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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the fiscal year ended December 31, 2015
OR
 
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from              to             
Commission File No. 000-54899
CARLYLE GMS FINANCE, INC.
(Exact name of Registrant as specified in its charter)

Maryland	 	80-0789789	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification Number)	
520 Madison Avenue, 38th Floor, New York, NY 10022
(Address of principal executive office) (Zip Code)
(212) 813-4900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	 	¨	  	Accelerated filer	 	¨	
 	 	 	 	
Non-accelerated filer	 	x  (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of December 31, 2015, there was no established public market for the registrant’s common stock.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	  	Outstanding at March 11, 2016	
Common stock, $0.01 par value	  	33,343,149	
Documents Incorporated by Reference: Portions of the registrant’s Proxy Statement for its 2016 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Form 10-K.

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CARLYLE GMS FINANCE, INC.
INDEX

Part I	 	 	  	 	 	 	
 	 	 	
Item 1.	 	Business	  	 	2	  	
 	 	 	
Item 1A.	 	Risk Factors	  	 	21	  	
 	 	 	
Item 1B.	 	Unresolved Staff Comments	  	 	49	  	
 	 	 	
Item 2.	 	Properties	  	 	49	  	
 	 	 	
Item 3.	 	Legal Proceedings	  	 	49	  	
 	 	 	
Item 4.	 	Mine Safety Disclosures	  	 	49	  	
 	 	 	
Part II	 	 	  	 	 	 	
 	 	 	
Item 5.	 	Marketfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	  	 	50	  	
 	 	 	
Item 6.	 	Selected Financial Data	  	 	51	  	
 	 	 	
Item 7.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	53	  	
 	 	 	
Item 7A.	 	Quantitative and Qualitative Disclosures About Market Risk	  	 	74	  	
 	 	 	
Item 8.	 	Financial Statements and Supplementary Data	  	 	76	  	
 	 	 	
Item 9.	 	Changes and Disagreements with Accountants on Accounting and Financial Disclosure	  	 	123	  	
 	 	 	
Item 9A.	 	Controls and Procedures	  	 	123	  	
 	 	 	
Item 9B.	 	Other Information	  	 	124	  	
 	 	 	
Part III	 	 	  	 	 	 	
 	 	 	
Item 10.	 	Directors, Executive Officers and Corporate Governance	  	 	125	  	
 	 	 	
Item 11.	 	Executive Compensation	  	 	125	  	
 	 	 	
Item 12.	 	SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters	  	 	125	  	
 	 	 	
Item 13.	 	Certain Relationships and Related Transactions, and Director Independence	  	 	125	  	
 	 	 	
Item 14.	 	Principal Accountant Fees and Services	  	 	125	  	
 	 	 	
Part IV	 	 	  	 	 	 	
 	 	 	
Item 15.	 	Exhibits and Financial Statement Schedules	  	 	126	  	

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have included or incorporated by reference in this Form 10-K, and from time to time our management may make, “forward-looking statements”. These forward-looking statements are not historical facts, but instead relate to future events or the future performance or financial condition of Carlyle GMS Finance, Inc. (“we,” “us,” “our,” “GMS Finance,” or the “Company”). These statements are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this Form 10-K and the documents incorporated by reference herein involve a number of risks and uncertainties, including statements concerning:
 
 	•	 	our, or our portfolio companies’, future business, operations, operating results or prospects;	
 
 	•	 	the return or impact of current and future investments;	
 
 	•	 	the impact of a protracted decline in the liquidity of credit markets on our business;	
 
 	•	 	the impact of fluctuations in interest rates on our business;	
 
 	•	 	the impact of changes in laws or regulations (including the interpretation thereof) governing our operations or the operations of our portfolio companies;	
 
 	•	 	the valuation of our investments in portfolio companies, particularly those having no liquid trading market;	
 
 	•	 	our ability to recover unrealized losses;	
 
 	•	 	market conditions and our ability to access alternative debt markets and additional debt and equity capital;	
 
 	•	 	our contractual arrangements and relationships with third parties;	
 
 	•	 	the general economy and its impact on the industries in which we invest;	
 
 	•	 	the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;	
 
 	•	 	our expected financings and investments;	
 
 	•	 	the adequacy of our cash resources and working capital;	
 
 	•	 	the timing, form and amount of any dividend distributions;	
 
 	•	 	the timing of cash flows, if any, from the operations of our portfolio companies;	
 
 	•	 	the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments; and	
 
 	•	 	our intent to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.	
We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “ Risk Factors ” in Part I, Item 1A of and elsewhere in this Form 10-K.
We have based the forward-looking statements included in this Form 10-K on information available to us on the date of this Form 10-K, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
 
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PART I
In this annual report, except where the context suggests otherwise:
 
 	•	 	the terms “we,” “us,” “our,” “Company” and “Carlyle GMS Finance” refer to Carlyle GMS Finance, Inc.;	
 
 	•	 	the term “2015-1 Issuer” refers to Carlyle GMS Finance MM CLO 2015-1 LLC, our wholly-owned and consolidated subsidiary;	
 
 	•	 	the term “Borrower Sub” refers to Carlyle GMS Finance SPV LLC, our wholly-owned and consolidated subsidiary;	
 
 	•	 	the term “Carlyle” refers to The Carlyle Group L.P., its affiliates and its consolidated subsidiaries, a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle;	
 
 	•	 	the terms “CGMSFA” and “Administrator” refer to Carlyle GMS Finance Administration L.L.C., our administrator;	
 
 	•	 	the terms “CGMSIM,” “Adviser” and “Investment Adviser” refer to Carlyle GMS Investment Management L.L.C., our investment adviser; and	
 
 	•	 	references to “this Form 10-K” are to our Annual Report on Form 10-K for the year ended December 31, 2015.	
Item 1. Business
GMS Finance is a Maryland corporation structured as an externally managed, non-diversified closed-end investment company. GMS Finance is externally managed by CGMSIM, an investment adviser that is registered with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The CGMSIM team managing our investments (the “CGMSIM Investment Team”) forms the exclusive Carlyle platform for U.S. middle market debt investments.
GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; “last out” first lien loans, which are loans that have a secondary priority behind “first out” first lien loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with features similar to the features of these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. We expect that the composition of our portfolio will change over time given our Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which we are operating.
The growth and development of our Company has been guided by several fundamental tenets:
 
 	•	 	Experienced Investment Team—The Company is managed by an experienced management team of investment professionals with extensive middle market lending experience. Our Adviser’s investment	
 
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 	committee that is responsible for reviewing and approving our Middle Market Senior Loan investments (the “CGMSIM Investment Committee”) consists of seasoned investment professionals from across the Global Market Strategies (“GMS”) segment of Carlyle.	
 
 	•	 	Attractive Origination Model—The CGMSIM Investment Team’s multi-channel origination model produces attractive investment opportunities through a variety of sources including over 200 private equity firms, other middle market lenders, financial advisors and experienced management teams to source debt investments in middle market companies and to source other high-yielding investments that provide attractive risk-adjusted returns. The CGMSIM Investment Team has cultivated very strong relationships with private equity sponsors and debt capital providers, with whom we work with closely in sourcing and executing transactions.	
 
 	•	 	Diligent Investment Strategy—Our investment decisions are based on in-depth, fundamental underwriting and credit research grounded in a conservative credit orientation. This systematic, consistent approach is augmented by industry expertise and tenured underwriting professionals who both lead the CGMSIM Investment Team and serve on the CGMSIM Investment Committee.	
 
 	•	 	Leverage the GMS Platform— The Company benefits from the well branded and scalable origination and underwriting platform of GMS. The CGMSIM Investment Team leverages the industry expertise of 11 structured credit research analysts who currently advise the GMS collateralized loan obligations (“CLOs”) funds and cover approximately 20 industries.	
 
 	•	 	Leverage the Carlyle Network—Carlyle, a leading global alternative asset manager, provides infrastructure, including back-office support, reporting assistance and accounting resources, and investment insight through proprietary deal flow, industry experience and sector knowledge.	
The following highlights illustrate our accomplishments since the commencement of our operations:
 
 	•	 	Capital Commitments and Investments—As of March 11, 2016, we have raised a total of $1.2 billion in total capital commitments in GMS Finance. Of that total, and inclusive of the use of leverage and recycled proceeds from sales and paydowns, we have deployed $1.1 billion in 87 funded first lien debt investments, $233.8 million in 28 funded second lien debt investments, $126.6 million in 27 structured finance obligations and $2.2 million in 2 equity investments through December 31, 2015.	
 
 	•	 	Credit Facilities and the 2015-1 Notes—On May 24, 2013, the Company’s wholly-owned subsidiary, Borrower Sub, entered into a senior secured revolving credit facility (as amended, the “Revolving Credit Facility”) with a maximum principal amount of $400 million. In addition, on March 21, 2014, the Company entered into a senior secured revolving credit facility (as amended, the “Facility”) with a maximum principal amount of $150 million. Further, on June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the 2015-1 Debt Securitization (the “2015-1 Notes”) were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company.	
 
 	•	 	Credit Platform Enhancements—The CGMSIM Investment Team has continued to expand and enhance all facets of the credit platform supporting the Company. Additional senior origination professionals were added during the year which meaningfully expanded the direct sourcing capabilities. The origination platform now has offices in New York, Chicago, and Los Angeles covering over 200 private equity firms. The scale of the direct origination platform allows the Company to maximizes the investment opportunity set and increase overall investment selectivity. Direct origination has several important benefits including optimizing transaction economics, improving the strength of the loan documentation, and providing greater access to due diligence materials. Additional senior resources were added to the capital markets group, further enhancing investment sourcing and syndication capabilities with other lenders, including banks, finance companies, credit funds, and other business development companies. Additional professionals were added to the underwriting and portfolio management team to support the overall increase in investment activity and portfolio growth. This	
 
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 	team works closely with the origination and capital markets professionals, as well as the GMS industry research analysts in executing all facets of transaction due diligence and portfolio management. Further enhancements and additions will be made as appropriate to ensure that the CGMSIM Investment Team continues to have best in class execution across each segment of the business.	
 
 	•	 	Strong Management Alignment With Investors—Certain members of Carlyle’s senior management team, Carlyle employees and operating executives, and certain partners and affiliates of Carlyle committed to purchase an aggregate of approximately $63.0 million of common stock, of which $29.4 million was funded as of December 31, 2015. Prior to a Qualified IPO, from time to time, CGMSIM intends to pay certain individuals providing services to CGMSIM, including members of the CGMSIM Investment Team, in shares of our common stock and/or in cash a portion of the net after-tax incentive fees that CGMSIM receives from us (not to exceed 25%) in consideration of their services on behalf of CGMSIM. To the extent that any such payment is in shares of our common stock, CGMSIM will purchase such shares from us and distribute the shares to the individuals eligible for such payment, and, to the extent that any such payment is in cash, CGMSIM will require the individuals eligible for such payment to make capital commitments to purchase newly issued shares of our common stock. In addition, following the completion of a Qualified IPO, from time to time, CGMSIM intends to purchase shares of our common stock in the open market at a purchase price, in the aggregate, equal to approximately 25% of each installment of the net after-tax incentive fees that CGMSIM receives from us, subject to market conditions. CGMSIM may then distribute those shares to members of the CGMSIM Investment Team and other individuals eligible for such payment in consideration of their services on behalf of CGMSIM.	
GMS Finance
GMS Finance is a Maryland corporation formed on February 8, 2012. On May 2, 2013, GMS Finance filed its election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”).
On May 2, 2013, GMS Finance completed its Initial Closing and subsequently commenced substantial investment operations. Prior to May 2, 2013, GMS Finance had not commenced operations and was a development stage company as defined by Accounting Standards Codification (“ASC”) 915,  Development Stage Entity . During this time, GMS Finance focused substantially all of its efforts on establishing its business. If GMS Finance has not consummated an initial public offering of its common stock that results in an unaffiliated public float of at least 15% of the aggregate capital commitments received prior to the date of such initial public offering (a “Qualified IPO”) by May 2, 2018, then our Board of Directors (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind down and/or liquidate and dissolve the Company.
GMS Finance is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). GMS Finance will remain an emerging growth company for up to five years following an initial public offering, although if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, GMS Finance would cease to be an emerging growth company as of the following December 31.
The Borrower Sub is a Delaware limited liability company that was formed on January 3, 2013. The Borrower Sub invests in first and second lien senior secured loans. The Borrower Sub is consolidated in our consolidated financial statements in Part II, Item 8 of this Form 10-K commencing from the date of its formation, January 3, 2013.
 
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On June 26, 2015, the Company completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Issuer is consolidated in our consolidated financial statements in Part II, Item 8 of this Form 10-K commencing from the date of its formation, May 8, 2015.
GMS Finance is externally managed by our Investment Adviser, an investment adviser registered under the Advisers Act. Our Administrator provides the administrative services necessary for us to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C. (“CIM”), a subsidiary of Carlyle.
As a BDC, GMS Finance is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).
GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a RIC under the Code, and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, GMS Finance must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, GMS Finance generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that GMS Finance satisfies those requirements.
About Our Adviser
Our investment activities are managed by our Investment Adviser. CGMSIM is responsible for sourcing potential investments, conducting research and due diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. For providing these services, the Investment Adviser receives fees from us pursuant to an investment advisory agreement (the “Investment Advisory Agreement”). For more information on the Investment Advisory Agreement, including the fees consisting of two components—a base management fee and an incentive fee, see Note 4 to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
The CGMSIM Investment Committee, which also serves as the investment committee to NF Investment Corp. (“NFIC”), is led by Michael J. Petrick, Managing Director of Carlyle, Chairman of the CGMSIM Investment Committee, Head of GMS and Chairman of the GMS Finance and NFIC Boards of Directors, and Michael A. Hart, Managing Director of Carlyle, President of GMS Finance and NFIC and member of the GMS Finance and NFIC Boards of Directors. Other members of the CGMSIM Investment Committee include senior GMS investment professionals who are responsible for reviewing and approving our investments. The CGMSIM Investment Committee members are seasoned investment professionals with experience through different credit cycles.
Pursuant to a personnel agreement between the Investment Adviser and The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, Carlyle Employee Co. provides the Investment Adviser with access to investment professionals that comprise the CGMSIM Investment Team. As of March 11, 2016, the CGMSIM Investment Team includes a team of approximately 18 investment professionals designated from Carlyle’s GMS platform.
Our executive officers and directors, the employees of the Investment Adviser and members of the CGMSIM Investment Committee serve or may serve as investment advisors, officers, directors or principals of entities or investment funds that operate in the same or a related line of business as we do and/or investment
 
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funds, accounts and other similar arrangements advised by Carlyle. An affiliated investment vehicle currently formed, such as NFIC, or formed in the future and managed by the Investment Adviser or its affiliates may have overlapping investment objectives and strategies with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Investment Adviser and/or its affiliates may face conflicts in allocating investment opportunities between us and such other entities. Accordingly, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisors affiliated with the Investment Adviser. However, the Investment Adviser and its affiliates will endeavor to allocate investment opportunities in a fair and equitable manner and consistent with applicable allocation procedures. See “ Risk Factors—Risks Related to Our Business and Structure — There are significant potential conflicts of interest, including the management of NFIC, other funds affiliated with Carlyle by our Investment Adviser’s key investment professionals, which could impact our investment returns ” in Part I, Item 1A of this Form 10-K for more information.
Prior to a Qualified IPO, from time to time, CGMSIM intends to pay certain individuals providing services to CGMSIM, including members of the CGMSIM Investment Team, in shares of our common stock and/or in cash a portion of the net after-tax incentive fees that CGMSIM receives from us (not to exceed 25%) in consideration of their services on behalf of CGMSIM. To the extent that any such payment is in shares of our common stock, CGMSIM will purchase such shares from us and distribute the shares to the individuals eligible for such payment, and, to the extent that any such payment is in cash, CGMSIM will require the individuals eligible for such payment to make capital commitments to purchase newly issued shares of our common stock. In addition, following the completion of a Qualified IPO, from time to time, CGMSIM intends to purchase shares of our common stock in the open market at a purchase price, in the aggregate, equal to approximately 25% of each installment of the net after-tax incentive fees that CGMSIM receives from us, subject to market conditions. CGMSIM may then distribute those shares to members of the CGMSIM Investment Team and other individuals eligible for such payment in consideration of their services on behalf of CGMSIM.
On February 26, 2014, the SEC granted us and NFIC, as well as future funds advised by CGMSIM, exemptive relief (“Exemptive Relief”) to co-invest in suitable investments, subject to certain terms and conditions in the Exemptive Relief. In addition, we and NFIC may invest alongside other affiliated funds and persons in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations, including the entities’ investment objectives and policies. For example, we may invest alongside such funds consistent with guidance promulgated by the SEC staff permitting us and such other funds to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that CGMSIM, acting on our behalf and on behalf of its other clients, and other affiliated funds and persons negotiates no term other than price.
About Carlyle
Carlyle is one of the world’s largest and most diversified multi-product global alternative asset management firms. Carlyle and its affiliates advise an array of specialized investment funds and other investment vehicles that invest across a range of industries, geographies, asset classes and investment strategies. Since its founding in Washington, D.C. in 1987, Carlyle has grown to become a leading global alternative asset manager with more than $183 billion in assets under management (“AUM”) across 126 funds and 160 fund of funds vehicles as of December 31, 2015. Carlyle has more than 1,700 employees, including more than 700 investment professionals in 36 offices across six continents, and serves over 1700 active carry fund investors from 78 countries.
Carlyle’s GMS platform was established in 1999 with its first high yield fund. As of December 31, 2015, it advises a group of 68 active funds that pursue investment strategies including long/short credit, long/short emerging markets equities, macroeconomic strategies, commodities trading, and structured transactions, quantitative market strategies, leveraged loans and structured credit, energy mezzanine opportunities, middle market lending and distressed debt.
 
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Primary areas of focus for Carlyle’s GMS teams include:
 
 	•	 	Structured Credit Funds. The structured credit funds invest primarily in performing senior secured bank loans through structured vehicles and other investment vehicles. In 2015, Carlyle closed five new U.S. CLOs and three CLOs in Europe with a total of $2.8 billion and $1.5 billion, respectively, of AUM at December 31, 2015. As of December 31, 2015, the structured credit team advised 43 structured credit funds and one carry fund in the United States, Europe, and Asia totaling, in the aggregate, approximately $18.4 billion in AUM.	
 
 	•	 	Distressed and Corporate Opportunities. The distressed and corporate opportunities funds generally invest in liquid and illiquid securities and obligations, including secured debt, senior and subordinated unsecured debt, convertible debt obligations, preferred stock and public and private equity of financially distressed companies in defensive and asset-rich industries. In certain investments, these funds may seek to restructure pre-reorganization debt claims into controlling positions in the equity of reorganized companies. As of December 31, 2015, Carlyle’s distressed and corporate opportunities team advised two funds totaling, in the aggregate, over $1.4 billion in AUM.	
 
 	•	 	Middle Market Finance. The middle market finance business is comprised of Carlyle’s BDCs (including us), a CLO consisting of middle market senior, first lien loans, and Carlyle’s corporate mezzanine funds, which invest in the first-lien, second-lien and mezzanine loans of middle-market companies, typically defined as companies with annual EBITDA ranging from $10 million to $100 million that lack access to the broadly syndicated loan and bond markets. As of December 31, 2015, Carlyle’s middle market investment team advised five funds totaling, in the aggregate, approximately $2.2 billion in AUM.	
 
 	•	 	Energy Mezzanine Opportunities. The energy mezzanine opportunities team invests primarily in privately negotiated mezzanine debt investments in North American energy and power projects and companies. As of December 31, 2015, Carlyle’s energy mezzanine opportunities team advised two funds with approximately $4.3 billion in AUM.	
 
 	•	 	Long/Short Credit. Claren Road Asset Management LLC (“Claren Road”) advises two long/short credit hedge funds focusing on the global high grade and high yield markets totaling, in the aggregate, over $3.4 billion in AUM as of December 31, 2015, which includes $2.3 billion of AUM that is subject to outstanding redemption requests as of the beginning of the first quarter of 2016. Claren Road seeks to profit from market mispricing of long and/or short positions in corporate bonds and loans, and their derivatives, across investment grade, below investment grade (high yield) or distressed companies.	
 
 	•	 	Emerging Market Equity and Macroeconomic Strategies. Emerging Sovereign Group LLC (“ESG”) advises six emerging markets equities and macroeconomic hedge funds with $4.3 billion in the aggregate of AUM as of December 31, 2015, which includes $0.7 billion of AUM that is subject to outstanding redemption requests as of the beginning of the first quarter of 2016. ESG’s emerging markets equities funds invest in publicly-traded equities across a range of developing countries. ESG’s macroeconomic funds pursue investment strategies in developed and developing countries, and opportunities resulting from changes in the global economic environment.	
 
 	•	 	Commodities. Carlyle Commodity Management LLC (f/k/a Vermillion Asset Management LLC), a New York-based commodities investment manager (“CCM”) advises five hedge funds and two structured product fund totaling, in the aggregate, approximately $1.3 billion of AUM as of December 31, 2015, which includes $0.1 billion of AUM that is subject to outstanding redemption requests as of the beginning of the first quarter of 2016. CCM’s investment strategies include relative value, enhanced index and long-biased physical commodities, commodity sector-focused funds, and structured transactions. CCM seeks to produce positive, uncorrelated returns, through a liquid, relative-value, low volatility approach to trading both physical commodities and their derivatives and structuring transactions in physical commodities.	
 
