 31, 2014.



Management Fees

Management Fees (net of waivers) increased from $1.5 million for the three months ended March 31, 2013 to $1.7 million for the three months ended March 31, 2014. Management Fees increased from $3.0 million for the three months ended March 31, 2013 to $4.2 million for the three months ended March 31, 2014 due to the increase in total assets, which increased from an average of $819 million for the three months ended March 31, 2013 to an average of $1.1 billion for the three months ended March 31, 2014. Management Fees waived increased from $1.5 million for the three months ended March 31, 2013 to $2.5 million for the three months ended March 31, 2014 due to an increase in total assets, as described below. Until our IPO, the Adviser had waived its right to receive the Management Fee in excess of the sum of (i) 0.25% of aggregate committed but undrawn capital; and (ii) 0.75% of aggregate drawn capital (including capital drawn to pay our expenses) as determined as of the end of any calendar quarter. Any waived Management Fees are not subject to recoupment by the Adviser. Following our IPO, the Adviser does not intend to waive its right to receive the full Management Fee, and accordingly, we will be required to pay the full amount of the Management Fee.



Incentive Fees

Incentive Fees related to pre-Incentive Fee net investment income increased from $2.4 million for the three months ended March 31, 2013 to $3.8 million for the three months ended March 31, 2014. This increase resulted from the increase in the size of the portfolio and related increase in pre-Incentive Fee net investment income. Incentive Fees related to capital gains increased from $0.3 million for the three months ended March 31, 2013 to $0.6 million for the three months ended March 31, 2014 due to changes in unrealized gains and losses on our investments, realized gains on our investments and realized losses on foreign currency forward contracts.



Professional Fees and Other General and Administrative Expenses

Professional fees increased from $0.6 million for the three months ended March 31, 2013 to $1.2 million for the three months ended March 31, 2014 and other general and administrative fees increased from $0.5 million for the three months ended March 31, 2013 to $1.0 million for the three months ended March 31, 2014, both due to an increase in costs associated with servicing a growing investment portfolio.



Income Taxes, Including Excise Taxes

We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes. 41



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Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income.



For the three months ended March 31, 2014 and 2013 we recorded a net expense of $9 thousand and $4 thousand, respectively, for U.S. federal excise tax.

Net Realized Gains

During the three months ended March 31, 2014, we had $1.6 million of net realized losses on foreign currency forward contracts. During the three months ended March 31, 2013, we had $0.4 million of net realized gains.

The realized gains and losses on investments and foreign currency forward contracts during the three months ended March 31, 2014 and 2013 consisted of the following: Three Months Ended March 31, ($ in millions) 2014 2013 Centaur, LLC $ - $ 0.1 Embarcadero Technologies, Inc. - 0.1 The Newark Group, Inc. - 0.2 Subtotal $ - $ 0.4 Foreign currency forward contracts (1.6 ) - Net Realized Gains (losses) $ (1.6 )$ 0.4



Aggregate Cash Flow Realized Gross Internal Rate of Return

Since we began investing in 2011 through March 31, 2014, our exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of 15.3% (based on cash invested of $459 million and total proceeds from these exited investments of $528 million). Seventy eight percent of these exited investments resulted in an aggregate cash flow realized gross internal rate of return to us of 10% or greater. Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in our investments is equal to the present value of all realized returns from the investments. Our IRR calculations are unaudited. Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital Invested also includes realized losses on hedging activity, with respect to an investment, represent any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any. Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, represent any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any. Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur. 42



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Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did. Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.



Net Change in Unrealized Gains/Losses

We value our investments quarterly and any changes in fair value are recorded as unrealized gains or losses.