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NFIC is an externally managed, non-diversified closed-end investment company that has elected to be regulated as a BDC under the Investment Company Act and has elected to be treated as a RIC under the Code. NFIC seeks to achieve its investment objective by investing primarily in Middle Market Senior Loans, subject to, in the case of second lien senior secured loans, a limit of 10% of NFIC’s total assets. In addition, NFIC may invest up to 10% of its total assets in high yield securities whose risk profile, as determined at the sole discretion of the Investment Adviser, is similar to or better than the risk profile of Middle Market Senior Loans. NFIC has the same Adviser and Administrator as us. Refer to the sec.gov website for further information on NFIC.
Carlyle sponsors several investment funds, accounts and other similar arrangements with strategies overlapping with our strategy, including, without limitation, NFIC, Carlyle Energy Mezzanine Opportunities Fund and successor funds, Carlyle Strategic Partners series of funds, as well as carry funds, hedge funds, managed accounts and structured credit CLO funds. The terms of certain of these investment funds, accounts or other similar arrangements require Carlyle to allocate investment opportunities to such investment funds in priority to allocations to other vehicles, such as us. As a result, there are circumstances where investments appropriate for us are instead allocated, in whole or in part, to such other investment funds, accounts or other similar arrangements. Where Carlyle otherwise has discretion to allocate investment opportunities among various funds, accounts and other similar arrangements, it should be noted that Carlyle may determine to allocate such investment opportunities away from us. Apart from the circumstances described above, Carlyle is presented with investment opportunities that generally fall within our investment objective and that of other Carlyle investment funds or managed accounts, whether focused on a debt strategy or otherwise, and in such circumstances Carlyle allocates such opportunities among us and such other Carlyle funds on a basis that Carlyle determines to be fair and reasonable taking into account the sourcing of the transaction, the nature of the investment focus of each such other Carlyle investment fund, the relative amounts of capital available for investment, the nature and extent of involvement in the transaction on the part of the respective teams of investment professionals, any requirements contained in the partnership agreements of such other Carlyle funds and other considerations deemed relevant by Carlyle in good faith. Consistent with the foregoing, Carlyle expects that other Carlyle investment funds will make investments in the debt of private companies. In addition, Carlyle expects that we will make investments in geographic regions in which other Carlyle investment funds have been or may be specifically organized to invest.
In addition, NFIC invests in Middle Market Senior Loans, and thus substantially all investment opportunities that fall within our investment objective may also fall within NFIC’s investment objective. On February 26, 2014, the SEC granted us and NFIC, as well as future funds advised by CGMSIM, Exemptive Relief to co-invest in suitable investments, subject to certain terms and conditions in the Exemptive Relief.
While Carlyle and CGMSIM seek to implement their respective allocation processes in a fair and equitable manner under the particular circumstances, there can be no assurance that it will result in equivalent allocation of or participation in investment opportunities or equivalent performance of investments allocated to us as compared to the other entities.
Carlyle may also from time to time form or have financial or operational interests in the management of one or more hedge funds or similar alternative investment vehicles which may be permitted to allocate a portion of their portfolios to long-dated, illiquid, restricted, or other similar securities and investment opportunities (which may include private equity and mezzanine investments), and whose investment strategies may therefore overlap with ours. It is therefore possible that such hedge funds may consider the same investment opportunities as us. Generally, any private debt investments that may be made by such hedge funds would (i) only be made as part of a broader investment portfolio and be limited to a minority percentage of the hedge fund’s overall portfolio and (ii) generally be expected to be passive minority investments, made on an opportunistic basis. Nevertheless, it cannot be completely ruled out that such hedge funds may on any given occasion compete with us for the same investment opportunity.
 
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About Our Administrator
CGMSFA, a Delaware limited liability company, serves as our Administrator. Pursuant to an administration agreement between us and the Administrator (the “Administration Agreement”), the Administrator provides services to us and we reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the compensation of certain of our officers and staff. In addition, the Administrator has entered into a sub-administration agreement with Carlyle Employee Co. (the “Carlyle Employee Co. Sub-Administration Agreement”) and a sub-administration agreement with CELF Advisors LLP (“CELF” and such agreement, the “CELF Sub-Administration Agreement”), which provide the Administrator with access to personnel. The Administrator has also entered into a sub-administration agreement with State Street Bank and Trust Company (“State Street” and such agreement, the “State Street Sub-Administration Agreement”), which serves as our custodian, transfer agent, distribution paying agent and registrar.
Competition
Our primary competitors in providing financing to middle market companies include public and private funds, other BDCs, including affiliated funds, commercial and investment banks, commercial finance companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we do, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act and the Code impose on us. The competitive pressures we face may have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
We expect to use the expertise of the members of the CGMSIM Investment Committee and the CGMSIM Investment Team to assess investment risks and determine appropriate pricing for our investments. In addition, we expect that the relationships developed by the CGMSIM Investment Team will enable us to learn about and compete effectively for, financing opportunities with attractive middle market companies in the industries in which we seek to invest. For additional information concerning the competitive risks we face, see Part I, Item 1A of this Form 10-K  “Risk Factors—Risks Related to Our Investments—We operate in a highly competitive market for investment opportunities, and compete with investment vehicles sponsored or advised by our affiliates”.
Staffing
We do not currently have any employees. Our Chief Financial Officer and Treasurer and Chief Operating Officer presently serve as a principal or managing director of Carlyle and are retained by CGMSFA pursuant to the Carlyle Employee Co. Sub-Administration Agreement. Our Chief Compliance Officer and Secretary presently serves as a director of Carlyle and is retained by CGMSFA pursuant to the CELF Sub-Administration Agreement. Each of these professionals performs their respective functions for us under the terms of our Administration Agreement.
Our day-to-day investment operations are managed by CGMSIM. Pursuant to its personnel agreement with Carlyle Employee Co., CGMSIM has access to the members of the CGMSIM Investment Committee, and a team of additional experienced investment professionals who, collectively, comprise the CGMSIM Investment Team. CGMSIM may hire additional investment professionals to provide services to GMS Finance.
 
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Investment Strategy and Approach
Our investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies. We seek to achieve our investment objective by investing primarily in Middle Market Senior Loans of private U.S. middle market companies and opportunistically pursuing investments with high risk-adjusted returns across the capital structure and company size depending on broader market conditions. We seek to generate strong risk-adjusted net returns by assembling a diversified portfolio of investments across a broad range of industries and instruments.
We target U.S. middle market companies, generally controlled by private equity investment firms that require capital for growth, acquisitions, recapitalizations, refinancings and leveraged buyouts. We may also make opportunistic loans to independently owned and publicly held middle market companies. We seek to partner with strong management teams executing long-term growth strategies. Target businesses typically exhibit some or all of the following characteristics:
 
 	•	 	EBITDA of $10—$100 million;	
 
 	•	 	Minimum of 35% original sponsor cash equity;	
 
 	•	 	Sustainable leading positions in their respective markets;	
 
 	•	 	Scalable revenues and operating cash flow;	
 
 	•	 	Experienced management teams with successful track records;	
 
 	•	 	Stable, predictable cash flows with low technology and market risks;	
 
 	•	 	Diversified product offering and customer base;	
 
 	•	 	Low capital expenditures requirements;	
 
 	•	 	A North American base of operations;	
 
 	•	 	Strong customer relationships;	
 
 	•	 	Products, services or distribution channels having distinctive competitive advantages; and	
 
 	•	 	Defensible niche strategy or other barriers to entry.	
While we believe that the criteria listed above are important in identifying and investing in prospective portfolio companies, not all of these criteria will be necessarily met by each prospective portfolio company. In addition, we may change our investment objective and/or investment criteria over time without notice to or consent from our investors.
 
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Portfolio Composition
As of December 31, 2015 and 2014, the fair value of our investments was approximately $1,052.7 million and $698.7 million, respectively, in 85 and 72 portfolio companies/structured finance obligations, respectively. The type, geography and industry composition of investments—non-controlled/non-affiliated as a percentage of fair value as of December 31, 2015 and 2014 was each as follows:

 	  	As of December 31,	 	
Type—% of Fair Value	  	2015	 	 	2014	 	
First Lien Debt	  	 	75.53	% 	 	 	73.68	% 	
Second Lien Debt	  	 	19.98	  	 	 	15.44	  	
Structured Finance Obligations	  	 	4.26	  	 	 	10.88	  	
Equity Investments	  	 	0.23	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	% 	 	 	100.00	% 	

 	  	As of December 31,	 	
Geography—% of Fair Value	  	2015	 	 	2014	 	
Cayman Islands	  	 	4.26	% 	 	 	10.52	% 	
Ireland	  	 	0.93	  	 	 	1.70	  	
United Kingdom	  	 	2.14	  	 	 	3.51	  	
United States	  	 	92.67	  	 	 	84.27	  	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	% 	 	 	100.00	% 	

 	 	 	 	 	 	 	 	 	
 	  	As of December 31,	 	
Industry—% of Fair Value	  	2015	 	 	2014	 	
Aerospace and Defense	  	 	6.02	% 	 	 	8.59	% 	
Automotive	  	 	5.02	  	 	 	3.37	  	
Banking, Finance, Insurance & Real Estate	  	 	13.24	  	 	 	4.09	  	
Business Services	  	 	12.38	  	 	 	9.06	  	
Capital Equipment	  	 	1.71	  	 	 	1.42	  	
Chemicals, Plastics & Rubber	  	 	2.46	  	 	 	2.36	  	
Construction & Building	  	 	1.90	  	 	 	2.58	  	
Consumer Services	  	 	4.82	  	 	 	5.94	  	
Containers, Packaging & Glass	  	 	5.24	  	 	 	4.02	  	
Durable Consumer Goods	  	 	1.94	  	 	 	4.57	  	
Energy: Electricity	  	 	3.51	  	 	 	1.19	  	
Energy: Oil & Gas	  	 	1.08	  	 	 	1.74	  	
Environmental Industries	  	 	1.10	  	 	 	2.98	  	
Healthcare & Pharmaceuticals	  	 	6.09	  	 	 	7.64	  	
High Tech Industries	  	 	4.73	  	 	 	5.25	  	
Hotel, Gaming & Leisure	  	 	2.97	  	 	 	1.23	  	
Media: Advertising, Printing & Publishing	  	 	1.96	  	 	 	0.96	  	
Metals & Mining	  	 	0.97	  	 	 	1.47	  	
Non-durable Consumer Goods	  	 	3.85	  	 	 	3.73	  	
Retail	  	 	2.29	  	 	 	1.83	  	
Software	  	 	1.33	  	 	 	3.95	  	
Structured Finance	  	 	4.26	  	 	 	10.88	  	
Telecommunications	  	 	6.72	  	 	 	4.01	  	
Transportation: Cargo	  	 	1.82	  	 	 	2.79	  	
Transportation: Consumer	  	 	0.89	  	 	 	1.57	  	
Utilities: Electric	  	 	0.54	  	 	 	0.84	  	
Wholesale	  	 	1.16	  	 	 	1.94	  	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	% 	 	 	100.00	% 	

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See the Consolidated Schedules of Investments as of December 31, 2015 and 2014 in our consolidated financial statements in Part II, Item 8 of this Form 10-K for more information on these investments, including a list of companies and type, cost and fair value of investments.
Investment Process—Middle Market Senior Loans
We view our investment process as consisting of four distinct phases described below:
Origination. Our Investment Adviser sources middle market investment opportunities through the CGMSIM Investment Team’s extensive network of relationships with private equity firms, other middle market senior lenders, and investment and commercial banks. The CGMSIM Investment Team supplements these relationships through personal visits and marketing campaigns focused on maximizing investment deal flow. It is their responsibility to identify specific opportunities, to refine opportunities through candid exploration of the underlying facts and circumstances and to apply creative and flexible thinking to solve clients’ financing needs. The origination personnel are located in New York, Illinois and California. Each originator maintains long-standing relationships with potential sources of deal flow and is responsible for covering a specified target market. We believe those originators’ strength and breadth of relationships across a wide range of markets generate numerous financing opportunities, which should enable our Investment Adviser to be highly selective in recommending investments.
Credit Evaluation. Our Investment Adviser utilizes a systematic, consistent approach to credit evaluation with a particular focus on an acceptable level of debt repayment and deleveraging under a “base case” set of projections, which we refer to as the “Base Case,” which typically reflects a more conservative estimate than the set of projections provided by a prospective portfolio company, which we refer to as the “Management Case.” In addition, our Investment Adviser leverages the industry-specific expertise within the GMS platform. Our Investment Adviser has access to 11 GMS Structured Credit research analysts who cover approximately 20 industries and advise GMS’ CLO funds. The key criteria that our Investment Adviser considers include (i) strong and resilient underlying business fundamentals, (ii) a substantial equity cushion in the form of capital ranking junior in right of payment to our investment and (iii) a conclusion that the overall Base Case and in some cases a “downside case” allows for adequate debt repayment and deleveraging. Our Investment Adviser focuses on the criteria for evaluating prospective portfolio companies discussed above under “Competitive Strengths.” In evaluating a particular company, our Investment Adviser puts more emphasis on credit considerations (such as (i) debt repayment and deleveraging under a Base Case set of projections, (ii) the ability of the company to maintain a modest liquidity cushion under a Base Case set of projections, and (iii) the ability of the company to service its fixed charge obligations under a Base Case set of projections) than on profit potential and loan pricing. Our Investment Adviser’s due diligence process for middle market credits typically entails:
 
 	•	 	a thorough review of historical and pro forma financial information;	
 
 	•	 	on-site visits;	
 
 	•	 	meetings with management;	
 
 	•	 	a review of loan documents and material contracts;	
 
 	•	 	third-party “quality of earnings” accounting due diligence;	
 
 	•	 	when appropriate, background checks on key managers;	
 
 	•	 	third-party research relating to the company’s business, industry, markets, products and services and competitors;	
 
 	•	 	the commission of third-party market studies when appropriate; and	
 
 	•	 	sensitivity of Management Case projections	
Execution. In executing transactions for us, our Investment Adviser applies a thorough, consistent approach to credit evaluation, and maintains discipline with respect to credit, pricing and structure to ensure the ultimate
 
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success of the financing. Upon completion of due diligence, the investment professionals working on a proposed portfolio investment deliver a memorandum to the CGMSIM Investment Committee. Once an investment has been approved by a majority of the CGMSIM Investment Committee, including an affirmative vote by the Chairman of the CGMSIM Investment Committee or his designee, it moves through a series of steps, including initial documentation using standard document templates and the establishment of negotiating boundaries, final documentation, including resolution of business points and the execution of original documents held in escrow. Upon completion of final documentation, a loan is funded after execution of a final closing memorandum.
Monitoring. We view active portfolio monitoring as a vital part of our investment process. We consider regular dialogue with company management and sponsors as well as detailed, internally generated monitoring reports to be critical to our performance. Our Investment Adviser has implemented a monitoring template designed to reasonably ensure compliance with these standards. This template is used as a tool by our Investment Adviser to assess investment performance relative to plan. In addition, our portfolio companies may rely on us to provide them with financial and capital markets expertise.
As part of the monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, which we refer to as “Internal Risk Ratings”:
Internal Risk Ratings Definitions

Rating	  	Definition	
1	  	Performing—Low Risk: Borrower is operating more than 10% ahead of the Base Case.	
 	 	
2	  	Performing—Stable Risk: Borrower is operating within 10% of the Base Case (above or below). This is the initial rating assigned to all new borrowers.	
 	 	
3	  	Performing—Management Notice: Borrower is operating more than 10% below the Base Case. A financial covenant default may have occurred, but there is a low risk of payment default.	
 	 	
4	  	Watch List: Borrower is operating more than 20% below the Base Case and there is a high risk of covenant default, or it may have already occurred. Payments are current although subject to greater uncertainty, and there is moderate to high risk of payment default.	
 	 	
5	  	Watch List—Possible Loss: Borrower is operating more than 30% below the Base Case. At the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have occurred. Loss of principal is possible.	
 	 	
6	  	Watch List—Probable Loss: Borrower is operating more than 40% below the Base Case, and at the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have already occurred. Additionally, the prospects for improvement in the borrower’s situation are sufficiently negative that impairment of some or all principal is probable.	
Our Investment Adviser has developed a risk rating model that is based on evaluating portfolio company performance in comparison to the Base Case when considering certain credit metrics including, but not limited to, adjusted EBITDA and net senior leverage as well as specific events including, but not limited to, default and impairment.
 
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Our Investment Adviser monitors and, when appropriate, changes the investment ratings assigned to each debt investment in our portfolio. In connection with our quarterly valuation process, our Investment Adviser reviews our investment ratings on a regular basis. The following table summarizes the Internal Risk Ratings as of December 31, 2015 and 2014:

 	  	December 31, 2015	 	 	December 31, 2014	 	
 	  	Fair Value	 	  	% of Fair Value	 	 	Fair Value	 	  	% of Fair Value	 	
(dollar amounts in millions)	  	 	 	  	 	 	 	 	 	  	 	 	
Internal Risk Rating 1	  	$	71.2	  	  	 	7.08	% 	 	$	55.6	  	  	 	8.93	% 	
Internal Risk Rating 2	  	 	809.7	  	  	 	80.54	  	 	 	517.1	  	  	 	83.04	  	
Internal Risk Rating 3	  	 	112.3	  	  	 	11.17	  	 	 	41.0	  	  	 	6.58	  	
Internal Risk Rating 4	  	 	12.2	  	  	 	1.21	  	 	 	9.0	  	  	 	1.45	  	
Internal Risk Rating 5	  	 	—  	  	  	 	 	 	 	 	—  	  	  	 	—  	  	
Internal Risk Rating 6	  	 	—  	  	  	 	 	 	 	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	1,005.4	  	  	 	100.00	% 	 	$	622.7	  	  	 	100.00	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As of December 31, 2015 and 2014, the weighted average Internal Risk Rating of our debt investment portfolio was 2.1 and 2.0, respectively.
Investment Process—Opportunistic Investments
For opportunistic investments, our Investment Adviser seeks to leverage the GMS platform to identify investments that fit our investment mandate. We use the proprietary deal flow generated by the GMS platform to enhance portfolio returns. Our Investment Adviser’s evaluation of structured finance obligations for investment opportunities begins with due diligence. The due diligence focuses on appropriate factors, such as the manager, underlying assets, ratings, structure and key risks. Information is derived from a number of sources, including third-party structured finance analysis platforms. The structured finance obligations deal committee reviews and approves each deal. The structured finance obligations deal committee includes a majority of the members of the CGMSIM Investment Committee and is chaired by Mr. Petrick, the Chairman of the CGMSIM Investment Committee, the Chairman of our Board of Directors and Head of GMS. As part of our monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of the structured finance obligation investments.
Election to be Taxed as a RIC
The Company has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a RIC under the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Annual Distribution Requirement”). The following discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.
If we:
 
 	•	 	qualify as a RIC; and	
 
 	•	 	satisfy the Annual Distribution Requirement,	
then we are not subject to U.S. federal income tax on the portion of our net taxable income we distribute (or are deemed to distribute) to stockholders. We are subject to U.S. federal income tax at regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.
 
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In addition, if we fail to distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year (the “Excise Tax Distribution Requirements”), we are liable for a 4% excise tax on the portion of the undistributed amounts of such income that are less than the amounts required to be distributed based on the Excise Tax Distribution Requirements. For this purpose, however, any ordinary income or capital gain net income retained by us that is subject to corporate income tax for the tax year ending in that calendar year is considered to have been distributed by year end (or earlier if estimated taxes are paid). We currently intend to make sufficient distributions each taxable year to satisfy the Excise Tax Distribution Requirements.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
 
 	•	 	continue to qualify as a BDC under the Investment Company Act at all times during each taxable year;	
 
 	•	 	derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities or foreign currencies (the “90% Gross Income Test”); and	
 
 	•	 	diversify our holdings so that at the end of each quarter of the taxable year:	
 
 	•	 	at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and	
 
 	•	 	no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, or two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or of certain “qualified publicly traded partnerships” (the “Diversification Tests”).	
Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Distribution Requirements, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we are prohibited from making distributions or are unable to raise additional debt or equity capital or sell assets to make distributions, we may not be able to make sufficient distributions to satisfy the Annual Distribution Requirement, and therefore would not be able to maintain our qualification as a RIC. Additionally, we may make investments that result in the recognition of ordinary income rather than capital gain, or that prevent us from accruing a long-term holding period. These investments may prevent us from making capital gain distributions as described below. We intend to monitor our transactions, make the appropriate tax elections and make the appropriate entries in our books and records when we make any such investments in order to mitigate the effect of these rules.
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus net realized short-term capital gains in excess of net realized long-term capital losses). If our expenses in a given year exceed gross taxable income, we would have a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. Due to these limits on the deductibility of expenses, we may for U.S. federal income tax purposes have aggregate taxable income for several years that we distribute and that is taxable to our stockholders even if such income is greater than the aggregate net income we actually earned during those years. Such distributions may be made
 
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from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, a holder may receive a larger capital gain distribution than the holder would have received in the absence of such transactions.
Our Regulatory Structure—Regulation as a Business Development Company
General
A BDC is regulated under the Investment Company Act. A BDC must be organized in the United States for the purpose of investing in or lending to primarily private companies and making significant managerial assistance available to them. A BDC may use capital provided by public stockholders and from other sources to make long-term, private investments in businesses. A publicly-traded BDC provides stockholders the ability to retain the liquidity of a publicly traded stock while sharing in the possible benefits, if any, of investing in primarily privately owned companies. Until a Qualified IPO, we do not intend to list our common stock on a stock exchange and it will not be publicly traded.
We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding voting securities, as required by the Investment Company Act. A majority of the outstanding voting securities of a company is defined under the Investment Company Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. We do not anticipate any substantial change in the nature of our business.
As with other companies regulated by the Investment Company Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the Investment Company Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
As a BDC, we are generally required to meet an asset coverage ratio, defined under the Investment Company Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 200% after each issuance of senior securities. We may also be prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, prior approval by the SEC. As a BDC, we are generally limited in our ability to invest in any portfolio company in which our Investment Adviser or any of its affiliates currently has an investment or to make any co-investments with our Investment Adviser or its affiliates without an exemptive order from the SEC, subject to certain exceptions.
We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the Investment Company Act. Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate. The portion of our portfolio invested in securities issued by investment companies ordinarily will subject our stockholders to additional indirect expenses. Our investment portfolio is also subject to diversification requirements by virtue of our intended status to be a RIC for U.S. tax purposes. See Part I, Item 1A of this Form 10-K “ Risk Factors—Risks Related to Our Business and Structure ” for more information.
In addition, investment companies registered under the Investment Company Act and private funds that are excluded from the definition of “investment company” pursuant to either Section 3(c)(1) or 3(c)(7) of the
 
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Investment Company Act may not acquire directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition), unless the funds comply with an exemption under the Investment Company Act. As a result, certain of our investors may hold a smaller position in our shares than if they were not subject to these restrictions.
We are generally not able to issue and sell our common stock at a price below net asset value per share. See Part I, Item 1A of this Form 10-K  “Risk Factors—Risks Related to Our Business and Structure—Regulations governing our operation as a BDC affect our ability to, and the way in which we will, raise additional capital. ” We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.
We will be periodically examined by the SEC for compliance with the Investment Company Act.
As a BDC, we are subject to certain risks and uncertainties. See Part I, Item 1A of this Form 10-K “Risk Factors—Risks Related to Our Business and Structure. ”
Qualifying Assets
We may invest up to 30% of our portfolio opportunistically in “non-qualifying assets,” which will be driven primarily through opportunities sourced through the GMS platform. However, under the Investment Company Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the Investment Company Act, which are referred to as “qualifying assets,” unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our proposed business are the following:
 
 	(1)	Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the Investment Company Act as any issuer which:	
 
 	(a)	is organized under the laws of, and has its principal place of business in, the United States;	
 
 	(b)	is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the Investment Company Act; and	
 
 	(c)	satisfies any of the following:	
 
 	i.	does not have any class of securities that is traded on a national securities exchange;	
 
 	ii.	has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;	
 
 	iii.	is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or	
 
 	iv.	is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.	
 
 	(2)	Securities of any eligible portfolio company which we control.	
 
 	(3)	Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was	
 
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 	unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.	
 
 	(4)	Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.	
 
 	(5)	Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.	
 
 	(6)	Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.	
Managerial Assistance to Portfolio Companies
A BDC must have been organized under the laws of, and have its principal place of business in, any state or states within the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as “temporary investments,” so that 70% of our assets are qualifying assets. We may also invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Investment Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the Investment Company Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.
 
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Code of Ethics
We and CGMSIM have each adopted a code of ethics pursuant to Rule 17j-1 under the Investment Company Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel. Our codes of ethics generally do not permit investments by our and CGMSIM’s personnel in securities that may be purchased or sold by us.
Compliance Policies and Procedures
We and CGMSIM have each adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a Chief Compliance Officer to be responsible for administering the policies and procedures.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) imposes a wide variety of new regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. For example:
 
 	•	 	pursuant to Rule 13a-14 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), our President and Chief Financial Officer must certify the accuracy of the financial statements contained in our periodic reports;	
 
 	•	 	pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures;	
 
 	•	 	pursuant to Rule 13a-15 of the Exchange Act, our management must prepare a report regarding its assessment of our internal control over financial reporting and, starting from the date on which we cease to be an emerging growth company under the JOBS Act, must obtain an audit of the effectiveness of internal control over financial reporting performed by our independent registered public accounting firm; and	
 
 	•	 	pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to material weaknesses.	
The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to our Investment Adviser, CGMSIM. The proxy voting policies and procedures of CGMSIM are set forth below. These guidelines are reviewed periodically by CGMSIM and our directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (“Independent Directors”), and, accordingly, are subject to change.
An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, CGMSIM recognizes that it must vote portfolio securities in a timely manner free of conflicts of interest and in the best interests of its clients.
These policies and procedures for voting proxies are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
 
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CGMSIM will vote proxies relating to our portfolio securities in what CGMSIM perceives to be the best interest of our stockholders. CGMSIM will review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by us. Although CGMSIM will generally vote against proposals that may have a negative impact on our portfolio securities, CGMSIM may vote for such a proposal if there exist compelling long-term reasons to do so.
CGMSIM’s proxy voting decisions will be made by the CGMSIM Investment Committee. To ensure that the vote is not the product of a conflict of interest, CGMSIM will require that: (1) anyone involved in the decision making process disclose to the CGMSIM Investment Committee, and Independent Directors, any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision making process or vote administration are prohibited from revealing how CGMSIM intends to vote on a proposal in order to reduce any attempted influence from interested parties.
Privacy Principles
We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help investors understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Pursuant to our privacy policy, we do not disclose any non-public personal information concerning any of our stockholders who are individuals unless the disclosure meets certain permitted exceptions under Regulation S-P. We generally do not use or disclose any stockholder information for any purpose other than as required by law.
We may collect non-public information about investors from our subscription agreements or other forms, such as name, address, account number and the types and amounts of investments, and information about transactions with us or our affiliates, such as participation in other investment programs, ownership of certain types of accounts or other account data and activity. We may disclose the information that we collect from our stockholders or former stockholders, as described above, only to our affiliates and service providers and only as allowed by applicable law or regulation. Any party that receives this information uses it only for the services required by us and as allowed by applicable law or regulation, and is not permitted to share or use this information for any other purpose. To protect the non-public personal information of individuals, we permit access only by authorized personnel who need access to that information to provide services to us and our stockholders. In order to guard our stockholders’ non-public personal information, we maintain physical, electronic and procedural safeguards that are designed to comply with applicable law. Non-public personal information that we collect about our stockholders is generally stored on secured servers located in the United States. An individual stockholder’s right to privacy extends to all forms of contact with us, including telephone, written correspondence and electronic media, such as the Internet.
Pursuant to our privacy policy, we provide a clear and conspicuous notice to each investor that details our privacy policies and procedures at the time of the investor’s subscription. We post our privacy policy on our website (http://carlyle.com/our-business/global-market-strategies/carlyle-gms-finance-inc) and promptly update the policy with any amendments.
Reporting Obligations
We furnish our stockholders with annual reports containing audited financial statements, quarterly reports, and such other periodic reports as we determine to be appropriate or as may be required by law. We are required to comply with all periodic reporting, proxy solicitation and other applicable requirements under the Exchange Act.
 
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Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as reports on Forms 3, 4 and 5 regarding directors, officers or 10% beneficial owners of us, filed or furnished pursuant to section 13(a), 15(d) or 16(a) of the Exchange Act, are available on our website (http://carlyle.com/our-business/global-market-strategies/carlyle-gms-finance-inc).
Stockholders and the public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (www.sec.gov) that contains such information.
Item 1A. Risk Factors
Potential investors should be aware that an investment in the Company involves a high degree of risk. There can be no assurance that the Company’s investment objectives will be achieved or that an investor will receive a return of its capital. In addition, there will be occasions when the Adviser and its affiliates may encounter potential conflicts of interest in connection with the Company. The following considerations, in addition to the considerations set forth elsewhere herein, should be carefully evaluated before making an investment in the Company.
Risks Related to Economic Conditions
Capital markets may experience periods of disruption and instability. These market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may in the future have a negative impact on our business and operations.
From time to time, capital markets may experience periods of disruption and instability. For example, between 2007 and 2009, the global capital markets experienced an extended period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in the financial services sector, the re-pricing of credit risk and the failure of certain major financial institutions. Despite actions of the United States, federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have experienced relative stability in recent years, there have been continuing periods of volatility such as that experienced during the first quarter of 2016 and there can be no assurance that adverse market conditions will not repeat themselves in the future. During such periods of market disruption and instability, we and other companies in the financial services sector may have limited access, if available, to alternative markets for debt and equity capital. Equity capital may be difficult to raise to the extent we complete an initial public offering and commence trading on an exchange because, subject to some limited exceptions which will apply to us, as a BDC we will generally not be able to issue additional shares of our common stock at a price less than net asset value. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our asset coverage, as defined in the Investment Company Act, must equal at least 200% immediately after each time we incur indebtedness. The debt capital that will be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.
Given the extreme volatility and dislocation in the capital markets over the past several years, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility and disruption over the past several years, has had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving these investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capital markets can adversely affect our investment valuations. Further, the illiquidity
 
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of our investments may make it difficult for us to sell such investments if required and to value such investments. As a result, we may realize significantly less than the value at which we will have recorded our investments. In addition, significant changes in the capital markets may have a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations.
Uncertainty about the financial stability of the United States and of several countries in the European Union (EU) and China could have a significant adverse effect on our business, financial condition and results of operations.
Due to federal budget deficit concerns, S&P downgraded the federal government’s credit rating from AAA to AA+ for the first time in history on August 5, 2011. Further downgrades or warnings by S&P or other rating agencies, and the United States government’s credit and deficit concerns in general, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. In addition, a decreased U.S. government credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and the value of our common stock.
In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt obligations. While the financial stability of such countries has improved significantly, risks resulting from any future debt crisis in Europe or any similar crisis could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. We cannot assure you that market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not impact the global economy, and we cannot assure you that assistance packages will be available, or if available, be sufficient to stabilize countries and markets in Europe or elsewhere affected by a financial crisis. To the extent uncertainty regarding any economic recovery in Europe negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be adversely affected.
In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of shares trading in Chinese markets. In August 2015, Chinese authorities sharply devalued China’s currency. These market and economic disruptions affected, and may in the future affect, the U.S. capital markets, which could adversely affect our business.
In October 2014, the Federal Reserve announced that it was concluding its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities, suggesting that key economic indicators, such as the unemployment rate, had showed signs of improvement since the inception of the program. It is unclear what effect, if any, the conclusion of the Federal Reserve’s bond-buying program will have on the value of our investments. However, it is possible that, without quantitative easing by the Federal Reserve, these developments, along with the United States government’s credit and deficit concerns and the European sovereign debt crisis, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Additionally, in December 2015, the Federal Reserve raised the target range for the federal funds rate. However, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may change and cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.
 
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Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of the portfolio companies in which we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans we made to them during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our and our portfolio companies’ funding costs, limit our and our portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to us or our portfolio companies. These events could prevent us from increasing investments and harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we will actually provide significant managerial assistance to that portfolio company, a bankruptcy court might subordinate all or a portion of our claim to that of other creditors.
Capital markets may experience periods of disruption and instability; as a result, we may be unable to launch or complete a Qualified IPO of our common stock or list our shares on a recognized exchange.
From time to time, the U.S. and global capital markets may experience periods of disruption and instability. While market conditions have experienced relative stability in recent years, there have been continuing periods of volatility such as that experienced during the first quarter of 2016 and there can be no assurance that adverse market conditions will not repeat themselves or worsen in the future. A prolonged period of market illiquidity may have an adverse effect on our business, financial condition and results of operations. Unfavorable economic conditions could also increase our portfolio companies’ funding costs, limit their access to the capital markets or result in a decision by lenders not to extend credit to them. These events could limit our investment originations, limit their ability to grow, negatively impact our operating results, and delay or prevent us from launching or completing a Qualified IPO of our common stock or listing our shares on a recognized exchange.
Risks Related to Our Business and Structure
CGMSIM, the CGMSIM Investment Team, Carlyle and our Directors and Executive Officers have limited prior experience managing a BDC.
Our Adviser was organized in February 2012 and has a limited operating history. Additionally, our Adviser, the members of the CGMSIM Investment Team, Carlyle and our Directors and Executive Officers have limited prior experience managing the Company, and the investment philosophy and techniques used by our Investment Adviser to manage an SEC-reporting company may differ from the investment philosophy and techniques previously employed by the investment team in identifying and managing past investments. Accordingly, we can offer no assurance that we will replicate the historical performance of other businesses or companies with which the CGMSIM Investment Team has been affiliated, and our investment returns could be substantially lower than the returns achieved by such other companies.
Our financial condition and results of operations depend on our ability to manage future growth effectively.
Our ability to achieve our investment objective and to grow depends on our Investment Adviser’s ability to identify, invest in and monitor companies that meet our investment criteria.
 
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Accomplishing this result on a cost-effective basis is largely a function of our Investment Adviser’s structuring of the investment process, its ability to provide competent, attentive and efficient services to us and its ability to access financing for us on acceptable terms. The CGMSIM Investment Team has substantial responsibilities under the Investment Advisory Agreement, has substantial responsibilities in connection with managing NFIC, and may also be called upon to provide managerial assistance to our portfolio companies. However, we can offer no assurance that any such investment professionals will contribute effectively to the work of the Investment Adviser. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital to grow because we must distribute most of our income.
We may need additional capital to fund growth in our investments. We have issued and expect to issue additional equity securities in connection with the private offering of our shares of common stock to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and other applicable securities laws (the “Private Offering”) and expect to continue to borrow from financial institutions. A reduction in the availability of new capital could limit our ability to grow. We must distribute at least 90% of our investment company taxable income to our stockholders to maintain our RIC status. As a result, any such cash earnings may not be available to fund investment originations. We have borrowed under the Revolving Credit Facility, the Facility and through the issuance of the 2015-1 Notes and in the future may borrow under additional debt facilities from financial institutions and issue additional debt and equity securities. If we fail to obtain funds from such sources or from other sources to fund our investments, it could limit our ability to grow, which may have an adverse effect on the value of our securities. In addition, as a BDC, our ability to borrow or issue preferred stock may be restricted if our total assets are less than 200% of our total borrowings and preferred stock.
Any failure on our part to maintain our status as a BDC or RIC would reduce our operating flexibility, may hinder our achievement of our investment objective, may limit our investment choices and may subject us to greater regulation.
The Investment Company Act imposes numerous constraints on the operations of BDCs. For example, BDCs are required to invest at least 70% of their total assets in specified types of “qualifying assets,” primarily in private U.S. companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. In addition, subject to certain limited exceptions, an investment in an issuer that has outstanding securities listed on a national exchange may be treated as a qualifying asset only if such issuer has a market capitalization that is less than $250 million at the time of such investment. In addition, as a RIC we are required to satisfy certain source-of-income, diversification and distribution requirements. These constraints, among others, may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objective.
Furthermore, any failure to comply with the requirements imposed on BDCs by the Investment Company Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our stockholders, we may elect to withdraw our status as a BDC. If we decide to withdraw our election, or if we otherwise fail to qualify, or maintain our qualification, as a BDC, we may be subject to substantially greater regulation under the Investment Company Act as a closed-end investment company. Compliance with such regulations would significantly decrease our operating flexibility, and could significantly increase our cost of doing business.
Regulations governing our operation as a BDC affect our ability to, and the way in which we will, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the
 
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Investment Company Act. Under the provisions of the Investment Company Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 200% of total assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, our common stockholders would also be exposed to typical risks associated with increased leverage, including an increased risk of loss resulting from increased indebtedness.
If we issue preferred stock, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in their best interest.
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board of Directors determines that such sale is in the best interests of us and our stockholders and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). We do not presently intend to issue our common stock at a price below the then-current net asset value per share of our common stock in connection with the Private Offering. If we raise additional funds by issuing more common stock, including in connection with a Qualified IPO, or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and holders of our common stock might experience dilution.
We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.
As part of our business strategy, we, including through our wholly-owned subsidiaries, borrow from and may in the future issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on our assets that are superior to the claims of our stockholders. If the value of our assets decreases, leverage will cause our net asset value to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed. This decline could negatively affect our ability to make dividend payments on our common stock. Our ability to service our borrowings depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. In addition, the management fees are payable based on our gross assets, including cash and assets acquired through the use of leverage, which may give our Adviser an incentive to use leverage to make additional investments. See “—We may be obligated to pay our Investment Adviser even if we incur a loss.”  The amount of leverage that we employ will depend on our Investment Adviser’s and our Board of Directors’ assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
Our Revolving Credit Facility, Facility and 2015-1 Notes also impose financial and operating covenants that restrict our business activities, remedies on default and similar matters. As of December 31, 2015, we are in compliance with the covenants of our Revolving Credit Facility, Facility and 2015-1 Notes. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, although we believe we will continue to be in compliance, we cannot assure you that we will
 
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continue to comply with the covenants in our Revolving Credit Facility, Facility and 2015-1 Notes. Failure to comply with these covenants could result in a default. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations. Lastly, we may be unable to obtain additional leverage, which would, in turn, affect our return on capital.
As of December 31, 2015, we had $507.3 million of outstanding consolidated indebtedness, which would have an annualized interest cost of 2.41% under the terms of our Revolving Credit Facility, Facility and 2015-1 Notes, excluding fees (such as fees on undrawn amounts and amortization of upfront fees), to the extent the amount remains outstanding. Since we generally pay interest at a floating rate on our Revolving Credit Facility, Facility and 2015-1 Notes, an increase in interest rates will generally increase our borrowing costs. We expect that our annualized interest cost and returns required to cover interest will increase after we issue debt securities.
Changes in interest rates may increase our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income.
General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income and our net asset value. Substantially all of our debt investments will have variable interest rates that reset periodically based on benchmarks such as LIBOR and the prime rate, so an increase in interest rates from their historically low present levels may make it more difficult for our portfolio companies to service their obligations under the debt investments that we will hold. In addition, to the extent we borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income to the extent we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income.
In addition, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to our Investment Adviser with respect to our pre-incentive fee net investment income.
Our portfolio companies may prepay loans, which may have the effect of reducing our investment income if the returned capital cannot be invested in transactions with equal or greater yields.
Loans are generally callable at any time, most of them at no premium to par. We are generally unable to predict the rate and frequency of such repayments. Whether a loan is called will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such portfolio company the ability to replace existing financing with less expensive capital. As market conditions change frequently, we will often be unable to predict when, and if, this may be possible for each of our portfolio companies. In the case of some of these loans, having the loan called early may have the effect of reducing our actual investment income below our expected investment income if the capital returned cannot be invested in transactions with equal or greater yields.
The financial projections of our portfolio companies could prove inaccurate.
We generally evaluate the capital structure of portfolio companies on the basis of financial projections prepared by the management of such portfolio companies. These projected operating results are normally based primarily on judgments of the management of the portfolio companies. In all cases, projections are only estimates of future results that are based upon assumptions made at the time that the projections are developed. General
 
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economic conditions, which are not predictable with accuracy, along with other factors may cause actual performance to fall short of the financial projections that were used to establish a given portfolio company’s capital structure. Because of the leverage that is typically employed by our portfolio companies, this could cause a substantial decrease in the value of our investment in the portfolio company. The inaccuracy of financial projections could thus cause our performance to fall short of our expectations.
Our portfolio securities typically do not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment.
Substantially all of our portfolio investments are in the form of debt investments that are not publicly traded. The fair value of these securities is not readily determinable. We value these investments on at least a quarterly basis in accordance with our valuation policy, which is at all times consistent with accounting principles generally accepted in the United States (“US GAAP”). Our Board of Directors utilizes the services of a third-party valuation firm to aid it in determining the fair value of these investments. The Board of Directors discusses valuations and determines the fair value in good faith based on the input of our Investment Adviser and the third-party valuation firm. The participation of our Investment Adviser in our valuation process could result in a conflict of interest, since the management fees are based on our gross assets and also because our Investment Adviser is receiving performance-based incentive fees. The factors that are considered in the fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparisons to publicly-traded companies, discounted cash flow, relevant credit market indices, and other relevant factors. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.
Our net asset value as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. For example, if we were required to sell a certain asset or all or a substantial portion of its assets on a particular date, the actual price that we would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in our net asset value. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in our net asset value.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the debt securities we acquire, the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses and changes in unrealized appreciation or depreciation, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
There are significant potential conflicts of interest, including the management of NFIC and other funds affiliated with Carlyle by our Investment Adviser’s key investment professionals, which could impact our investment returns.
Our executive officers and directors, as well as the other current and future principals of our Investment Adviser, CGMSIM, may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do. Currently, our executive officers, as well as the other principals of our Investment Adviser, CGMSIM, manage other funds affiliated with Carlyle. In addition, the CGMSIM Investment Team has
 
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responsibilities for sourcing and managing U.S. middle market debt investments for NFIC. Accordingly, they have obligations to investors in NFIC, the fulfillment of which obligations may not be in the best interests of, or may be adverse to the interests of, us or our stockholders.
In addition, we note that any affiliated investment vehicle currently existing, or formed in the future, and managed by our Investment Adviser or its affiliates, including Carlyle, may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, CGMSIM may face conflicts in allocating investment opportunities between us and such other entities. Although CGMSIM will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by our Investment Adviser or an investment manager affiliated with our Investment Adviser, including Carlyle. In any such case, when CGMSIM identifies an investment, it will be forced to choose which investment fund should make the investment.
We and our affiliates may own investments at different levels of a portfolio company’s capital structure or otherwise own different classes of a portfolio company’s securities. Such investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held. Conflicts may also arise because portfolio decisions regarding our portfolio may benefit our affiliates. Our affiliates may pursue or enforce rights with respect to one of our portfolio companies, and those activities may have an adverse effect on us. As a result, prices, availability, liquidity and terms of our investments may be negatively impacted by the activities of our affiliates, and transactions for us may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.
Carlyle considers its “One Carlyle” philosophy and the ability of its professionals to communicate and collaborate across funds, industries and geographies one of its significant competitive strengths. As a result of the expansion of its platform into various lines of business in the alternative asset management industry, Carlyle is subject to a number of actual and potential conflicts of interest and subject to greater regulatory oversight than that to which it would otherwise be subject if it had just one line of business. In addition, as Carlyle expands its platform, the allocation of investment opportunities among its investment funds, including us, is expected to become more complex. In addressing these conflicts and regulatory requirements across Carlyle’s various businesses, Carlyle has and may continue to implement certain policies and procedures (for example, information barriers). As a practical matter, the establishment and maintenance of such information barriers means that collaboration between our investment professionals across various platforms or with respect to certain investments may be limited, reducing potential synergies that Carlyle has cultivated across these businesses through its “One Carlyle” approach. In addition, we may come into possession of material non-public information with respect to issuers in which we may be considering making an investment. As a consequence, we may be precluded from providing such information or other ideas to other funds affiliated with Carlyle that benefit from such information. To the extent we or any other funds affiliated with Carlyle fail to appropriately deal with any such conflicts, it could negatively impact our reputation or Carlyle’s reputation and our ability to raise additional funds and the willingness of counterparties to do business with us or result in potential litigation against us. Our communications with Carlyle Corporate Private Equity, Real Asset and Solutions personnel are subject to certain restrictions as set forth in Carlyle’s information barrier policy. In that regard, it is not generally expected the investment personnel involved in our day-to-day affairs will discuss any issuer-specific information with other members of Carlyle outside the GMS group. In addition to the information barriers between GMS and Private Equity, Real Assets and Solutions, there is an information barrier between different fund groups within GMS.
In the ordinary course of business, we may enter into transactions with affiliates and portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with any persons affiliated with us, we have implemented certain policies and procedures whereby certain of our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us, any stockholders that own more than 5% of us
 