During the three months ended March 31, 2014 and 2013, the net change in unrealized gains and losses on our investment portfolio, including losses on foreign currency transactions, consisted of the following:

Three Months Ended March 31, ($ in millions) 2014 2013 Change in unrealized gains on investments $ 8.6$ 4.7 Change in unrealized losses on investments



(4.7 ) (2.8 )

Net Change in Unrealized Gains on investments 3.9 1.9 Foreign currency borrowings 0.5 - Foreign currency forward contracts 1.3 -



Net Change in Unrealized Gains on foreign currency transactions 1.8

- Net Change in Unrealized Gains $



5.7 $ 1.9

For the three months ended March 31, 2014, we had $8.6 million in unrealized appreciation on investments which was partially offset by $4.7 million in unrealized depreciation on investments. Unrealized appreciation resulted from an increase in fair market value, primarily due to a tightening spread environment and positive credit-related adjustments. Unrealized depreciation primarily resulted from the reversal of prior period unrealized appreciation and in some instances negative credit-related adjustments, which in each case caused a reduction in fair value. For the three months ended March 31, 2013, we had $4.7 million in unrealized appreciation on investments which was partially offset by $2.8 million in unrealized depreciation on investments. Unrealized appreciation resulted from an increase in fair market value, primarily due to a tightening spread environment and positive credit-related adjustments. Unrealized depreciation primarily resulted from the reversal of prior period unrealized appreciation and in some instances negative credit-related adjustments, which in each case caused a reduction in fair value.



Hedging

During the three months ended March 31, 2014, we settled our foreign currency forward contracts related to our investments in Jeeves Information Systems AB and Soho House Bond Ltd., which in total generated a realized loss of $1.6 million. We did not enter into new foreign currency forward contracts related to these investments nor did we enter into any other interest rate or other derivative agreements. We bear the costs incurred in connection with entering into, administering and settling derivative contracts. There can be no assurance any hedging strategy we employ will be successful.



Financial Condition, Liquidity and Capital Resources

Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:

investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements; the cost of operations (including paying our Adviser); 43



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Table of Contents debt service, repayment, and other financing costs; and cash distributions to the holders of our shares. The capital commitments of our existing investors terminated on the completion of our IPO. We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200%. As of March 31, 2014 and December 31, 2013, our asset coverage ratio was 300.1% and 232.9%, respectively. Cash and cash equivalents as of March 31, 2014, taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. On February 27, 2014, we terminated the Subscription Credit Facility, effective March 4, 2014. The outstanding balance under the Subscription Credit Facility was paid down prior to terminating the facility. As of March 31, 2014, we had $28.8 million in cash and cash equivalents, an increase of $25.3 million from December 31, 2013. The increase was primarily attributable to drawing cash from our credit facility for two existing investments for which we funded upsizes for immediately after the period ended, as well as cash received on March 31, 2014 from amortization and interest payments and a partial sell down for one investment. During the three months ended March 31, 2014, we used $151.5 million in cash for operating activities, primarily as a result of funding of portfolio investments of $325.3 million. This was partially offset by proceeds from investments of $50.0 million, repayments on investments of $103.6 million, an increase in net assets resulting from operations of $25.3 million and other operating activity of $5.1 million. Lastly, cash provided by financing activities was $176.9 million during the period, primarily due to proceeds from issuance of common stock of $216.6 million partially offset by net repayments on debt of $29.6 million, debt issuance costs of $3.1 million and dividends paid of $7.0 million. As of March 31, 2014, we had $8.5 million of restricted cash in our wholly owned subsidiary TPG SL SPV, an increase of $2.2 million from December 31, 2013. The increase was primarily attributable to increased interest payments from additional investments contributed to TPG SL SPV. Proceeds received by TPG SL SPV from interest and principal at the end of a reporting period that have not gone through a settlement process are considered to be restricted cash. The settlement process involves the payment of certain required amounts under the SPV Asset Facility, following which excess cash generated in TPG SL SPV may be distributed to us. Restricted cash is a component of prepaid expenses and other assets in our consolidated financial statements.