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and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the Investment Company Act or, if such concerns exist, we have taken appropriate actions to seek Board of Directors review and approval or SEC exemptive relief for such transaction. Our Board of Directors will review these procedures on an annual basis.
In the course of our investing activities, we pay management and incentive fees to CGMSIM and reimburse CGMSIM for certain expenses it incurs in accordance with our Investment Advisory Agreement. As a result, investors in our common stock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the senior management team of CGMSIM has interests that differ from those of our stockholders, giving rise to a conflict.
We entered into a royalty-free License Agreement with CIM, pursuant to which CIM has granted us a non-exclusive license to use the name “Carlyle.” Under the License Agreement, we have the right to use the “Carlyle” name for so long as CGMSIM or one of its affiliates remains our Investment Adviser. In addition, we pay CGMSFA, an affiliate of CGMSIM, its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including, compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff in their role of performing our Sarbanes-Oxley Act internal control assessment. These arrangements create conflicts of interest that our Board of Directors monitors.
The valuation process for certain of our portfolio holdings creates a conflict of interest.
Many of our portfolio investments will, we expect, continue to be made in the form of securities that are not publicly traded. As a result, our Board of Directors determines the fair value of these securities in good faith as described above in “—Our portfolio securities typically do not have a readily available market price and, in such a case, we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment. ” In connection with that determination, investment professionals of CGMSIM provide our Board of Directors with valuations based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company. In addition, the interested directors on our Board of Directors have an indirect pecuniary interest in CGMSIM. The participation of CGMSIM’s investment professionals in our valuation process, and the indirect pecuniary interest in our Investment Adviser by the interested directors on our Board of Directors, could result in a conflict of interest as CGMSIM’s management fees are based on our gross assets and our incentive fees are based, in part, on unrealized gains and losses.
We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.
Our Investment Adviser is entitled to incentive compensation for each calendar quarter in an amount equal to a percentage of the excess of our pre-incentive fee net investment income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses and depreciation that we may incur in the calendar quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay CGMSIM incentive compensation for a calendar quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter, subject to the deferral provisions.
Our fee structure may induce our Investment Adviser to pursue speculative investments and incur leverage, and investors may bear the cost of multiple levels of fees and expenses.
The incentive fees payable by us to CGMSIM may create an incentive for CGMSIM to pursue investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation
 
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arrangement. The incentive fees payable to our Investment Adviser are calculated based on a percentage of our return on invested capital. This may encourage our Investment Adviser to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of our common stock. In addition, the Investment Adviser receives the incentive fees based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fees based on income, there is no hurdle rate applicable to the portion of the incentive fees based on net capital gains. As a result, the Investment Adviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.
The “catch-up” portion of the incentive fees may encourage CGMSIM to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts.
Moreover, because the base management fees payable to our Adviser are payable based on our gross assets, including those assets acquired through the use of leverage, CGMSIM has a financial incentive to incur leverage which may not be consistent with our stockholders’ interests.
We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, bear our ratable share of any such investment company’s expenses, including management and performance fees. We also remain obligated to pay management and incentive fees to CGMSIM with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders bear his or her share of the management and incentive fees of CGMSIM as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.
We will become subject to corporate-level income tax if we are unable to qualify and maintain our qualification as a regulated investment company under Subchapter M of the Code.
Although we have elected to be treated as a RIC under Subchapter M of the Code for 2013 and intend to continue to elect to be so treated in succeeding tax years, no assurance can be given that we will be able to qualify for and maintain RIC status. To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements.
 
 	•	 	The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary taxable income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the Investment Company Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.	
 
 	•	 	The income source requirement will be satisfied if we derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities or foreign currencies.	
 
 	•	 	The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.	
 
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If we fail to qualify for RIC tax treatment for any reason or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.
We may have difficulty satisfying the Annual Distribution Requirement in order to qualify and maintain RIC status if we recognize income before or without receiving cash representing such income.
We may make investments that produce income that is not matched by a corresponding cash receipt by us. Any such income would be treated as income earned by us and therefore would be subject to the distribution requirements of the Code. Such investments may require us to borrow money or dispose of other securities in order to comply with those requirements. However, under the Investment Company Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless an “asset coverage” test is met. See Part I, Item 1 of this Form 10-K “ Business—Our Regulatory Structure—Regulation as a Business Development Company—Senior Securities .”
If we are prohibited from making distributions or are unable to raise additional debt or equity capital or sell assets to make distributions, we may not be able to make sufficient distributions to satisfy the Annual Distribution Requirement, and therefore would not be able to maintain our qualification as a RIC. Additionally, we may make investments that result in the recognition of ordinary income rather than capital gain, or that prevent us from accruing a long-term holding period. These investments may prevent us from making capital gain distributions.
A portion of our income and fees may not be qualifying income for purposes of the income source requirement.
Some of the income and fees that we may recognize will not satisfy the income source requirement applicable to RICs. In order to ensure that such income and fees do not disqualify us as a RIC for a failure to satisfy such requirement, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay U.S. corporate income tax on their earnings, which ultimately will reduce the amount of income available for distribution.
For any period that we do not qualify as a “publicly offered regulated investment company,” as defined in the Code, stockholders will be taxed as though they received a distribution of some of our expenses.
A “publicly offered regulated investment company” is a RIC whose shares are either (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market or (iii) held by at least 500 persons at all times during the taxable year. We currently do not qualify as a publicly offered RIC; we may qualify as a publicly offered RIC for future taxable years. For any period that we are not a publicly offered RIC, a non-corporate stockholder’s allocable portion of our affected expenses, including our management fees, is treated as an additional distribution to the stockholder and is deductible by such stockholder only to the extent permitted under the limitations described below. For non-corporate stockholders, including individuals, trusts, and estates, significant limitations generally apply to the deductibility of certain expenses of a non-publicly offered RIC, including advisory fees. In particular, these expenses, referred to as miscellaneous itemized deductions, are deductible to an individual only to the extent they exceed 2% of such a stockholder’s adjusted gross income, and are not deductible for alternative minimum tax purposes.
We are subject to risks in using custodians, administrators and other agents.
We depend on the services of custodians, administrators, including State Street, and other agents to carry out certain securities transactions and administrative services for us. In the event of the insolvency of a custodian, we may not be able to recover equivalent assets in full as we will rank among the custodian’s unsecured creditors
 
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in relation to assets which the custodian borrows, lends or otherwise uses. In addition, our cash held with a custodian may not be segregated from the custodian’s own cash, and we therefore may rank as unsecured creditors in relation thereto. The inability to recover assets from the custodian could have a material impact on our performance.
We will expend significant financial and other resources to comply with the requirements of being a public entity.
As a public entity, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting, which are discussed below. See Part I, Item 1 of this Form 10-K “ Business—Our Regulatory Structure—Regulation as a Business Development Company—Sarbanes-Oxley Act of 2002 .” In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls, significant resources and management oversight is required. We will continue to implement procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur significant additional annual expenses related to these steps and, among other things, directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to our Administrator to compensate them for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.
The systems and resources necessary to comply with public company reporting requirements will increase further once we cease to be an “emerging growth company” under the JOBS Act. As long as we remain an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We will remain an emerging growth company for up to five years following an initial public offering, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.
We are obligated to maintain proper and effective internal control over financial reporting. Failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and the value of our common stock.
We are obligated to maintain proper and effective internal control over financial reporting, including the internal control evaluation and certification requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). We will not be required to comply with all of the requirements under Section 404 until the date we are no longer an emerging growth company under the JOBS Act. Accordingly, our internal controls over financial reporting do not currently meet all of the standards contemplated by Section 404 that we will eventually be required to meet. Specifically, we are required to conduct annual management assessments of the effectiveness of our internal controls over financial reporting. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the date we are no longer an emerging growth company under the JOBS Act.
If we are not able to implement the applicable requirements of Section 404 in a timely manner or with adequate compliance, our operations, financial reporting or financial results could be adversely affected. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC, and result in a breach of the covenants under the agreements governing any of our financing arrangements. There could also be a
 
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negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements could also suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the market price of our common stock, to the extent we have completed a Qualified IPO.
Stockholders may be subject to filing requirements under the Exchange Act as a result of an investment in us.
Because our common stock is registered under the Exchange Act, ownership information for any person who beneficially owns 5% or more of our common stock must be disclosed in a Schedule 13D or other filings with the SEC. Beneficial ownership for these purposes is determined in accordance with the rules of the SEC, and includes having voting or investment power over the securities. In some circumstances, investors who choose to reinvest their dividends may see their percentage stake in us increased to more than 5%, thus triggering this filing requirement. Although we provide in our quarterly financial statements the amount of outstanding stock and the amount of the investor’s stock, the responsibility for determining the filing obligation and preparing the filing remains with the investor. In addition, owners of 10% or more of our common stock are subject to reporting obligations under Section 16(a) of the Exchange Act.
Certain investors are limited in their ability to make significant investments in us.
Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the Investment Company Act are restricted from acquiring directly or through a controlled entity more than 3% of our total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the Investment Company Act are also subject to this restriction as well as other limitations under the Investment Company Act that would restrict the amount that they are able to invest in our securities. As a result, certain investors may be precluded from acquiring additional shares, at a time that they might desire to do so.
Stockholders may be subject to the short-swing profits rules under the Exchange Act as a result of an investment in us.
Persons with the right to appoint a director or who hold 10% or more of a class of our shares may be subject to Section 16(b) of the Exchange Act, which recaptures for the benefit of the issuer profits from the purchase and sale of registered stock within a six-month period.
Investors in the Private Offering are subject to transfer restrictions.
Prior to the completion of a Qualified IPO, investors who participate in the Private Offering may not sell, assign, transfer or otherwise dispose of (in each case, a “Transfer”) any common stock unless (i) we give consent and (ii) the Transfer is made in accordance with applicable securities laws. No Transfer will be effectuated except by registration of the Transfer on our books. Each transferee must agree to be bound by these restrictions and all other obligations as an investor in us. Following completion of a Qualified IPO, investors will be restricted from selling or disposing of their shares of common stock contractually by a lock-up agreement with the underwriters of the IPO and secondary offerings, and by the terms of the subscription agreement entered into by the Company and each investor in connection with the Private Offering. It is possible that, once we are no longer accepting new commitments, we may seek to implement a program intended to provide limited liquidity and price discovery to holders of our common stock through an auction process; however, there can be no assurance that such a program will, in fact, be established or, if established, will provide meaningful levels of liquidity. In the event we implement such a program, investors would be subject to conditions and limitations on Transfers of our common stock made through the program.
 
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Our Board of Directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.
Under the Maryland General Corporation Law (“MGCL”) and our charter, our Board of Directors is authorized to classify and reclassify any authorized but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to the issuance of shares of each class or series, the Board of Directors is required by Maryland law and our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. The cost of any such reclassification would be borne by our existing common stockholders. Certain matters under the Investment Company Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. In addition, the Investment Company Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock directors. We currently have no plans to issue preferred stock, but may determine to do so in the future. The issuance of preferred stock convertible into shares of common stock might also reduce the net income per share and net asset value per share of our common stock upon conversion, provided, that we will only be permitted to issue such convertible preferred stock to the extent we comply with the requirements of Section 61 of the Investment Company Act, including obtaining common stockholder approval. These effects, among others, could have an adverse effect on an investment in our common stock.
Provisions of the MGCL and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
The MGCL and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of GMS Finance or the removal of our directors. We are subject to the Maryland Business Combination Act (“MBCA”), subject to any applicable requirements of the Investment Company Act. Our Board of Directors has adopted a resolution exempting from the MBCA any business combination between us and any other person, subject to prior approval of such business combination by our Board of Directors, including approval by a majority of our Independent Directors. If the resolution exempting business combinations is repealed or our Board of Directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act (“Control Share Act”) acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Act, the Control Share Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction. However, we will amend our bylaws to be subject to the Control Share Act only if our Board of Directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Control Share Act does not conflict with the Investment Company Act. The SEC staff has issued informal guidance setting forth its position that certain provisions of the Control Share Act would, if implemented, violate Section 18(i) of the Investment Company Act.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our Board of Directors in three classes serving staggered three-year terms, and authorizing our Board of Directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, to amend our charter without stockholder approval and to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.
 
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Our Board of Directors may change our investment objectives, operating policies and strategies without prior notice and without stockholder approval.
Our Board of Directors has the authority to modify or, if applicable, waive our investment objectives, operating policies and strategies without prior notice (except as required by the Investment Company Act) and without stockholder approval. In addition, none of our investment policies is fundamental and any of them may be changed without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current investment objectives, operating policies or strategies would have on our business, operating results and value of our stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.
A failure in our operational systems or infrastructure, or those of third parties, as well as cyber-attacks could significantly disrupt our business or negatively affect our liquidity, financial condition or results of operations.
We rely heavily on our and third parties’ financial, accounting, information and other data processing systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. We face various security threats on a regular basis, including ongoing cyber security threats to and attacks on our information technology infrastructure that are intended to gain access to our proprietary information, destroy data or disable, degrade or sabotage our systems. These security threats could originate from a wide variety of sources, including unknown third parties outside the Company. Although we are not currently aware that we have been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, have materially affected our operations or financial condition, there can be no assurance that the various procedures and controls we utilize to mitigate these threats will be sufficient to prevent disruptions to our systems. If any of these systems do not operate properly or are disabled for any reason or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of our network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our businesses, liability to our investors, regulatory intervention or reputational damage. In addition, we operate in a business that is highly dependent on information systems and technology. The information systems and technology that we rely on may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate growth, or an increase in costs related to such information systems, could have a material adverse effect on us.
Furthermore, we depend on our and our Investment Adviser’s headquarters in New York, New York, where most of our executives, investment professionals and administrative and operations personnel are located, for the continued operation of our business. Disasters, such as natural disasters, pandemics, events arising from local or larger scale political or social matters or weather events, or disruptions in the infrastructure that supports our businesses, such as sudden electrical or telecommunications outages, could have a material adverse impact on our ability to continue to operate our business without interruption. Our disaster recovery programs may not be sufficient to mitigate the harm that may result from such disasters or disruptions. In addition, insurance and other safeguards might only partially reimburse us for our losses, if at all.
Changes in laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our business and the businesses of our portfolio companies.
We and our portfolio companies are subject to laws and regulations at the U.S. federal, state and local levels. These laws and regulations, as well as their interpretation, may change from time to time, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our business. For example, from time to time the market for private equity
 
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transactions has been (and is currently being) adversely affected by a decrease in the availability of senior and subordinated financings for transactions, in part in response to credit market disruptions and/or regulatory pressures on providers of financing to reduce or eliminate their exposure to the risks involved in such transactions.
In addition, as private equity firms become more influential participants in the U.S. and global financial markets and economy generally, there recently has been pressure for greater governmental scrutiny and/or regulation of the private equity industry, in part. It is uncertain as to what form and in what jurisdictions such enhanced scrutiny and/or regulation, if any, on the private equity industry may ultimately take. Therefore, there can be no assurance as to whether any such scrutiny or initiatives will have an adverse impact on the private equity industry, including our ability to effect operating improvements or restructurings of its portfolio companies or otherwise achieve its objectives.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory authorities. While the impact of the Dodd-Frank Act on us and our portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry and the financial markets (including derivative markets) or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies, restrict or further regulate certain of our activities, including derivative trading and hedging activities, intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition, if we do not comply with applicable laws and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to civil fines and criminal penalties.
Our Investment Adviser can resign upon 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
Our Investment Adviser has the right, under the Investment Advisory Agreement, to resign at any time upon 60 days’ written notice, whether we have found a replacement or not. If our Investment Adviser resigns, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the value of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Investment Adviser and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our financial condition, business and results of operations. Moreover, the termination by our Investment Adviser of our Investment Advisory Agreement for any reason will be an event of default under the Revolving Credit Facility, which could result in the immediate acceleration of the amounts due under the Revolving Credit Facility. Similarly, it will be an event of default under the Facility if our Investment Adviser or an affiliate of our Investment Adviser ceases to manage us, which could result in the immediate acceleration of the amounts due under the Facility.
 
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Our Administrator can resign from its role as Administrator under the Administration Agreement, and a suitable replacement may not be found, resulting in disruptions that could adversely affect our business, results of operations and financial condition.
Our Administrator has the right to resign under the Administration Agreement upon 60 days’ written notice, whether a replacement has been found or not. If our Administrator resigns, it may be difficult to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, or at all. If a replacement is not found quickly, our business, results of operations and financial condition are likely to be adversely affected and the value of our common stock may decline. Even if a comparable service provider or individuals to perform such services are retained, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.
Any of our three sub-administrators can resign from their respective roles pursuant to the Carlyle Employee Co. Sub-Administration Agreement, the CELF Sub-Administration Agreement and the State Street Sub-Administration Agreement, and suitable replacements may not be found, resulting in disruptions that could adversely affect our business, results of operations and financial condition.
Each of Carlyle Employee Co., CELF and State Street has the right to resign under their respective agreements, the Carlyle Employee Co. Sub-Administration Agreement, the CELF Sub-Administration Agreement and the State Street Sub-Administration Agreement, upon 60 days’ written notice, whether a replacement has been found or not. If any of our sub-administrators resign, it may be difficult to find a new administrator or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms, or at all. If a replacement is not found quickly, our business, results of operations and financial condition are likely to be adversely affected and the value of our common stock may decline. Even if a comparable service provider or individuals to perform such services are retained, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.
Risks Related to Our Investments
We operate in a highly competitive market for investment opportunities, and compete with investment vehicles sponsored or advised by our affiliates.
A number of entities compete with us to make the types of investments that we target in leveraged companies. We compete with other BDCs, public and private funds, commercial and investment banks, commercial finance companies and, to the extent they provide an alternative form of financing, private equity funds, some of which may be affiliates of us. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we do, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act and the Code impose on us. The competitive pressures we face may have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we
 
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match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.
We may not replicate the historical success of Carlyle, and our ability to enter into transactions with Carlyle and our other affiliates is restricted.
We cannot provide any assurance that we will replicate the historical success of Carlyle, and our investment returns could be substantially lower than the returns achieved by other Carlyle managed funds.
In addition, the Investment Company Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles. For example, under the Investment Company Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. The CGMSIM Investment Team’s limited experience in managing a portfolio of assets under such constraints may hinder their respective ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objectives.
Further, we and certain of our controlled affiliates are prohibited under the Investment Company Act from knowingly participating in certain transactions with our upstream affiliates, or our Investment Adviser and its affiliates, without the prior approval of our Independent Directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our upstream affiliate for purposes of the Investment Company Act and we are generally prohibited from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of our Independent Directors. The Investment Company Act also prohibits “joint” transactions with an upstream affiliate, or our Adviser or its affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our Independent Directors. In addition, we and certain of our controlled affiliates are prohibited from buying or selling any security from or to, or entering into joint transactions with, our Adviser and its affiliates, or any person who owns more than 25% of our voting securities or is otherwise deemed to control, be controlled by, or be under common control with us, absent the prior approval of the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance as described below). The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.
In addition to co-investing pursuant to our Exemptive Relief, we may invest alongside affiliates or their affiliates in certain circumstances where doing so is consistent with applicable law and current regulatory guidance. For example, we may invest alongside such investors consistent with guidance promulgated by the SEC staff permitting us and an affiliated person to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that we negotiate no term other than price. We may, in certain cases, also make investments in securities owned by affiliates that we acquire from non-affiliates. In such circumstances, our ability to participate in any restructuring of such investment or other transaction involving the issuer of such investment may be limited, and as a result, we may realize a loss on such investments that might have been prevented or reduced had we not been restricted in participating in such restructuring or other transaction.
Our investments are risky and speculative.
We invest primarily in loans to middle market companies whose debt, if rated, is rated below investment grade. Investments rated below investment grade are generally considered higher risk than investment grade instruments.
First Lien Senior Secured Loans. When we make a senior secured term loan investment in a portfolio company, we generally take a security interest in substantially all of the available assets of the portfolio
 
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company, including the equity interests of its domestic subsidiaries, which we expect to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.
Unitranche Loans. Unitranche loans provide leverage levels comparable to a combination of first lien and second lien or subordinated loans, and may rank junior to other debt instruments issued by the portfolio company. Unitranche loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a heightened risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. From the perspective of a lender, in addition to making a single loan, a unitranche loan may allow the lender to choose to participate in the “first out” tranche, which will generally receive priority with respect to payments of principal, interest and any other amounts due, or to choose to participate only in the “last out” tranche, which is generally paid after the first out tranche is paid. We participate in “first out” and “last out” tranches of unitranche loans and make single unitranche loans.
Second Lien Senior Secured Loans and Junior Debt Investments. Our second lien senior secured loans are subordinated to first lien loans and our junior debt investments, such as mezzanine loans, generally are subordinated to both first lien and second lien loans and have junior security interests or may be unsecured. As such, to the extent we hold second lien senior secured loans and junior debt investments, holders of first lien loans may be repaid before us in the event of a bankruptcy or other insolvency proceeding. This may result in an above average amount of risk and loss of principal.
Equity Investments. When we invest in senior secured loans or mezzanine loans, we may acquire equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in middle market companies involves a number of significant risks, including:
 
 	•	 	these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing on any guarantees we may have obtained in connection with our investment;	
 
 	•	 	they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;	
 
 	•	 	they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on a portfolio company and, in turn, on us;	
 
 	•	 	they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our	
 
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 	Investment Adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and	
 
 	•	 	they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.	
Our investments in CLOs may be riskier and less transparent to us and our stockholders than direct investments in the underlying companies.
We invest in CLOs. Generally, there may be less information available to us regarding the underlying debt investments held by CLOs than if we had invested directly in the debt of the underlying companies. As a result, our stockholders will not know the details of the underlying securities of the CLOs in which we invest. Our CLO investments are also subject to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of senior debt holders in such CLOs.
CLOs typically have no significant assets other than their underlying loans; payments on CLO investments are and will be payable solely from the cash flows from such loans; and our investments in CLOs are subject to leverage.
CLOs typically have no significant assets other than their underlying loans. Accordingly, payments on CLO investments are and will be payable solely from the cash flows from such loans, net of all management fees and other expenses. Payments to us as a holder of CLO investments are and will be met only after payments due on the senior notes (and, where appropriate, the junior secured notes) from time to time have been made in full. This means that relatively small numbers of defaults of loans may adversely impact our returns.
In addition, we may be in a subordinated position with respect to realized losses on loans underlying our investments in CLOs. The leveraged nature of CLOs, in particular, magnifies the adverse impact of loan defaults. CLO investments represent a leveraged investment with respect to the underlying loans. Therefore, changes in the market value of the CLO investments could be greater than the change in the market value of the underlying loans, which are subject to credit, liquidity and interest rate risk.
The CLOs in which we invest may be subject to withholding tax if they fail to comply with certain reporting requirements.
Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or FATCA, imposes a withholding tax of 30% on payments of U.S. source interest and distributions, and gross proceeds from the disposition of an instrument that produces U.S. source interest or distributions paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners. Most CLO vehicles in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO vehicle in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to equity and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows.
Failure by a CLO vehicle in which we are invested to satisfy certain tests will harm our operating results.
The failure by a CLO in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, with a defaulting CLO or any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows.
 
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To the extent we make investments in restructurings and reorganizations they may be subject to greater regulatory and legal risks than other traditional direct investments in portfolio companies.
We may make investments in restructurings that involve, or otherwise invest in the debt securities of, companies that are experiencing or are expected to experience severe financial difficulties. These severe financial difficulties may never be overcome and may cause such companies to become subject to bankruptcy proceedings. As such, these investments could subject us to certain additional potential liabilities that may exceed the value of our original investment therein. For instance, under certain circumstances, payments to us and our distributions to stockholders may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, preferential payment or similar transaction under applicable bankruptcy and insolvency laws. Furthermore, investments in restructurings may be adversely affected by statutes relating to, among other things, fraudulent conveyances, voidable preferences, lender liability and the court’s discretionary power to disallow, subordinate or disenfranchise particular claims. Under certain circumstances, a lender that has inappropriately exercised control of the management and policies of a debtor may have its claims subordinated or disallowed, or may be found liable for damages suffered by parties as a result of such actions.
The lack of liquidity in our investments may adversely affect our business.
We generally make investments in private companies. Substantially all of these investments are subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material non-public information regarding such portfolio company.
We have not yet identified all of the portfolio companies we will invest in.
We have not yet identified all of the potential investments for our portfolio that we will acquire with the proceeds of the Private Offering. Our Investment Adviser selected our initial investments prior to our past drawdowns and will select subsequent investments prior to any subsequent drawdown. Our stockholders will have no input with respect to investment decisions. These factors increase the uncertainty, and thus the risk, of investing in our common stock.
Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
Although we do not intend to focus our investments in any specific industries, our portfolio may be concentrated in a limited number of portfolio companies and industries. Beyond the asset diversification requirements associated with our qualification as a RIC under Subchapter M of the Code and under the Revolving Credit Facility, Facility and 2015-1 Notes, we do not have fixed guidelines for diversification, and while we do not target any specific industries, our investments may be concentrated in relatively few industries. As a result, the aggregate returns we will realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of one or more investments. Additionally, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize.
Leveraged companies may enter into bankruptcy proceedings at higher rates than companies that are not leveraged and we invest in debt securities of these companies.
Leveraged companies, such as those in which we invest, may be more prone to bankruptcy or similar financial distress. The bankruptcy process has a number of significant inherent risks. Many events in a
 
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bankruptcy proceeding are the product of contested matters and adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer may adversely and permanently affect the issuer. If the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value that was believed to exist at the time of the investment. The duration of a bankruptcy proceeding is also difficult to predict, and a creditor’s return on investment can be adversely affected by delays until the plan of reorganization or liquidation ultimately becomes effective. The administrative costs of a bankruptcy proceeding are frequently high and would be paid out of the debtor’s estate prior to any return to creditors. Because the standards for classification of claims under bankruptcy law are vague, our influence with respect to the class of securities or other obligations we own may be lost by increases in the number and amount of claims in the same class or by different classification and treatment. In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial.
In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. For example, we could become subject to a lender liability claim (alleging that we misused our influence on the borrower for the benefit of its lenders), if, among other things, the borrower requests significant managerial assistance from us and we provide that assistance.
Declines in the prices of corporate debt securities and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.
As a BDC, we are required to account for our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our Board of Directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. Depending on market conditions, we may face similar losses, which could reduce our net asset value and have a material adverse impact on our business, financial condition and results of operations.
Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.
Although we may do so in the future, currently we do not intend to hold controlling equity positions in our portfolio companies. Our non-controlling investments may be acquired through trading activities or through direct purchases of securities from the portfolio company. In addition, we may acquire minority equity interests in large transactions in which our level of control over the equity investment is limited. Accordingly, we may not be able to control decisions relating to a minority equity investment, including decisions relating to the management and operation of the portfolio company and the timing and nature of any exit. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments. If any of the foregoing were to occur, our financial condition, results of operations and cash flow could suffer as a result.
An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
We invest primarily in privately held companies. Generally, little public information exists about these companies, and we are required to rely on the ability of our Investment Adviser to obtain adequate information to evaluate the potential returns from investing in these companies. The due diligence process that our Investment
 
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Adviser undertakes in connection with our investments may not reveal all the facts that may be relevant in connection with such investment. If our Investment Adviser is unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could adversely affect our investment returns as compared to companies investing primarily in the securities of public companies.
Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies.
We invest primarily in Middle Market Senior Loans issued by our portfolio companies. To the extent we invest in second lien, mezzanine or other instruments, our portfolio companies typically may be permitted to incur other debt that ranks equally with, or senior to, such debt instruments. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we will be entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. In such cases, after repaying such senior creditors, such portfolio company may not have sufficient remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates investments in debt securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. As a result of investing in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. We do not expect to satisfy the conditions necessary to pass through to our stockholders their share of the foreign taxes paid by us. In addition, interest income derived from loans to foreign companies is not eligible to be distributed to our non-U.S. stockholders free from U.S. withholding tax.
Although most of our investments are expected to be U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-
 
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term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk, or that if we do, such strategies will be effective.
We may expose ourselves to risks if we engage in hedging transactions.
If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, credit default swaps, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates, credit risk premiums, and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation at an acceptable price that is generally anticipated. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the effect of the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Income derived from hedging transactions is generally not eligible to be distributed to non-U.S. stockholders free from U.S. withholding tax. We may determine not to hedge against particular risks, including if we determine that available hedging transactions are not available at an appropriate price.
We are dependent upon our Investment Adviser’s key investment professionals for our future success.
We depend on the diligence, skill and network of business contacts of the CGMSIM Investment Team and the GMS platform to source appropriate investments for us. We depend on members of the CGMSIM Investment Team to appropriately analyze our investments and the CGMSIM Investment Committee to approve and monitor our middle market portfolio investments. The CGMSIM Investment Committee, together with the other members of the CGMSIM Investment Team, evaluate, negotiate, structure, close and monitor our investments. Our future success will depend on the continued availability of the members of the CGMSIM Investment Committee and the other investment professionals available to CGMSIM. Neither we nor CGMSIM has employment agreements with these individuals or other key personnel, and we cannot provide any assurance that unforeseen business, medical, personal or other circumstances would not lead any such individual to terminate his or her relationship with us. The loss of Messrs. Petrick and Hart, or any of the other senior investment professionals to which CGMSIM has access, could have a material adverse effect on our ability to achieve our investment objective as well as on our financial condition and results of operations. In addition, our contract with CGMSIM is terminable by either party upon 60 days’ notice, and we can offer no assurance that CGMSIM will remain our Investment Adviser.
We may face other restrictions on our ability to liquidate our investment in a portfolio companies.
Management of the Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Company’s investments conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the investee’s operations and profitability. In addition, the Company is subject to changing regulatory and tax environments. Such events are beyond the Company’s control, and the likelihood that they may occur and the effect on the Company cannot be predicted. Furthermore, most of the Company’s investments are made in private companies whose shares do not trade on established exchanges. While it is expected that these companies may pursue initial public offerings, trade sales, or other liquidation events, there are generally no
 
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public markets for these securities at the current time. The Company’s ability to liquidate its private company investments and realize value is subject to significant limitations and uncertainties, including currency fluctuations.
The Company’s ability to liquidate its publicly traded investments may be subject to limitations, including discounts that may be required to be taken on quoted prices due to the number of shares being sold.
Risks Related to Debt Securitization Financing Transactions
We are subject to certain risks as a result of our direct interest in the Preferred Interests of the 2015-1 Issuer.
As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the Borrower Sub to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the Borrower Sub) to the 2015-1 Issuer pursuant to a contribution agreement. Following this transfer, the 2015-1 Issuer held all of the equity ownership interest in such loans portfolio. As a result, the Company received 100% of the Preferred Interests issued by the 2015-1 Issuer in exchange for the Company’s contribution to the 2015-1 Issuer of the initial closing date loan portfolio. The 2015-1 Notes are included in the consolidated financial statements and the Preferred Interests are eliminated in consolidation.
Because each of the Borrower Sub and the 2015-1 Issuer is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale or contribution by Borrower Sub to us and the sale or contribution by us to the 2015-1 Issuer did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.
The Preferred Interests in the 2015-1 Issuer are subordinated obligations of the 2015-1 Issuer.
The 2015-1 Issuer is the residual claimant on funds, if any, remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date or upon maturity of the 2015-1 Notes under the 2015-1 Debt Securitization documents. The Preferred Interests in the 2015-1 Issuer represent all of the equity interest in the 2015-1 Issuer and, as the holder of the Preferred Interests, we may receive distributions, if any, only to the extent that the 2015-1 Issuer makes distributions out of funds remaining after holders of all classes of 2015-1 Notes have been paid in full on each payment date any amounts due and owing on such payment date or upon maturity of the 2015-1 Notes.
The 2015-1 Issuer may fail to meet certain asset coverage tests.
Under the documents governing the 2015-1 Debt Securitization, there are two coverage tests applicable to the 2015-1 Notes.
The first such test compares the amount of interest received on the portfolio loans held by the 2015-1 Issuer to the amount of interest payable in respect of the 2015-1 Notes. To meet this first test, interest received on the portfolio loans must equal at least 120% of the interest payable in respect of the 2015-1 Notes issued by the 2015-1 Issuer.
The second such test compares the adjusted collateral principal amount of the portfolio loans of the 2015-1 Debt Securitization to the aggregate outstanding principal amount of the 2015-1 Notes. To meet this second test at any time, the adjusted collateral principal amount of the portfolio loans must equal at least 140% of the outstanding principal amount of the 2015-1 Notes. If any coverage test with respect to the 2015-1 Notes is not met, proceeds from the portfolio of loans that otherwise would have been distributed to the holders of the Preferred Interests of 2015-1 Issuer will instead be used to redeem first the 2015-1 Notes, to the extent necessary
 
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to satisfy the applicable asset coverage tests on a pro forma basis after giving effect to all payments made in respect of the 2015-1 Notes, which we refer to as a mandatory redemption, or to obtain the necessary ratings confirmation.
We may not receive cash from the 2015-1 Issuer.
We receive cash from the 2015-1 Issuer only to the extent of payments on the distributions, if any, with respect to the Preferred Interests of the 2015-1 Issuer as permitted under the 2015-1 Debt Securitization. The 2015-1 Issuer may only make payments on Preferred Interests to the extent permitted by the payment priority provisions of the indenture governing the 2015-1 Notes (the “2015-1 Indenture”), as applicable, which generally provide, distribution to Preferred Interests holder may not be made on any payment date unless all amounts owing under the 2015-1 Notes are paid in full.
In addition, if the 2015-1 Issuer does not meet the asset coverage tests or the interest coverage test set forth in the documents governing the 2015-1 Debt Securitization, cash would be diverted to first pay the 2015-1 Notes in amounts sufficient to cause such tests to be satisfied. In the event that we fail to receive cash directly from the 2015-1 Issuer, we could be unable to make such distributions in amounts sufficient to maintain our status as a RIC for U.S. federal income tax purposes, or at all.
We may be required to assume liabilities of the 2015-1 Issuer and are indirectly liable for certain representations and warranties in connection with the 2015-1 Debt Securitization.
As part of the 2015-1 Debt Securitization, we entered into a contribution agreement under which we would be required to repurchase any loan (or participation interest therein) which was sold to the 2015-1 Issuer, in breach of any representation or warranty made by us with respect to such loan on the date such loan was sold. To the extent we fail to satisfy any such repurchase obligation, the trustee of the 2015-1Debt Securitization may, on behalf of the 2015-1 Issuer, bring an action against us to enforce these repurchase obligations.
The structure of the 2015-1 Debt Securitization is intended to prevent, in the event of our bankruptcy, the consolidation of the 2015-1 Issuer with our operations. If the true sale of the assets in the 2015-1 Debt Securitization were not respected in the event of our insolvency, a trustee or debtor-in-possession might reclaim the assets of the 2015-1 Issuer for our estate. However, in doing so, we would become directly liable for all of the indebtedness then outstanding under the 2015-1 Debt Securitization, which would equal the full amount of debt of the 2015-1 Issuer reflected on our consolidated balance sheet.
In addition, in connection with 2015-1 Debt Securitization, the Company has made customary representations, warranties and covenants to the 2015-1 Issuer. We remain liable for any breach of such representations for the life of the 2015-1 Debt Securitization.
The interests of holders of the 2015-1 Notes issued by the 2015-1 Issuer may not be aligned with our interests.
The 2015-1 Notes are the debt obligations ranking senior in right of payment to the Preferred Interests holders. As such, there are circumstances in which the interests of holders of the 2015-1Notes may not be aligned with the interests of the Preferred Interests of the 2015-1 Issuer. For example, under the terms of the 2015-1 Issuer, holders of the 2015-1 Notes have the right to receive payments of principal and interest prior to distribution to the holders of the Preferred Interests of the 2015-1 Issuer.
For as long as the 2015-1 Notes remain outstanding, holders of the 2015-1 Notes have the right to act, in certain circumstances, with respect to the portfolio loans in ways that may benefit their interests but not the interests of holders of the Preferred Interests of the 2015-1 Issuer, including by exercising remedies under the 2015-1 Indenture.
 
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If an event of default has occurred and acceleration occurs in accordance with the terms of the 2015-1 Indenture, the 2015-1 Notes then outstanding will be paid in full before any further payment or distribution to the Preferred Interests. In addition, if an event of default occurs, holders of a majority of the 2015-1 Notes then outstanding will be entitled to determine the remedies to be exercised under the 2015-1 Indenture, subject to the terms of the 2015-1 Indenture. For example, upon the occurrence of an event of default with respect to the notes issued by the 2015-1 Issuer, the trustee or holders of a majority of the 2015-1 Notes then outstanding may declare the principal, together with any accrued interest, of all the 2015-1 Notes to be immediately due and payable. This would have the effect of accelerating the principal on such notes, triggering a repayment obligation on the part of the 2015-1 Issuer. If at such time the portfolio loans of the 2015-1 Issuer were not performing well, the 2015-1 Issuer may not have sufficient proceeds available to enable the trustee under the 2015-1 Indenture to pay a distribution to holders of the Preferred Interests of the 2015-1 Issuer.
Remedies pursued by the holders of the 2015-1 Notes could be adverse to the interests of the holders of the Preferred Interests, and the holders of the 2015-1 Notes will have no obligation to consider any possible adverse effect on such other interests. Thus, any remedies pursued by the holders of the 2015-1 Notes may not be in our best interests and we may not receive payments or distributions upon an acceleration of the 2015-1 Notes. Any failure of the 2015-1 Issuer to make distributions on Preferred Interests we hold, directly or indirectly, whether as a result of an event of default or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in an inability of us to make distributions sufficient to allow for us to qualify as a RIC for U.S. federal income tax purposes.
If we have not consummated a Qualified IPO by May 2, 2018, it could result in an early optional redemption of the 2015-1 Notes.
If we have not consummated a Qualified IPO by May 2, 2018, then our Board of Directors (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind-down and/or liquidate and dissolve us. If this were to occur, it would likely result in us using our rights, as a holder of the Preferred Interests to effect an optional redemption of the 2015-1 Notes. If at such time the portfolio loans of the 2015-1 Issuer were not performing well, the 2015-1 Issuer may not have sufficient proceeds available to enable the trustee under the 2015-1 Indenture to pay a distribution to holders of the Preferred Interests of the 2015-1 Issuer.
To the extent we use additional structured financing vehicles, we could be subject to heightened risk versus holding direct investments in underlying portfolio companies.
To finance investments, we may continue to securitize certain of our investments, including through the formation of one or more additional CLOs, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. Any interest in any such CLO held by the Company may be considered a “non-qualifying asset” for purposes of Section 55 of the Investment Company Act.
If we create another CLO, we will likely depend on distributions from the CLO’s assets out of its earnings and cash flows to enable us to make distributions to our stockholders. The ability of a CLO to make distributions or pay dividends will be subject to various limitations, including the terms and covenants of the debt it issues. For example, tests (based on interest coverage or other financial ratios or other criteria) may restrict our ability, as holder of a CLO’s equity interests, to receive cash flow from these investments. There is no assurance any such performance tests will be satisfied. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower or the CLO may be obligated to retain cash or other assets to satisfy over-collateralization requirements commonly provided for holders of the CLO’s debt. As a result, there may be a lag, which could be significant, between the repayment or other realization on a loan or other assets in, and the distribution of cash out of, a CLO, or cash flow may be completely restricted for the life of the CLO.
 
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In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing their earnings and, in turn, cash potentially available for distribution to us for distribution to our stockholders.
To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests. Finally, any equity interests that we retain in a CLO will not be secured by the assets of the CLO and we will rank behind all creditors of the CLO.
Risks Related to an Investment in Our Securities
There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time.
We cannot provide any assurance that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions.
Our stockholders may be required to pay federal income taxes in excess of the cash dividends they receive.
We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each stockholder. If too many stockholders elect to receive cash, each stockholder electing to receive cash would receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event would any stockholder electing to receive cash receive less than 10% of his or her entire distribution in cash. For U.S. federal income tax purposes, the amount of a dividend paid in stock would be equal to the amount of cash that could have been received instead of stock.
Stockholders receiving dividends in shares of our common stock would be required to include the full amount of the dividend (including the portion payable in stock) as ordinary income (or, in certain circumstances, long-term capital gain) to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders were to determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price (if any) of our common stock. It is unclear whether and to what extent we will be able to pay taxable dividends of the type described in this paragraph.
Our taxable income is expected to differ from our income determined in accordance with US GAAP and to be a factor considered by our Board in determining the amount and frequency of our dividends.
The character of income and gains to be distributed by us is determined in accordance with U.S. federal income tax regulations that may differ from the determination of income in accordance with US GAAP, particularly as it relates to our CLO equity investments. Taxable income on our CLO equity investments is based upon the distributable share of earnings as determined under tax regulations, which may be consistent with the cash flows generated by those investments, while our income for US GAAP purposes from these investments is currently based upon an effective yield calculation. Accordingly, taxable income attributed to a CLO equity investment can be significantly different from the calculation of income on these investments for financial reporting purposes. In general, we expect our annual taxable income from our CLO equity investments to be higher than our income from these investments determined in accordance with US GAAP on the basis of actual
 
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cash received. The minimum distribution requirements applicable to companies like us that have elected to be treated as “regulated investment companies” for U.S. federal income tax purposes require us to distribute to our stockholders at least 90% of our investment company taxable income each year. We expect our Board of Directors to consider, among other factors, these minimum distribution requirements in determining the amount and frequency of our dividends.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We maintain our principal executive office at 520 Madison Avenue, 38th Floor, New York, NY 10022. We do not own any real estate.
Item 3. Legal Proceedings
The Company may become party to certain lawsuits in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. The Company is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against the Company. See also Note 10 to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
 
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (dollar amounts in thousands, except per share data)
Market Information
Until the completion of a Qualified IPO, our outstanding common stock will be offered and sold in transactions exempt from registration under the Securities Act under Section 4(2) and Regulation D, as well as under Regulation S under the Securities Act. There is no established public trading market for our common stock currently, nor can we give any assurance that one will develop.
Holders
As of March 11, 2016, there were approximately 1,625 holders of record of our common stock.
Distribution Policy
To the extent that we have taxable income available, we intend to distribute quarterly dividends to our stockholders. The amount of our dividends, if any, will be determined by our Board of Directors. Any dividends to our stockholders will be declared out of assets legally available for distribution. We anticipate that our distributions will generally be paid from post-offering taxable earnings, including interest and capital gains generated by our investment portfolio, and any other income, including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees, that we receive from portfolio companies. However, if we do not generate sufficient taxable earnings during a year, all or part of a distribution may constitute a return of capital. The specific tax characteristics of our dividends and other distributions will be reported to stockholders after the end of each calendar year.
We have elected to be treated, and intend to continue to qualify annually, as a RIC. To maintain our qualification as a RIC, we must, among other things, distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to our stockholders on an annual basis. In order to avoid certain excise taxes imposed on RICs, we intend to distribute during each calendar year an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year; (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of the calendar year; and, (3) any ordinary income and capital gain net income (both long-term and short-term) for preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. In addition, although we currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment, pay U.S. federal income tax on such amounts at regular corporate tax rates, and elect to treat such gains as deemed distributions to stockholders. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.
We intend to make distributions in cash unless a stockholder elects to receive dividends and/or long-term capital gains distributions in additional shares of common stock.  See “—Dividend Reinvestment Plan”  below. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.
 