Equity Issuances

On March 26, 2014, we closed our IPO and issued 7,000,000 shares at $16.00 per share, and closed our concurrent private placement and issued 3,124,984 shares at $16.00 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $151.6 million. In April 2014, an additional 1,050,000 shares of stock were issued pursuant to the exercise of the underwriters' over-allotment option. Net of underwriting fees and offering costs, we received additional total cash proceeds of $15.4 million. Prior to December 31, 2013, we entered into Subscription Agreements with our existing investors, including our Adviser and its affiliates, providing for the private placement of our common stock, which brought our total capital commitments to $1.5 billion (including $117.1 million from our Adviser and its affiliates). From inception through March 31, 2014, we had drawn down a total of $0.6 billion of capital and issued 38.9 million shares, excluding equity and shares issued through our dividend reinvestment plan. As of December 31, 2013, over $0.9 billion of capital commitments remained unfunded. These unfunded commitments terminated upon the completion of our IPO, and hence as of March 31, 2014 no longer remain in effect. During the three months ended March 31, 2014 and 2013, we received fundings from drawdown notices to our investors relating to the issuance of 4,234,501 shares and 2,079,224 shares, respectively, of our common stock for aggregate proceeds of $65 million and $32 million, respectively. Proceeds from the issuances were used in investing activities and for other general corporate purposes.



In addition to the drawdowns noted above, during the three months ended March 31, 2014 and 2013, we issued 502,200 and 343,981 shares of our common stock, respectively, to shareholders who have not opted out of our dividend reinvestment plan for proceeds of $7.8 million and $5.2 million, respectively.

On May 1, 2014, pursuant to its dividend reinvestment plan, we issued 410,183 shares in connection with the dividend that was paid on April 30, 2014 to shareholders who opted out of the dividend reinvestment plan. This dividend was declared on March 26, 2014 for shareholders of record on March 31, 2014. 44



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Debt

Debt consisted of the following as of March 31, 2014 and December 31, 2013:

March 31, 2014 Borrowings Amount ($ in millions) Total Facility Outstanding Available (1) SPV Asset Facility (2) $ 175.0 $ 153.2 $ 3.5 Revolving Credit Facility (3) 581.3 248.9 332.4 Total Debt $ 756.3 $ 402.1 $ 335.9 December 31, 2013 Borrowings Amount ($ in millions) Total Facility Outstanding Available (1) Subscription Credit Facility (4) $ 100.0 $ 32.0 $ 68.0 SPV Asset Facility (2) 100.0 77.8 - Revolving Credit Facility (3) 400.0 322.5 77.5 Total Debt $ 600.0 $ 432.3 $ 145.5



(1) The amount available reflects any limitations related to the respective debt

facilities' borrowing bases.

(2) On January 21, 2014, we amended the SPV Asset Facility to increase the size

of the facility to $175.0 million.

(3) On February 27, 2014, we amended the Revolving Credit Facility to increase

the size of the facility to $581.3 million.

(4) On February 27, 2014, we terminated the Subscription Credit Facility,

effective March 4, 2014. The outstanding balance was paid down prior to

terminating the facility.

As of March 31, 2014 and December 31, 2013, we were in compliance with the terms of our debt arrangements. We intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes.



Revolving Credit Facility

On August 23, 2012, we entered into a senior secured revolving credit agreement with SunTrust Bank, as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders. On July 2, 2013, we entered into an agreement to amend and restate the agreement, effective on July 3, 2013. The amended and restated facility, among other things, increased the size of the facility from $200 million to $350 million. The facility included an uncommitted accordion feature that allowed us, under certain circumstances, to increase the size of the facility up to $550 million. On September 30, 2013, we exercised our right under the accordion feature and increased the size of the facility to $400 million. On January 27, 2014, we again exercised our right under the accordion feature and increased the size of the facility to $420 million.



On February 27, 2014, we further amended and restated the agreement, which we refer to as the Revolving Credit Facility. The second amended and restated Revolving Credit Facility, among other things:

increased the size of the facility to $581.3 million; increased the size of the uncommitted accordion feature to allow us, under

certain circumstances, to increase the size of the facility up to $956.3 million; increased the limit for swingline loans to $100 million; with respect to $545 million in commitments;



extended the expiration of the revolving period from June 30, 2017 to

February 27, 2018, during which period we, subject to certain conditions, may make borrowings under the facility; and



extended the stated maturity date from July 2, 2018 to February 27,

2019; and provided that borrowings under the multicurrency tranche will be available



in certain additional currencies.

Net proceeds received from the closing of our IPO and concurrent private placement were used to pay down borrowings on the Revolving Credit Facility.