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The following table summarizes the Company’s dividends declared since inception through March 11, 2016:

Date Declared	  	Record
Date	  	Payment
Date	  	Per Share
Amount	 	 	Total
Amount	 	  	Annualized
Dividend Yield (1)	 	
March 13, 2014	  	March 31, 2014	  	April 14, 2014	  	$	0.19	  	 	$	2,449	 	  	 	4.76	% 	
June 26, 2014	  	June 30, 2014	  	July 14, 2014	  	$	0.27	  	 	$	3,481	  	  	 	5.52	% 	
September 12, 2014	  	September 18, 2014	  	October 9, 2014	  	$	0.44	  	 	$	5,956	  	  	 	9.23	% 	
December 19, 2014	  	December 29, 2014	  	January 26, 2015	  	$	0.35	  	 	$	6,276	  	  	 	8.17	% 	
March 11, 2015	  	March 13, 2015	  	April 17, 2015	  	$	0.37	  	 	$	7,833	  	  	 	8.58	% 	
June 24, 2015	  	June 30, 2015	  	July 22, 2015	  	$	0.37	  	 	$	9,902	  	  	 	9.03	% 	
September 24, 2015	  	September 24, 2015	  	October 22, 2015	  	$	0.42	  	 	$	11,670	  	  	 	8.91	% 	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.40	  	 	$	12,610	  	  	 	8.97	% 	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.18	(2) 	 	$	5,674	  	  	 	4.03	% 	
March 10, 2016	  	March 14, 2016	  	April 22, 2016(3)	  	$	0.40	  	 	$	13,337	  	  	 	9.26	% 	
 
(1)	Annualized dividend yield is calculated by dividing the declared dividend by the weighted average of the net asset value at the beginning of the quarter and the capital called during the quarter and annualizing over 4 quarterly periods.	
(2)	Represents a special dividend.	
(3)	Payable on or about April 22, 2016.	
Dividend Reinvestment Plan
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.
Recent Sales of Unregistered Securities and Use of Proceeds
Except as previously reported by the Company on its current reports on Form 8-K, we did not sell any securities during the period covered by this Form 10-K that were not registered under the Securities Act.
Item 6. Selected Financial Data
The tables below set forth our selected consolidated historical financial data for the periods indicated. The selected consolidated historical financial data as of and for the years ended December 31, 2015, 2014 and 2013, have been derived from our audited consolidated financial statements, which are included in “ Financial Statements and Supplementary Data ” in Part II, Item 8 of this Form 10-K.
 
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The selected consolidated financial information and other data presented below should be read in conjunction with the information contained in Part II, Item 7 of this Form 10-K “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” the audited consolidated financial statements and the notes thereto in Part II, Item 8 of this Form 10-K, “ Financial Statements and Supplementary Data ”.

 	  	For the years ended
December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
(dollar amounts in thousands, except per share data)	  	 	 	 	 	 	 	 	 	
Consolidated Statements of Operations Data	  	 	 	 	 	 	 	 	 	 	 	 	
Income	  	 	 	 	 	 	 	 	 	 	 	 	
Total investment income	  	$	69,190	  	 	$	32,984	  	 	$	4,969	  	
Expenses	  	 	 	 	 	 	 	 	 	 	 	 	
Net expenses	  	 	33,666	  	 	 	18,724	  	 	 	6,638	  	
Net investment income (loss)	  	 	35,524	  	 	 	14,260	  	 	 	(1,669	) 	
Net realized gain (loss) on investments—non-controlled/non-affiliated	  	 	1,164	  	 	 	72	  	 	 	63	  	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	  	 	(18,015	) 	 	 	(8,718	) 	 	 	(321	) 	
Net increase (decrease) in net asset resulting from operations	  	 	18,673	  	 	 	5,614	  	 	 	(1,927	) 	
Basic and diluted earnings per common share	  	$	0.75	  	 	$	0.43	  	 	$	(0.64	) 	
Dividends declared per common share (1)	  	$	1.74	  	 	$	1.25	  	 	$	—  	  	
 
(1)	Cumulative per share dividends declared by the Company’s Board of Directors for the years ended December 31, 2015 and 2014. The Company’s Board of Directors did not declare a dividend during the year ended December 31, 2013.	

 	 	As of and for the years ended
December 31,	 	
 	 	2015	 	 	2014	 	 	2013	 	
(dollar amounts in thousands, except per share data)	 	 	 	
Consolidated Statements of Assets and Liabilities Data	 	 	 	 	
Investments—non-controlled/non-affiliated, at fair value	 	$	1,052,666	  	 	$	698,662	  	 	$	212,807	  	
Cash and cash equivalents	 	 	41,837	  	 	 	8,754	  	 	 	42,010	  	
Total assets	 	 	1,106,388	  	 	 	716,720	  	 	 	260,967	  	
Secured borrowings	 	 	234,313	  	 	 	308,441	  	 	 	66,822	  	
2015-1 Notes payable	 	 	273,000	  	 	 	—  	  	 	 	—  	  	
Total liabilities	 	 	534,662	  	 	 	378,463	  	 	 	74,965	  	
Total net assets	 	 	571,726	  	 	 	338,257	  	 	 	186,002	  	
Net assets per share	 	$	18.14	  	 	$	18.86	  	 	$	19.42	  	
 	 	
Other Data:	 	 	 	 	
Number of portfolio companies/structured finance obligations at year end	 	 	85	  	 	 	72	  	 	 	27	  	
Average funded investments in new portfolio companies/structured finance obligations	 	 	12,996	  	 	 	10,597	  	 	 	6,751	  	
Total return based on net asset value (1)	 	 	5.41	% 	 	 	3.55	% 	 	 	(2.90	%) 	
Weighted average yield of first lien and second lien debt at fair value (2)	 	 	7.75	% 	 	 	6.58	% 	 	 	6.88	% 	
Weighted average yield of first lien and second lien debt at amortized cost (2)	 	 	7.66	% 	 	 	6.51	% 	 	 	6.85	% 	
 
(1)	Total return is based on the change in net asset value per share during the year plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning net asset value for the year. Total return based on change in net asset value for the year ended December 31, 2013 was calculated for the period from commencement of operations through December 31, 2013. Total return for the years ended December 31, 2015, 2014 and 2013 was inclusive of $0.11, $0.09,	
 
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 	and $0.32, respectively, per share increase in net asset value related to the offering price of subscriptions. Excluding the effects of the higher offering price of subscriptions, total return would have been 4.83%, 3.09%, and (4.50%), respectively (refer to Note 8 in Part II, Item 8 of this Form 10-K for additional information).	
(2)	Weighted average yields do not include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2015, 2014 and 2013. Actual yields earned over the life of each investment could differ materially from the yields presented above.	
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in thousands, except per share data)
Management’s Discussion and Analysis should be read in conjunction with Part II, Item 8 of this Form 10-K “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of this Form 10-K “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.
Carlyle GMS Finance, Inc. (“we,” “us,” “our,” “GMS Finance,” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. On May 2, 2013, GMS Finance filed its election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”).
GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which we define as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; “last out” first lien loans, which are loans that have a secondary priority behind “first out” first lien loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with features similar to the features of these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. We expect that the composition of our portfolio will change over time given our Investment Adviser’s view on, among other things, the economic and credit environment (including with respect to interest rates) in which we are operating.
GMS Finance is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. The Administrator provides the administrative services necessary for GMS Finance to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. “Carlyle” refers to The Carlyle Group L.P., its affiliates and its consolidated subsidiaries, a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.
 
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On February 29, 2016, the Company and Credit Partners USA LLC (“Credit Partners”) entered into a Limited Liability Company agreement to co-manage Middle Market Credit Fund, LLC (“Credit Fund”). Credit Fund will primarily invest in first lien loans of middle-market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400 million each.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt available to middle market companies, the general economic environment and the competitive environment for the type of investments we make.
Revenue
We generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any, on investments. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on these debt securities is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.
Expenses
Our primary operating expenses include the payment of: (i) investment advisory fees, including base management fees and incentive fees, to our Investment Adviser pursuant to an investment advisory agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by our Administrator in performing its administrative obligations under an administration agreement (the “Administration Agreement”) between us and our Administrator; and (iii) other operating expenses as detailed below:
 
 	•	 	our initial organization costs and offering costs incurred prior to the filing of our election to be regulated as a BDC (the amount in excess of $1,500 to be paid by our Investment Adviser);	
 
 	•	 	the costs associated with the Private Offering;	
 
 	•	 	the costs of any other offerings of our common stock and other securities, if any;	
 
 	•	 	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 Investment Adviser, or members of the Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, expenses of enforcing our rights;	
 
 	•	 	the base management fee and any incentive fee payable under our Investment Advisory Agreement;	
 
 	•	 	certain costs and expenses relating to distributions paid on our shares;	
 
 	•	 	administration fees payable under our Administration Agreement and sub-administration agreements, including related expenses;	
 
 	•	 	debt service and other costs of borrowings or other financing arrangements;	
 
 	•	 	the allocated costs incurred by the Investment Adviser in providing managerial assistance to those portfolio companies that request it;	
 
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 	•	 	amounts payable to third parties relating to, or associated with, making or holding investments;	
 
 	•	 	the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments;	
 
 	•	 	transfer agent and custodial fees;	
 
 	•	 	costs of hedging;	
 
 	•	 	commissions and other compensation payable to brokers or dealers;	
 
 	•	 	federal and state registration fees;	
 
 	•	 	any U.S. federal, state and local taxes, including any excise taxes;	
 
 	•	 	Independent Director fees and expenses;	
 
 	•	 	costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation or review of the foregoing;	
 
 	•	 	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;	
 
 	•	 	the costs of specialty and custom software for monitoring risk, compliance and overall portfolio, including any development costs incurred prior to the filing of our election to be regulated as a BDC;	
 
 	•	 	our fidelity bond;	
 
 	•	 	directors and officers/errors and omissions liability insurance, and any other insurance premiums;	
 
 	•	 	indemnification payments;	
 
 	•	 	direct fees and expenses associated with independent audits, agency, consulting and legal costs; and	
 
 	•	 	all other expenses incurred by us or the Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation.	
We expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.
 
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PORTFOLIO AND INVESTMENT ACTIVITY
The fair value of our investments was approximately $1,052,666, comprised of 85 portfolio companies/structured finance obligations as of December 31, 2015. The fair value of our investments was approximately $698,662 comprised of 72 portfolios companies/structured finance obligations as of December 31, 2014. The fair value of our investments was approximately $212,807 comprised of 27 portfolio companies/structured finance obligations as of December 31, 2013.
The Company’s investment activity for the years ended December 31, 2015, 2014 and 2013 is presented below (information presented herein is at amortized cost unless otherwise indicated):

 	  	For the years ended
December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Investments—non-controlled/non-affiliated:	  	 	 	 	 	 	 	 	 	 	 	 	
Total Investments—non-controlled/non-affiliated as of January 1	  	$	707,701	  	 	$	213,128	  	 	$	—  	 	
New Investments purchased	  	 	597,811	  	 	 	614,622	  	 	 	216,445	  	
Net accretion of discount on securities	  	 	3,035	  	 	 	1,108	  	 	 	65	  	
Net realized gain (loss) on investments	  	 	1,164	  	 	 	72	  	 	 	63	  	
Investments sold or repaid	  	 	(229,991	) 	 	 	(121,229	) 	 	 	(3,445	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total Investments—non-controlled/non-affiliated as of December 31	  	$	1,079,720	  	 	$	707,701	  	 	$	213,128	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Principal amount of investments funded:	  	 	 	 	 	 	 	 	 	 	 	 	
First Lien Debt	  	$	481,510	  	 	$	457,212	  	 	$	143,396	  	
Second Lien Debt	  	 	115,250	  	 	 	80,790	  	 	 	41,000	  	
Structured Finance Obligations	  	 	15,760	  	 	 	115,638	  	 	 	55,882	  	
Equity Investments	  	 	1,507	  	 	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	614,027	  	 	$	653,640	  	 	$	240,278	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Principal amount of investments sold or repaid:	  	 	 	 	 	 	 	 	 	 	 	 	
First Lien Debt	  	$	(191,718	) 	 	$	(77,040	) 	 	$	(485	) 	
Second Lien Debt	  	 	(8,000	) 	 	 	(9,500	) 	 	 	—  	 	
Structured Finance Obligations	  	 	(39,475	) 	 	 	(31,363	) 	 	 	(8,000	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	(239,193	) 	 	$	(117,903	) 	 	$	(8,485	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Number of new funded investments	  	 	46	  	 	 	58	  	 	 	32	  	
Average new funded investment amount	  	$	12,996	  	 	$	10,597	  	 	$	6,751	  	
Percentage of new funded debt investments at floating rates	  	 	98	% 	 	 	98	% 	 	 	100	% 	
Percentage of new funded debt investments at fixed rates	  	 	2	% 	 	 	2	% 	 	 	0	% 	
As of December 31, 2015, 2014 and 2013, investments—non-controlled/non-affiliated consisted of the following:

 	  	December 31, 2015	 	  	December 31, 2014	 	  	December 31, 2013	 	
 	  	Amortized
Cost	 	  	Fair Value	 	  	Amortized
Cost	 	  	Fair Value	 	  	Amortized
Cost	 	  	Fair Value	 	
First Lien Debt	  	$	800,857	  	  	$	795,034	  	  	$	517,450	  	  	$	514,787	  	  	$	141,510	  	  	$	141,676	  	
Second Lien Debt	  	 	216,708	  	  	 	210,396	  	  	 	111,261	  	  	 	107,874	  	  	 	40,636	  	  	 	39,767	  	
Structured Finance Obligations	  	 	59,940	  	  	 	44,812	  	  	 	78,990	  	  	 	76,001	  	  	 	30,982	  	  	 	31,364	  	
Equity Investments	  	 	2,215	  	  	 	2,424	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,079,720	  	  	$	1,052,666	  	  	$	707,701	  	  	$	698,662	  	  	$	213,128	  	  	$	212,807	  	

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The weighted average yields (1) for our first and second lien debt, based on the amortized cost and fair value as of December 31, 2015, 2014 and 2013, were as follows:

 	  	December 31, 2015	 	 	December 31, 2014	 	 	December 31, 2013	 	
 	  	Amortized
Cost	 	 	Fair Value	 	 	Amortized
Cost	 	 	Fair Value	 	 	Amortized
Cost	 	 	Fair Value	 	
First Lien Debt	  	 	7.14	% 	 	 	7.19	% 	 	 	6.01	% 	 	 	6.04	% 	 	 	6.24	% 	 	 	6.23	% 	
Second Lien Debt	  	 	9.59	% 	 	 	9.87	% 	 	 	8.86	% 	 	 	9.14	% 	 	 	8.97	% 	 	 	9.16	% 	
 
(1)	Weighted average yields do not include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2015, 2014 and 2013. Actual yields earned over the life of each investment could differ materially from the yields presented above.	
RESULTS OF OPERATIONS
For the years ended December 31, 2015, 2014 and 2013
The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation.
Investment Income
Interest income for the years ended December 31, 2015, 2014 and 2013, was as follows:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Interest income from non-controlled/non-affiliated investments:	  	 	 	 	  	 	 	 	  	 	 	 	
First Lien Debt	  	$	45,654	  	  	$	18,028	  	  	$	2,837	  	
Second Lien Debt	  	 	15,357	  	  	 	5,716	  	  	 	648	  	
Structured Finance Obligations	  	 	8,160	  	  	 	9,233	  	  	 	1,474	  	
Equity Investments	  	 	12	  	  	 	—  	  	  	 	—  	  	
Cash	  	 	7	  	  	 	7	  	  	 	10	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investment income	  	$	69,190	  	  	$	32,984	  	  	$	4,969	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
The increase in interest income for the year ended December 31, 2015 from the comparable period in 2014 was primarily driven by our deployment of capital and increasing invested balance. As of December 31, 2015, the size of our portfolio increased to $1,079,720 from $707,701 as of December 31, 2014, at amortized cost, and total principal amount of investments outstanding increased to $1,142,364 from $767,530 as of December 31, 2014. The increase in interest income was also due to the increase in the weighted average yield. As of December 31, 2015, the weighted average yield of our first and second lien debt increased to 7.66% from 6.51% as of December 31, 2014, on amortized cost.
The increase in interest income for the year ended December 31, 2014 from the comparable period in 2013 was primarily driven by our deployment of capital and increasing invested balance. As of December 31, 2014, the size of our portfolio increased to $707,701 from $213,128 as of December 31, 2013, at amortized cost, and total principal amount of investments outstanding increased to $767,530 from $231,793 as of December 31, 2013. The increase in interest income was partially offset by a decline in the weighted average yield. As of December 31, 2014, the weighted average yield of our first and second lien debt decreased to 6.51% from 6.85% as of December 31, 2013, on amortized cost.
 
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Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of December 31, 2015, 2014 and 2013 and for the years then ended, all of our first and second lien debt investments were performing and current on their interest payments. Interest income from structured finance obligations is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows. The effective yield is updated periodically based on payments received and expected future payments. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.
Net investment income (loss) for the years ended December 31, 2015, 2014 and 2013 was as follows:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Total investment income	  	$	69,190	  	  	$	32,984	  	  	$	4,969	  	
Net expenses	  	 	(33,666	) 	  	 	(18,724	) 	  	 	(6,638	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment income (loss)	  	$	35,524	  	  	$	14,260	  	  	$	(1,669	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Expenses

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Base management fees	  	$	13,361	  	  	$	6,559	  	  	$	937	  	
Incentive fees	  	 	8,881	  	  	 	3,578	  	  	 	—  	  	
Organization expenses	  	 	—  	  	  	 	—  	  	  	 	1,426	  	
Professional fees	  	 	1,845	  	  	 	2,169	  	  	 	1,723	  	
Administrative service fees	  	 	595	  	  	 	626	  	  	 	650	  	
Interest expense	  	 	9,582	  	  	 	3,648	  	  	 	353	  	
Credit facility fees	  	 	1,898	  	  	 	3,052	  	  	 	1,164	  	
Directors’ fees and expenses	  	 	419	  	  	 	395	  	  	 	322	  	
Transfer agency fees	  	 	177	  	  	 	135	  	  	 	84	  	
Trustees fees	  	 	41	  	  	 	—  	  	  	 	—  	  	
Other general and administrative	  	 	1,321	  	  	 	748	  	  	 	291	  	
Waiver of base management fees	  	 	(4,454	) 	  	 	(2,186	) 	  	 	(312	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net expenses	  	$	33,666	  	  	$	18,724	  	  	$	6,638	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Interest expense and credit facility fees for the years ended December 31, 2015, 2014 and 2013 were comprised of the following:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Interest expense	  	$	9,582	  	  	$	3,648	  	  	$	353	  	
Facility unused commitment fee	  	 	847	  	  	 	1,129	  	  	 	602	  	
Amortization of deferred financing costs	  	 	945	  	  	 	1,820	  	  	 	513	  	
Other fees	  	 	106	  	  	 	103	  	  	 	49	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total interest expense and credit facility fees	  	$	11,480	  	  	$	6,700	  	  	$	1,517	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash paid for interest expense	  	$	8,083	  	  	$	2,882	  	  	$	94	  	
 
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The increase in interest expense for the year ended December 31, 2015 compared to the comparable period in 2014 was driven by increased usage of the credit facilities, additional debt issued through the securitization in the form of the 2015-1 Notes (see Note 6 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information), and increased deployment of capital to investments. For the year ended December 31, 2015, the average interest rate increased to 2.23% from 2.18% for the comparable period in 2014, and average principal debt outstanding increased to $265,277 from $164,980 for the comparable period in 2014.
The increase in interest expense for the year ended December 31, 2014 compared to the comparable period in 2013 was driven by increased usage of the credit facilities and increased deployment of capital to investments. Additionally, for the year ended December 31, 2014, $827 of the amortization of deferred financing costs represents the prorated financing costs that were immediately expensed in lieu of continuing to amortize over the term of the Revolving Credit Facility related to the amendment that reduced commitments in the Revolving Credit Facility. For the year ended December 31, 2014, the average interest rate increased to 2.18% from 1.98% for the period from August 8, 2013 (the initial date on which the Company borrowed under the Revolving Credit Facility) through December 31, 2013, and average principal debt outstanding increased to $164,980 from $44,063 for the period in 2013.
The increase in base management fees (and related waiver of base management fees) and incentive fees related to pre-incentive fee net investment income for the year ended December 31, 2015 from the comparable period in 2014 and for the year ended December 31, 2014 from the comparable period in 2013 was driven by our deployment of capital and increasing invested balance. For the years ended December 31, 2015, 2014 and 2013, base management fees were $8,907, $4,373 and $625, respectively (net of waiver of $4,454, $2,186 and $312, respectively), incentive fees related to pre-incentive fee net investment income were $8,881, $3,578 and $0, respectively, and there were no incentive fees related to realized capital gains. For the year ended December 31, 2015, 2014 and 2013 we recorded no accrued capital gains incentive fees based upon our cumulative net realized and unrealized appreciation (depreciation) as of December 31, 2015, 2014 and 2013, respectively. The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“US GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. See Note 4 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for more information on the incentive and base management fees.
Organization expenses include expenses incurred in the initial formation of the Company. Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs. The increase in other general and administrative expenses for the year ended December 31, 2015 from the comparable period in 2014 and for the year ended in December 31, 2014 from the comparable period in 2013 was primarily driven by the increased deployment of capital.
Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments
During the years ended December 31, 2015, 2014 and 2013, the Company had realized gains on 8, 4, and 11, investments, respectively, totaling approximately $1,622, $391, and $63, respectively, which was offset by realized losses on 6, 3, and 0, investments, respectively, totaling approximately $458, $319, and $0, respectively. During the years ended December 31, 2015, 2014 and 2013, the Company had a change in unrealized appreciation on 48, 25, and 16 investments, respectively, totaling approximately $8,597, $2,931, and $1,509, respectively, which was offset by a change in unrealized depreciation on 71, 65, and 13 investments, respectively, totaling approximately $26,612, $11,649, and $1,830, respectively.
 