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We may borrow amounts in U.S. dollars or certain other permitted currencies. In connection with settling our foreign currency forward contracts related to our investments in Jeeves Information Systems AB and Soho House Bond Ltd., during the three months ended March 31, 2014 we borrowed in foreign currencies from our Revolving Credit Facility. As of March 31, 2014, we have outstanding debt denominated in Swedish Krona of 218,379,000 and outstanding debt denominated in Pound Sterling of 7,000,000 on our Revolving Credit Facility, included in the Borrowings Outstanding amount in the table above. Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either LIBOR plus a margin, or the prime rate plus a margin. We may elect either the LIBOR or prime rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin while the letter of credit is outstanding. The Revolving Credit Facility is guaranteed by TC Lending, LLC and certain of our domestic subsidiaries that are formed or acquired by us in the future. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.



The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants requiring:

an asset coverage ratio of no less than 2 to 1 on the last day of any

fiscal quarter;



a liquidity test under which we must maintain cash and liquid investments

of at least 10% of the covered debt amount under circumstances where our

adjusted covered debt balance is greater than 90% of our adjusted borrowing base under the facility; and



stockholders' equity of at least $205 million plus 25% of the net proceeds

of the sale of equity interests after August 23, 2012.

SPV Asset Facility

On May 8, 2012, the "Closing Date," our wholly owned subsidiary TPG SL SPV, LLC, a Delaware limited liability company, entered into a credit and security agreement with Natixis, New York Branch. Also on May 8, 2012, we contributed certain investments to TPG SL SPV pursuant to the terms of a Master Sale and Contribution Agreement by and between us and TPG SL SPV. We consolidate TPG SL SPV in our consolidated financial statements, and no gain or loss was recognized as a result of the contribution. Proceeds from the SPV Asset Facility may be used to finance the acquisition of eligible assets by TPG SL SPV, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired by TPG SL SPV through our ownership of TPG SL SPV. The facility size is subject to availability under the borrowing base, which is based on the amount of TPG SL SPV's assets from time to time, and satisfaction of certain conditions, including an asset coverage test, an asset quality test and certain concentration limits. The credit and security agreement provided for a contribution and reinvestment period for up to 18 months after the Closing Date, or the Commitment Termination Date. The Commitment Termination Date was November 8, 2013, at which point the reinvestment period of the SPV Asset Facility expired and accordingly any undrawn availability under the facility terminated. Proceeds received by TPG SL SPV from interest, dividends or fees on assets are required to be used to pay expenses and interest on outstanding borrowings, and the excess can be returned to us, subject to certain conditions, on a quarterly basis. Prior to the Commitment Termination Date, proceeds received from principal on assets could be used to pay down borrowings or make additional investments. Following the Commitment Termination Date, proceeds received from principal on assets are required to be used to make payments of principal on outstanding borrowings on a quarterly basis. Proceeds received from interest and principal at the end of a reporting period that have not gone through the settlement process for these payment obligations are considered to be restricted cash. On January 21, 2014, TPG SL SPV entered into an agreement to amend and restate the credit and security agreement, which we refer to as the SPV Asset Facility. The amended and restated facility, among other things: increased the size of the facility from $100 million to $175 million; reopened the reinvestment period thereunder for an additional period of



six months following the closing date of January 21, 2014, which may be

extended in the borrower's sole discretion for an additional six-month

period thereafter; extended the stated maturity date from May 8, 2020 to January 21, 2021; modified pricing; and



made certain changes to the eligibility criteria and concentration limits.

Amounts drawn under the amended and restated SPV Asset Facility and the original credit and security agreement bear interest at LIBOR plus a margin or base rate plus a margin or, in the case of the amended and restated SPV Asset Facility, the lenders' cost of funds plus a margin, in each case at TPG SL SPV's option. TPG SL SPV's ability to borrow at lenders' cost of funds plus a margin 46



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lowers the interest rate currently applicable on our borrowings under the SPV Asset Facility. The undrawn portion of the commitment bears an unutilized commitment fee of 0.75%. The SPV Asset Facility contains customary covenants, including covenants relating to separateness from the Adviser and its affiliates and long-term credit ratings with respect to the underlying collateral obligations, and events of default. The SPV Asset Facility is secured by a perfected first priority security interest in the assets of TPG SL SPV and on any payments received by TPG SL SPV in respect of such assets, which accordingly are not available to pay our other debt obligations. As of March 31, 2014 and December 31, 2013, TPG SL SPV had $350.4 million and $184.3 million, respectively, in investments at fair value and $155.1 million and $78.3 million, respectively, in liabilities, including the outstanding borrowings, on its balance sheet. As of March 31, 2014 and December 31, 2013, TPG SL SPV had $8.5 million and $6.3 million, respectively, in restricted cash, a component of prepaid expenses and other assets, in the accompanying consolidated financial statements.



Borrowings of TPG SL SPV are considered our borrowings for purposes of complying with the asset coverage requirements of the 1940 Act.

Subscription Credit Facility

On February 27, 2014, we terminated our Subscription Credit Facility with Deutsche Bank Trust Company Americas, effective March 4, 2014. At the time of the termination, the maximum principal amount of the facility was $100 million, and the outstanding balance was paid down prior to terminating the facility.



Off-Balance Sheet Arrangements

Portfolio Company Commitments

From time to time, we may enter into commitments to fund investments. Our senior secured revolving loan commitments are generally available on a borrower's demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured term loan commitments are generally available on a borrower's demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured term loan commitments generally have a shorter availability period than the term of the associated loan agreement. As of March 31, 2014 and December 31, 2013, we had the following commitments to fund investments: ($ in millions) March 31, 2014 December



31, 2013

Senior secured revolving loan commitments $ 23.7 $



18.4

Senior secured term loan commitments 32.0



36.6

Total Portfolio Company Commitments $ 55.7 $



55.0

Other Commitments and Contingencies

As of December 31, 2013 the Company had $1.5 billion in total capital commitments from investors (over $0.9 billion unfunded). Of this amount, $117.1 million is from the Adviser and its affiliates ($76.7 million unfunded). These unfunded commitments terminated upon the completion of our IPO, and hence as of March 31, 2014 no longer remain in effect. We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of March 31, 2014 and December 31, 2013, we had outstanding commitments to fund investments totaling $55.7 million and $55.0 million, respectively. We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee. Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our chief financial officer and chief compliance officer and their respective staffs. Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance. 47



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Contractual Obligations

A summary of our contractual payment obligations as of March 31, 2014 is as follows: Payments Due by Period Less than ($ in millions) Total 1 year 1-3 years 3-5 years After 5 years SPV Asset Facility $ 153.2 $ - $ - $ - $ 153.2 Revolving Credit Facility 248.9 - - 248.9 -



Total Contractual Obligations $ 402.1 $ - $ - $ 248.9 $ 153.2

In addition to the contractual payment obligations in the tables above, we also have commitments to fund investments.

Distributions

We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:



investment company taxable income (which is generally our 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, for such taxable year; and net tax-exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for such taxable year. As a RIC, 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. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-level U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the U.S. federal excise tax described below. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of: 98.0% of our net ordinary income excluding certain ordinary gains or

losses for that calendar year;



98.2 % of our capital gain net income, adjusted for certain ordinary gains

and losses, recognized for the twelve-month period ending on October 31 of

that calendar year; and 100% of any income or gains recognized, but not distributed, in preceding



years.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement. We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time. To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution carefully and should not assume that the source of any distribution is our ordinary income or gains. We have adopted an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not "opted out" of our dividend reinvestment plan will have their dividends automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions. 48



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Related-Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

the Investment Advisory Agreement; the Administration Agreement; and



a license agreement with an affiliate of TPG under which the affiliate

granted us a non-exclusive license to use the TPG name and logo, for a

nominal fee, for so long as the Adviser or one of its affiliates remains

our investment adviser. Other than with respect to this limited license,

we have no legal right to the "TPG" name or logo.

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 4, 2014, and our Form 10-K/A, filed with the SEC on March 14, 2014, and elsewhere in our filings with the SEC.


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Source: Edgar Glimpses