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Net realized gain (loss) and net change in unrealized appreciation (depreciation) for the years ended December 31, 2015, 2014 and 2013, were as follows:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Net realized gain (loss) on investments—non-controlled/non-affiliated	  	$	1,164	  	  	$	72	  	  	$	63	  	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	  	 	(18,015	) 	  	 	(8,718	) 	  	 	(321	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	$	(16,851	) 	  	$	(8,646	) 	  	$	(258	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the years ended December 31, 2015, 2014 and 2013 were as follows:

 	  	For the years ended December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Type	  	Net realized
gain (loss)	 	  	Net change in
unrealized
appreciation
(depreciation)	 	 	Net realized
gain (loss)	 	 	Net change in
unrealized
appreciation
(depreciation)	 	 	Net realized
gain (loss)	 	  	Net change in
unrealized
appreciation
(depreciation)	 	
First Lien Debt	  	$	208	 	  	$	(3,160	) 	 	$	—  	 	 	$	(2,829	) 	 	$	3	 	  	$	166	  	
Second Lien Debt	  	 	—  	 	  	 	(2,925	) 	 	 	120	  	 	 	(2,518	) 	 	 	—  	  	  	 	(869	) 	
Structured Finance Obligations	  	 	956	  	  	 	(12,139	) 	 	 	(48	) 	 	 	(3,371	) 	 	 	60	  	  	 	382	  	
Equity Investments	  	 	—  	 	  	 	209	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	  	 	—  	 	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	1,164	  	  	$	(18,015	) 	 	$	72	  	 	$	(8,718	) 	 	$	63	  	  	$	(321	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net change in unrealized depreciation in our investments for the year ended December 31, 2015 compared to the comparable period in 2014 was primarily due to a widening spread environment during the last three months of the year. Net change in unrealized depreciation in our investments for the year ended December 31, 2014 compared to the comparable period in 2013 was also primarily due to a widening spread environment during the last six months of the year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Borrower Sub’s senior secured revolving credit facility (as amended, the “Revolving Credit Facility”) and/or the Company’s senior secured revolving credit facility (as amended, the “Facility”), as well as through securitization of a portion of our existing investments.
The Borrower Sub closed on May 24, 2013 on the Revolving Credit Facility, which was subsequently amended on June 30, 2014 and further amended on June 19, 2015. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000 (the borrowing base as calculated pursuant to the terms of the Revolving Credit Facility) and the amount of net cash proceeds and unpledged capital commitments the Company has received, with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the Revolving Credit Facility, including adequate collateral to support such
 
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borrowings. The Revolving Credit Facility imposes financial and operating covenants on us and the Borrower Sub that restrict our and its business activities. Continued compliance with these covenants will depend on many factors, some of which are beyond our control.
The Company closed on March 21, 2014 on the Facility, which was subsequently amended on January 8, 2015. The maximum principal amount of the Facility is $150,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $225,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. Subject to certain exceptions, the Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.
Although we believe that we and the Borrower Sub will remain in compliance, there are no assurances that we or the Borrower Sub will continue to comply with the covenants in the Facility and Revolving Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Facility and/or Revolving Credit Facility that, if we or the Borrower Sub were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Facility and/or Revolving Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations.
For more information on the Revolving Credit Facility and Facility, see Note 5 to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders and for other general corporate purposes.
On June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160 million of Aaa/AAA Class A-1A Notes, which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40 million of Aaa/AAA Class A-1B Notes, which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27 million of Aaa/AAA Class A-1C Notes, which bear interest at 3.75%; and $46 million of Aa2 Class A-2 Notes which bear interest at the three-month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests (the “Preferred Interests”) issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125.9 million at closing. In connection with the contribution, the Company made customary representations, warranties and covenants to the 2015-1 Issuer. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the December 31, 2015 consolidated financial statements. The Preferred Interests were eliminated in consolidation. For more information on the 2015-1 Notes, see Note 6 to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
 
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As of December 31, 2015 and 2014, the Company had $41,837 and $8,754, respectively, in cash and cash equivalents. The facilities of the Company and the Borrower Sub consisted of the following as of December 31, 2015, 2014 and 2013:

 	  	December 31, 2015	 	
 	  	Total
Facility	 	  	Borrowings
Outstanding	 	  	Unused
Portion  (1)	 	  	Amount
Available  (2)	 	
Revolving Credit Facility	  	$	400,000	  	  	$	170,313	  	  	$	229,687	  	  	$	3,155	  	
Facility	  	 	150,000	  	  	 	64,000	  	  	 	86,000	  	  	 	86,000	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	550,000	  	  	$	234,313	  	  	$	315,687	  	  	$	89,155	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2014	 	
 	  	Total
Facility	 	  	Borrowings
Outstanding	 	  	Unused
Portion  (1)	 	  	Amount
Available  (2)	 	
Revolving Credit Facility	  	$	400,000	  	  	$	246,441	  	  	$	153,559	  	  	$	10,557	  	
Facility	  	 	150,000	  	  	 	62,000	  	  	 	88,000	  	  	 	58,623	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	550,000	  	  	$	308,441	  	  	$	241,559	  	  	$	69,180	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2013	 	
 	  	Total
Facility	 	  	Borrowings
Outstanding	 	  	Unused
Portion  (1)	 	  	Amount
Available  (2)	 	
Revolving Credit Facility	  	$	500,000	  	  	$	66,822	  	  	$	433,178	  	  	$	18,616	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	500,000	  	  	$	66,822	  	  	$	433,178	  	  	$	18,616	  	

(1)	The unused portion is the amount upon which commitment fees are based.	
(2)	Available for borrowing based on the computation of collateral to support the borrowings.	
The following were the carrying values and fair values of the Company’s 2015-1 Notes as of December 31, 2015. No 2015-1 Notes were outstanding as of December 31, 2014 and 2013:

 	  	December 31, 2015	 	
 	  	Carrying Value	 	  	Fair Value	 	
Aaa/AAA Class A-1A Notes	  	$	160,000	  	  	$	157,200	  	
Aaa/AAA Class A-1B Notes	  	 	40,000	  	  	 	39,700	  	
Aaa/AAA Class A-1C Notes	  	 	27,000	  	  	 	26,823	  	
Aa2 Class A-2 Notes	  	 	46,000	  	  	 	45,122	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	273,000	  	  	$	268,845	  	
 	  	 	 	 	  	 	 	 	
Equity Activity
There were $44,818 and $252,114 of commitments made to the Company during the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the Company had $1,174,340 and $1,129,522, respectively, in total capital commitments from stockholders, of which $559,214 and $776,750, respectively, was unfunded. As of December 31, 2015 and 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.
Shares issued as of December 31, 2015 and 2014, were 31,524,083 and 17,932,697, respectively.
 
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The following table summarizes activity in the number of shares of our common stock outstanding during the years ended December 31, 2015, 2014 and 2013:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Shares outstanding, beginning of year	  	 	17,932,697	  	  	 	9,575,990	  	  	 	100	  	
Common stock issued	  	 	13,584,508	  	  	 	8,354,987	  	  	 	9,575,890	  	
Reinvestment of dividends	  	 	6,878	  	  	 	1,720	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Shares outstanding, end of year	  	 	31,524,083	  	  	 	17,932,697	  	  	 	9,575,990	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Contractual Obligations
A summary of our significant contractual payment obligations was as follows as of December 31, 2015:

Payment Due by Period	  	Revolving Credit
Facility and Facility	 	  	2015-1 Notes	 	
Less than 1 Year	  	$	—  	 	  	$	—  	 	
1-3 Years	  	 	—  	 	  	 	—  	 	
3-5 Years	  	 	64,000	  	  	 	—  	 	
More than 5 Years	  	 	170,313	  	  	 	273,000	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	234,313	  	  	$	273,000	  	
 	  	 	 	 	  	 	 	 	
For more information on the Revolving Credit Facility and Facility and 2015-1 Notes, see Note 5 and Note 6, respectively, to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
As of December 31, 2015 and 2014, $170,313 and $246,441, respectively, of secured borrowings were outstanding under the Revolving Credit Facility, and $64,000 and $62,000, respectively, were outstanding under the Facility and $273,000 and $0, respectively, of 2015-1 Notes were outstanding. For the years ended December 31, 2015, 2014 and 2013, we incurred $9,582, $3,648 and $353, respectively, of interest expense and $847, $1,129 and $602, respectively, of unused commitment fees.
OFF BALANCE SHEET ARRANGEMENTS
In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in these consolidated financial statements as of December 31, 2015 and 2014, in Part II, Item 8 of this Form 10-K, for any such exposure.
We have in the past and may in the future enter into funding commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.
The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:

 	  	Par Value as of	 	
 	  	December 31, 2015	 	  	December 31, 2014	 	
Unfunded delayed draw commitments	  	$	20,695	  	  	$	9,500	  	
Unfunded revolving term loan commitments	  	 	3,906	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	
Total unfunded commitments	  	$	24,601	  	  	$	9,500	  	

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Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remains outstanding. As of December 31, 2015, the Company was in compliance with its undertaking.
DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.
The following table summarizes the Company’s dividends declared since inception through March 11, 2016:

Date
Declared	  	Record
Date	  	Payment
Date	  	Per Share
Amount	 	 	Total
Amount	 	  	Annualized
Dividend Yield (1)	 	
March 13, 2014	  	March 31, 2014	  	April 14, 2014	  	$	0.19	  	 	$	2,449	  	  	 	4.76	% 	
June 26, 2014	  	June 30, 2014	  	July 14, 2014	  	$	0.27	  	 	$	3,481	  	  	 	5.52	% 	
September 12, 2014	  	September 18, 2014	  	October 9, 2014	  	$	0.44	  	 	$	5,956	  	  	 	9.23	% 	
December 19, 2014	  	December 29, 2014	  	January 26, 2015	  	$	0.35	  	 	$	6,276	  	  	 	8.17	% 	
March 11, 2015	  	March 13, 2015	  	April 17, 2015	  	$	0.37	  	 	$	7,833	  	  	 	8.58	% 	
June 24, 2015	  	June 30, 2015	  	July 22, 2015	  	$	0.37	  	 	$	9,902	  	  	 	9.03	% 	
September 24, 2015	  	September 24, 2015	  	October 22, 2015	  	$	0.42	  	 	$	11,670	  	  	 	8.91	% 	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.40	  	 	$	12,610	  	  	 	8.97	% 	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.18	(2) 	 	$	5,674	  	  	 	4.03	% 	
March 10, 2016	  	March 14, 2016	  	April 22, 2016(3)	  	$	0.40	  	 	$	13,337	  	  	 	9.26	% 	
 
(1)	Annualized dividend yield is calculated by dividing the declared dividend by the weighted average of the net asset value at the beginning of the quarter and the capital called during the quarter and annualizing over 4 quarterly periods.	
(2)	Represents a special dividend.	
(3)	Payable on or about April 22, 2016.	
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 below. The critical accounting policies should be read in connection with our “ Risk Factors ” in Part I, Item 1A of this Form 10-K.
 
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Fair Value Measurements
The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820,  Fair Value Measurement  (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e. “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.
Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.
All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:
 
 	•	 	the nature and realizable value of any collateral;	
 
 	•	 	call features, put features and other relevant terms of debt;	
 
 	•	 	the portfolio company’s leverage and ability to make payments;	
 
 	•	 	the portfolio company’s public or private credit rating;	
 
 	•	 	the portfolio company’s actual and expected earnings and discounted cash flow;	
 
 	•	 	prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;	
 
 	•	 	the markets in which the portfolio company does business and recent economic and/or market events; and	
 
 	•	 	comparisons to comparable transactions and publicly traded securities.	
 
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Investment performance data utilized are the most recently available financial statements and compliance certificate received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of December 31, 2015 and 2014.
US GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.
Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:
 
 	•	 	Level I—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments included in Level I include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.	
 
 	•	 	Level II—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.	
 
 	•	 	Level III—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately-held entities, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.	
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.
 
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The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:
Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.
Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.
Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the investment’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies. Investments in debt securities may also be valued using consensus pricing.
Investments in structured finance obligations are generally valued using a discounted cash flow and/or consensus pricing.
Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates and indicative quotes. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in structured finance obligations are discount rates, default rates, prepayment rates, recovery rates and indicative quotes. Significant increases in discount rates, default rates or prepayment rates in isolation would result in a significantly lower fair value measurement, while a significant increase in recovery rates in isolation would result in a significantly higher fair value. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples would result in a significantly lower fair value measurement.
The carrying values of the secured borrowings and 2015-1 Notes approximate their respective fair values and are categorized as Level III within the hierarchy. Secured borrowings and 2015-1 Notes are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a
 
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significantly lower fair value measurement. The fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level III measurements as defined in the accounting guidance for fair value measurement.
The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.
See Note 3 to the consolidated financial statements in Part II, Item 8 of this Form 10-K for further information on fair value measurements.
Use of Estimates
The preparation of consolidated financial statements in Part II, Item 8 of this Form 10-K in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements in Part II, Item 8 of this Form 10-K. Actual results could differ from these estimates and such differences could be material.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
Revenue Recognition
Interest from Investments and Realized Gain/Loss on Investments
Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of investments represents the original cost, including origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.
The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity.
 
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Interest income from investments in the “equity” class of collateralized loan obligation (“CLO”) funds, which we refer to as “structured finance obligations”, is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40,  Beneficial Interests in Securitized Financials Assets . We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments and the effective yield is determined and updated periodically. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.
Other Income
Other income may include income such as consent, waiver and amendment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the Consolidated Statements of Assets and Liabilities in Part II, Item 8 of this Form 10-K.
Non-Accrual Income
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. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Income Taxes
For federal income tax purposes, GMS Finance has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, GMS Finance must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then GMS Finance is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.
The minimum distribution requirements applicable to RICs require GMS Finance to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, GMS Finance may choose to carry forward ICTI in excess of current year distributions into the next tax year. 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.
In addition, based on the excise distribution requirements, GMS Finance is subject to a 4% nondeductible federal excise tax on undistributed income unless GMS Finance distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by GMS Finance that is subject to corporate income tax is considered to have been distributed. GMS Finance intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.
 
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The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense.
The Borrower Sub is a disregarded entity for tax purposes and is consolidated with the tax return of GMS Finance.
Capital Calls and Dividends and Distributions to Common Stockholders
The Company records the shares issued in connection with capital calls as of the effective date of the capital call. To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.
RELATED PARTY TRANSACTIONS
Investment Advisory Agreement
On April 3, 2013, the Company’s Board of Directors, including a majority of the Independent Directors, approved the Investment Advisory Agreement between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. The initial term of the Investment Advisory Agreement is two years from April 3, 2013 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Advisory Agreement for a one year period. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a base management fee and an incentive fee.
Prior to a Qualified IPO, the base management fees are calculated and payable quarterly in arrears at an annual rate of 1.50% of the average daily gross assets of the Company for the period adjusted for share issuances or repurchases, excluding any cash and cash equivalents and including assets acquired with leverage from use of
 
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the Revolving Credit Facility, Facility and 2015-1 Notes (see Note 5, Borrowings, and Note 6, 2015-1 Notes, in Part II, Item 8 of this Form 10-K). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment. Base management fees for any partial quarter are prorated. As such, base management fees for the year ended December 31, 2013 were calculated commencing after May 8, 2013, the date the Company first called capital from investors. The Investment Adviser contractually waived one-third (0.50%) of the base management fees prior to a Qualified IPO. The fee waiver will terminate if and when a Qualified IPO has been consummated.
The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears based on capital gains as of the end of each calendar year.
Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the base management fee, expenses payable under the administration agreement, and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Prior to any Qualified IPO of the Company’s common stock, pre-incentive fee net investment income, expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.50% per quarter (6% annualized). “Hurdle Calculation Value” means, on any given day, the sum of (x) the value of net assets as of the end of the calendar quarter immediately preceding such day plus (y) the aggregate amount of capital drawn from investors (or reinvested in us pursuant to a dividend reinvestment plan) from the beginning of the current quarter to such day minus (z) the aggregate amount of distributions (including share repurchases) made by the Company from the beginning of the current quarter to such day but only to the extent such distributions were not declared and accounted for on the books and records in a previous quarter.
The Company pays its Investment Adviser an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:
 
 	•	 	no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which its pre-incentive fee net investment income does not exceed the hurdle of 1.50%;	
 
 	•	 	100% of pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 1.875% in any calendar quarter (7.50% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle but is less than 1.875%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 20% of the Company’s pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 1.875% in any calendar quarter; and	
 
 	•	 	20% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.50% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Investment Adviser.	
 
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The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of realized capital gains, if any, on a cumulative basis from inception through the date of determination, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end of the first calendar year of operations may be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation.
The Company will defer payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods (or, if less, the number of full calendar quarters completed since the initial drawdown of capital from the stockholders, “Initial Drawdown”) ending on or prior to the date such payment is to be made, the sum of (a) the aggregate distributions to stockholders and (b) the change in net assets (defined as gross assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 6.0% of net assets (defined as gross assets less indebtedness) at the beginning of such period, provided, that such percentage will be appropriately prorated during the four full calendar quarters immediately following the Initial Drawdown. These calculations are adjusted for any share issuances or repurchases. Any deferred incentive fees are carried over for payment in subsequent calculation periods. The Investment Adviser may earn an incentive fee under the Investment Advisory Agreement on the Company’s repurchase of debt issued by the Company at a gain.
Prior to a Qualified IPO, from time to time, CGMSIM intends to pay certain individuals providing services to CGMSIM, including members of the CGMSIM Investment Team, in shares of our common stock and/or in cash a portion of the net after-tax incentive fees that CGMSIM receives from us (not to exceed 25%) in consideration of their services on behalf of CGMSIM. To the extent that any such payment is in shares of our common stock, CGMSIM will purchase such shares from us and distribute the shares to the individuals eligible for such payment, and, to the extent that any such payment is in cash, CGMSIM will require the individuals eligible for such payment to make capital commitments to purchase newly issued shares of our common stock. In addition, following the completion of a Qualified IPO, from time to time, CGMSIM intends to purchase shares of our common stock in the open market at a purchase price, in the aggregate, equal to approximately 25% of each installment of the net after-tax incentive fees that CGMSIM receives from us, subject to market conditions. CGMSIM may then distribute those shares to members of the CGMSIM Investment Team and other individuals eligible for such payment in consideration of their services on behalf of CGMSIM.
Our Investment Adviser has not assumed any responsibility to us other than to render the services described in the Investment Advisory Agreement, and it is not responsible for any action of our Board in declining to follow our Investment Adviser’s advice or recommendations. Pursuant to the Investment Advisory Agreement, our Investment Adviser and its managers, officers, employees, agents, controlling persons and any other person or entity affiliated with it are not liable to us for any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under the Investment Advisory Agreement or otherwise as an investment adviser of the Company (except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation for services). We have agreed to the fullest extent permitted by law, to provide indemnification and the right to the advancement of expenses, to each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he/she is or was a member, manager, officer, employee, agent, controlling person or any other person or entity affiliated with the Adviser with respect to all damages, liabilities, costs and expenses resulting from acts of our Investment Adviser in the performance of their duties under the Investment Advisory Agreement, other than acts not in good faith with the reasonable belief that the conduct was in, or not opposed to, the best interest of the Company, and conduct constituting gross negligence, bad faith, reckless disregard, or willful misfeasance. These protections may lead our Investment Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.
 
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On April 3, 2013, the Investment Adviser entered into a personnel agreement with Carlyle Employee Co., pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.
Administration Agreement
On April 3, 2013, the Company’s Board of Directors approved the Administration Agreement between the Company and the Administrator. Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Chief Financial Officer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley Act internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.
The initial term of the Administration Agreement is two years from April 3, 2013 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Administration Agreement for a one year period. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.
Sub-Administration Agreements
On April 3, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP. Pursuant to the agreements, Carlyle Employee Co. and CELF Advisors LLP provide the Administrator with access to personnel.
On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (as amended, the “Sub-Administration Agreement”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the Sub-Administration Agreement. The initial term of the Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the Sub-Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. The Sub-Administration Agreement may be terminated upon at least 60 days’ written notice and without penalty by the vote of a majority of the outstanding securities of the Company, or by the vote of the Board of Directors or by either party to the Sub-Administration Agreement.
Placement Fees
On April 3, 2013, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser, which may require stockholders to pay a placement fee to TCG for TCG’s services.
Board of Directors
GMS Finance’s Board of Directors currently consists of seven members, four of whom are Independent Directors. On April 3, 2013, the Board of Directors also established an Audit Committee consisting of its Independent Directors, and may establish additional committees in the future.
 
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.
Valuation Risk
Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.
Interest Rate Risk
During the years ended December 31, 2015 and 2014, a majority of the investments held in the Company’s portfolio had floating interest rates. Interest rates on the investments held within the Company’s portfolio of investments are typically based on floating LIBOR, with many of these investments also having a LIBOR floor. Additionally, the Company’s credit facilities and 2015-1 Notes are also subject to floating interest rates and are currently paid based on floating LIBOR rates.
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our income in the future.
The following table estimates the potential changes in net cash flow generated from interest income, should interest rates increase or decrease by 100, 200 or 300 basis points. Interest income is calculated as revenue from interest generated from the Company’s settled portfolio of investments held as of December 31, 2015 and 2014, excluding structured finance obligations. These hypothetical calculations are based on a model of the settled investments in our portfolio, excluding structured finance obligations, held as of December 31, 2015 and 2014, and are only adjusted for assumed changes in the underlying base interest rates and the impact of that change on interest income. Interest expense is calculated based on outstanding secured borrowings and 2015-1 Notes as of December 31, 2015 and 2014 and based on the terms of the Company’s credit facilities and 2015-1 Notes. Interest expense on the Company’s credit facilities and 2015-1 Notes is calculated using the interest rate as of December 31, 2015 and 2014, adjusted for the hypothetical changes in rates, as shown below. We intend to continue to finance a portion of our investments with borrowings and the interest rates paid on our borrowings may impact significantly our net interest income.
The Company regularly measures exposure to interest rate risk. The Company assesses interest rate risk and manages interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
 
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Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2015 and 2014, the following table shows the annual impact on net investment income of base rate changes in interest rates for our settled investments (considering interest rate floors for variable rate instruments), excluding structured finance obligations, and outstanding secured borrowings (including the 2015-1 Notes) assuming no changes in our investment and borrowing structure:

 	  	As of December 31, 2015	 	  	As of December 31, 2014	 	
Basis Point Change	  	Interest
Income	 	  	Interest
Expense	 	 	Net
Investment
Income	 	  	Interest
Income	 	 	Interest
Expense	 	 	Net
Investment
Income	 	
Up 300 basis points	  	$	26,335	  	  	$	(14,409	) 	 	$	11,926	  	  	$	12,899	  	 	$	(9,253	) 	 	$	3,646	  	
Up 200 basis points	  	$	16,271	  	  	$	(9,606	) 	 	$	6,665	  	  	$	7,212	  	 	$	(6,169	) 	 	$	1,043	  	
Up 100 basis points	  	$	6,207	  	  	$	(4,803	) 	 	$	1,404	  	  	$	1,525	  	 	$	(3,084	) 	 	$	(1,559	) 	
Down 100 basis points	  	$	—  	  	  	$	2,826	  	 	$	2,826	  	  	$	(210	) 	 	$	736	  	 	$	526	  	
Down 200 basis points	  	$	—  	  	  	$	2,826	  	 	$	2,826	  	  	$	(420	) 	 	$	736	  	 	$	316	  	
Down 300 basis points	  	$	—  	  	  	$	2,826	  	 	$	2,826	  	  	$	(630	) 	 	$	736	  	 	$	106	  	
 
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Item 8. Financial Statements and Supplementary Data
CARLYLE GMS FINANCE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	  	 	77	  	
 	 	
Consolidated Statements of Assets and Liabilities as of December 31, 2015 and 2014	  	 	78	  	
 	 	
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013	  	 	79	  	
 	 	
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2015, 2014 and 2013	  	 	80	  	
 	 	
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013	  	 	81	  	
 	 	
Consolidated Schedules of Investments as of December 31, 2015 and 2014	  	 	82	  	
 	 	
Notes to Consolidated Financial Statements	  	 	95	  	
 
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Carlyle GMS Finance, Inc.
We have audited the accompanying consolidated statements of assets and liabilities of Carlyle GMS Finance, Inc. (the “Company”), including the consolidated schedules of investments, as of December 31, 2015 and 2014, and the related consolidated statements of operations, cash flows and changes in net assets for the years ended December 31, 2015, 2014 and 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2015 by correspondence with the custodian and debt agents. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carlyle GMS Finance, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations, its cash flows, and the changes in its net assets for the years ended December 31, 2015, 2014 and 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, NY
March 11, 2016
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(dollar amounts in thousands, except per share data)

 	  	December 31,
2015	 	 	December 31,
2014	 	
ASSETS	  	 	 	 	 	 	 	 	
Investments—non-controlled/non-affiliated, at fair value (amortized cost of $1,079,720 and $707,701, respectively)	  	$	1,052,666	  	 	$	698,662	  	
Cash and cash equivalents	  	 	41,837	  	 	 	8,754	  	
Receivable for investment sold	  	 	1,987	  	 	 	—  	  	
Deferred financing costs	  	 	6,233	  	 	 	4,635	  	
Interest receivable	  	 	3,279	  	 	 	4,512	  	
Prepaid expenses and other assets	  	 	386	  	 	 	157	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	1,106,388	  	 	$	716,720	  	
 	  	 	 	 	 	 	 	 	
LIABILITIES	  	 	 	 	 	 	 	 	
Payable for investments purchased	  	$	—  	  	 	$	55,343	  	
Secured borrowings (Note 5)	  	 	234,313	  	 	 	308,441	  	
2015-1 Notes payable (Note 6)	  	 	273,000	  	 	 	—  	  	
Due to Investment Adviser	  	 	189	  	 	 	41	  	
Interest and credit facility fees payable (Notes 5 and 6)	  	 	2,577	  	 	 	1,192	  	
Dividend payable (Note 8)	  	 	18,284	  	 	 	6,276	  	
Base management and incentive fees payable (Note 4)	  	 	5,277	  	 	 	6,319	  	
Administrative service fees payable (Note 4)	  	 	97	  	 	 	91	  	
Other accrued expenses and liabilities	  	 	925	  	 	 	760	  	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	534,662	  	 	 	378,463	  	
 	  	 	 	 	 	 	 	 	
Commitments and contingencies (Notes 7 and 10)	  	 	 	 	 	 	 	 	
NET ASSETS	  	 	 	 	 	 	 	 	
Common stock, $0.01 par value; 200,000,000 shares authorized; 31,524,083 shares and 17,932,697 shares, respectively, issued and outstanding	  	 	315	  	 	 	179	  	
Paid-in capital in excess of par value	  	 	613,944	  	 	 	351,636	  	
Offering costs	  	 	(74	) 	 	 	(74	) 	
Accumulated net investment income (loss), net of cumulative dividends of $65,851 and $18,162, respectively	  	 	(12,994	) 	 	 	(4,388	) 	
Accumulated net realized gain (loss)	  	 	(2,411	) 	 	 	(57	) 	
Accumulated net unrealized appreciation (depreciation)	  	 	(27,054	) 	 	 	(9,039	) 	
 	  	 	 	 	 	 	 	 	
Total net assets	  	$	571,726	  	 	$	338,257	  	
 	  	 	 	 	 	 	 	 	
NET ASSETS PER SHARE	  	$	18.14	  	 	$	18.86	  	
 	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share data)

 	  	For the years ended
December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Investment income:	  	 	 	 	 	 	 	 	 	 	 	 	
Interest income from non-controlled/non-affiliated investments	  	$	69,190	  	 	$	32,984	  	 	$	4,969	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total investment income	  	 	69,190	  	 	 	32,984	  	 	 	4,969	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	
Base management fees (Note 4)	  	 	13,361	  	 	 	6,559	  	 	 	937	  	
Incentive fees (Note 4)	  	 	8,881	  	 	 	3,578	  	 	 	—  	  	
Organization expenses	  	 	—  	  	 	 	—  	  	 	 	1,426	  	
Professional fees	  	 	1,845	  	 	 	2,169	  	 	 	1,723	  	
Administrative service fees (Note 4)	  	 	595	  	 	 	626	  	 	 	650	  	
Interest expense (Notes 5 and 6)	  	 	9,582	  	 	 	3,648	  	 	 	353	  	
Credit facility fees (Note 5)	  	 	1,898	  	 	 	3,052	  	 	 	1,164	  	
Trustee fees	  	 	41	  	 	 	—  	  	 	 	—  	  	
Directors’ fees and expenses	  	 	419	  	 	 	395	  	 	 	322	  	
Transfer agency fees	  	 	177	  	 	 	135	  	 	 	84	  	
Other general and administrative	  	 	1,321	  	 	 	748	  	 	 	291	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	38,120	  	 	 	20,910	  	 	 	6,950	  	
Waiver of base management fees (Note 4)	  	 	4,454	  	 	 	2,186	  	 	 	312	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net expenses	  	 	33,666	  	 	 	18,724	  	 	 	6,638	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net investment income (loss)	  	 	35,524	  	 	 	14,260	  	 	 	(1,669	) 	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments:	  	 	 	 	 	 	 	 	 	 	 	 	
Net realized gain (loss) on investments—non-controlled/non-affiliated	  	 	1,164	  	 	 	72	  	 	 	63	  	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	  	 	(18,015	) 	 	 	(8,718	) 	 	 	(321	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	 	(16,851	) 	 	 	(8,646	) 	 	 	(258	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets resulting from operations	  	$	18,673	  	 	$	5,614	  	 	$	(1,927	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Basic and diluted earnings per common share (Note 8)	  	$	0.75	  	 	$	0.43	  	 	$	(0.64	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Weighted-average shares of common stock outstanding—Basic and Diluted (Note 8)	  	 	24,830,200	  	 	 	13,091,544	  	 	 	3,016,298	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Dividends declared per common share (Note 8)	  	$	1.74	  	 	$	1.25	  	 	 	—  	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these consolidated financial statements.
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(dollar amounts in thousands)

 	  	For the years ended
December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Increase (decrease) in net assets resulting from operations:	  	 	 	 	 	 	 	 	 	 	 	 	
Net investment income (loss)	  	$	35,524	  	 	$	14,260	  	 	$	(1,669	) 	
Net realized gain (loss) on investments—non-controlled/non-affiliated	  	 	1,164	  	 	 	72	  	 	 	63	  	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	  	 	(18,015	) 	 	 	(8,718	) 	 	 	(321	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets resulting from operations	  	 	18,673	  	 	 	5,614	  	 	 	(1,927	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Capital transactions:	  	 	 	 	 	 	 	 	 	 	 	 	
Common stock issued	  	 	262,354	  	 	 	164,769	  	 	 	188,001	  	
Reinvestment of dividends	  	 	131	  	 	 	34	  	 	 	—  	  	
Dividends declared (Note 11)	  	 	(47,689	) 	 	 	(18,162	) 	 	 	—  	  	
Less: offering costs	  	 	—  	  	 	 	—  	  	 	 	(74	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets resulting from capital share transactions	  	 	214,796	  	 	 	146,641	  	 	 	187,927	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets	  	 	233,469	  	 	 	152,255	  	 	 	186,000	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net assets at beginning of year	  	 	338,257	  	 	 	186,002	  	 	 	2	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net assets at end of year	  	$	571,726	  	 	$	338,257	  	 	$	186,002	  	

The accompanying notes are an integral part of these consolidated financial statements.
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)

 	  	For the years ended
December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets resulting from operations	  	$	18,673	  	 	$	5,614	  	 	$	(1,927	) 	
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Amortization of deferred financing costs	  	 	1,051	  	 	 	1,820	  	 	 	513	  	
Net accretion of discount on securities	  	 	(3,035	) 	 	 	(1,108	) 	 	 	(65	) 	
Net realized (gain) loss on investments—non-controlled/non-affiliated	  	 	(1,164	) 	 	 	(72	) 	 	 	(63	) 	
Net change in unrealized (appreciation) depreciation on investments—non-controlled/non-affiliated	  	 	18,015	  	 	 	8,718	  	 	 	321	  	
Cost of investments purchased and change in payable for investments purchased	  	 	(653,154	) 	 	 	(565,432	) 	 	 	(210,292	) 	
Proceeds from sales and repayments of investments and change in receivable for investments sold	  	 	228,004	  	 	 	121,229	  	 	 	3,445	  	
Changes in operating assets:	  	 	 	 	 	 	 	 	 	 	 	 	
Interest receivable	  	 	1,233	  	 	 	(2,828	) 	 	 	(1,684	) 	
Prepaid expenses and other assets	  	 	(229	) 	 	 	(117	) 	 	 	(40	) 	
Changes in operating liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Due to Investment Adviser	  	 	148	  	 	 	25	  	 	 	16	  	
Interest and credit facility fees payable	  	 	1,384	  	 	 	643	  	 	 	549	  	
Base management and incentive fees payable	  	 	(1,042	) 	 	 	5,694	  	 	 	625	  	
Administrative service fees payable	  	 	6	  	 	 	(40	) 	 	 	131	  	
Other accrued expenses and liabilities	  	 	165	  	 	 	91	  	 	 	669	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	  	 	(389,945	) 	 	 	(425,763	) 	 	 	(207,802	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from issuance of common stock	  	 	262,354	  	 	 	164,769	  	 	 	188,001	  	
Borrowings on Revolving Credit Facility and Facility	  	 	402,200	  	 	 	420,023	  	 	 	66,822	  	
Proceeds from issuance of 2015-1 Notes	  	 	273,000	  	 	 	—  	  	 	 	—  	  	
Repayments of Revolving Credit Facility and Facility	  	 	(476,328	) 	 	 	(178,404	) 	 	 	—  	  	
Debt issuance costs paid	  	 	(2,648	) 	 	 	(2,029	) 	 	 	(4,939	) 	
Dividends paid in cash	  	 	(35,550	) 	 	 	(11,852	) 	 	 	—  	  	
Offering costs from issuance of common stock	  	 	—  	  	 	 	—  	  	 	 	(74	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	423,028	  	 	 	392,507	  	 	 	249,810	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	33,083	  	 	 	(33,256	) 	 	 	42,008	  	
Cash and cash equivalents, beginning of year	  	 	8,754	  	 	 	42,010	  	 	 	2	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents, end of year	  	$	41,837	  	 	$	8,754	  	 	$	42,010	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Supplemental disclosures:	  	 	 	 	 	 	 	 	 	 	 	 	
Offering expenses and financing costs due	  	$	1	  	 	 	—  	  	 	 	—  	  	
Interest paid during the year	  	$	8,083	  	 	$	2,882	  	 	$	94	  	
Dividends declared during the year	  	$	47,689	  	 	$	18,162	  	 	 	—  	  	
Reinvestment of dividends	  	$	131	  	 	$	34	  	 	 	—  	  	
The accompanying notes are an integral part of these consolidated financial statements.
 
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C\ARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of December 31, 2015
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	  	Industry	  	Interest
Rate	 	 	Maturity
Date	 	  	Acquisition
Date	 	  	Par/
Principal
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
First Lien Debt (75.53%)	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Access CIG, LLC (2)(3)(4)(13)	  	Business Services	  	 	6.00	% 	 	 	10/17/2021	  	  	 	10/16/2014	  	  	$	18,522	  	  	$	18,388	  	  	$	18,291	  	  	 	3.20	% 	
AF Borrower LLC (Accuvant) (2)(3)(5)(13)	  	High Tech Industries	  	 	6.25	  	 	 	1/28/2022	  	  	 	12/15/2014	  	  	 	16,277	  	  	 	16,055	  	  	 	15,829	  	  	 	2.77	  	
Alpha Packaging Holdings, Inc. (2)(3)(4)(13)	  	Containers, Packaging &
Glass	  	 	5.25	  	 	 	5/12/2020	  	  	 	5/12/2014	  	  	 	11,409	  	  	 	11,398	  	  	 	11,180	  	  	 	1.96	  	
Anaren, Inc. (2)(3)(4)(13)	  	Telecommunications	  	 	5.50	  	 	 	2/18/2021	  	  	 	2/18/2014	  	  	 	10,981	  	  	 	10,898	  	  	 	10,759	  	  	 	1.88	  	
APX Group, Inc. (5) (8)	  	Consumer Services	  	 	6.38	  	 	 	12/1/2019	  	  	 	10/15/2014	  	  	 	10,000	  	  	 	9,749	  	  	 	9,575	  	  	 	1.67	  	
Audax AAMP Holdings Inc. (2)(3)(4)(13)	  	Durable Consumer Goods	  	 	6.50	  	 	 	6/24/2017	  	  	 	5/22/2015	  	  	 	11,025	  	  	 	10,954	  	  	 	10,885	  	  	 	1.90	  	
BAART Programs, Inc. (2)(4)	  	Healthcare & Pharmaceuticals	  	 	8.07	  	 	 	10/9/2021	  	  	 	12/1/2015	  	  	 	7,481	  	  	 	7,422	  	  	 	7,556	  	  	 	1.32	  	
Blue Bird Body Company (2)(3)(4)(8)(13)	  	Transportation: Consumer	  	 	6.50	  	 	 	6/27/2020	  	  	 	7/22/2014	  	  	 	9,491	  	  	 	9,110	  	  	 	9,361	  	  	 	1.64	  	
Brooks Equipment Company, LLC (2)(3)(4)(13)	  	Construction & Building	  	 	6.35	  	 	 	8/29/2020	  	  	 	8/29/2014	  	  	 	7,209	  	  	 	7,160	  	  	 	7,097	  	  	 	1.24	  	
Capstone Logistics Acquisition, Inc. (2)(3)(4)(13)	  	Transportation: Cargo	  	 	5.50	  	 	 	10/7/2021	  	  	 	10/3/2014	  	  	 	19,750	  	  	 	19,582	  	  	 	19,134	  	  	 	3.35	  	
Captive Resources Midco, LLC (2)(3)(4)(5)(9)(13)	  	Banking, Finance, Insurance &
Real Estate	  	 	6.75	  	 	 	6/30/2020	  	  	 	6/30/2015	  	  	 	29,350	  	  	 	28,890	  	  	 	28,900	  	  	 	5.05	  	
Castle Management Borrower LLC (Highgate Hotels L.P.)  (2)(3)(4)(13)	  	Hotel, Gaming & Leisure	  	 	5.50	  	 	 	9/18/2020	  	  	 	10/10/2014	  	  	 	9,878	  	  	 	9,807	  	  	 	9,535	  	  	 	1.67	  	
Central Security Group, Inc. (2)(3)(4)(13)	  	Consumer Services	  	 	6.25	  	 	 	10/6/2020	  	  	 	10/3/2014	  	  	 	24,750	  	  	 	24,444	  	  	 	23,884	  	  	 	4.18	  	
Colony Hardware Corporation (2)(3)(5)(13)	  	Construction & Building	  	 	7.00	  	 	 	10/23/2021	  	  	 	10/23/2015	  	  	 	13,000	  	  	 	12,787	  	  	 	12,861	  	  	 	2.25	  	
CRCI Holdings Inc. (CLEAResult Consulting,
Inc.)  (2)(3)(4)(13)	  	Utilities: Electric	  	 	5.25	  	 	 	7/10/2019	  	  	 	7/29/2014	  	  	 	5,910	  	  	 	5,892	  	  	 	5,704	  	  	 	1.00	  	
Dent Wizard International Corporation (2)(3)(4)(13)	  	Automotive	  	 	5.75	  	 	 	4/7/2020	  	  	 	4/28/2015	  	  	 	7,809	  	  	 	7,775	  	  	 	7,591	  	  	 	1.33	  	
Emerging Markets Communications, LLC (2)(3)(4)(13)	  	Telecommunications	  	 	6.75	  	 	 	7/1/2021	  	  	 	7/9/2015	  	  	 	17,910	  	  	 	16,225	  	  	 	16,882	  	  	 	2.95	  	
EP Minerals, LLC (2)(3)(4)(13)	  	Metals & Mining	  	 	5.50	  	 	 	8/20/2020	  	  	 	8/20/2014	  	  	 	10,369	  	  	 	10,329	  	  	 	10,168	  	  	 	1.78	  	
FCX Holdings Corp. (2)(3)(4)(13)	  	Capital Equipment	  	 	5.50	  	 	 	8/4/2020	  	  	 	8/4/2014	  	  	 	10,047	  	  	 	10,041	  	  	 	9,862	  	  	 	1.72	  	
Genex Holdings, Inc. (2)(3)(13)	  	Banking, Finance, Insurance &
Real Estate	  	 	5.25	  	 	 	5/30/2021	  	  	 	5/22/2014	  	  	 	4,243	  	  	 	4,227	  	  	 	4,164	  	  	 	0.73	  	
Green Energy Partners/Stonewall LLC (2)(3)(5)(13)	  	Energy: Electricity	  	 	6.50	  	 	 	11/13/2021	  	  	 	11/12/2014	  	  	 	16,600	  	  	 	16,456	  	  	 	16,354	  	  	 	2.86	  	
Hummel Station LLC (2)(3)(5)	  	Energy: Electricity	  	 	7.00	  	 	 	10/27/2022	  	  	 	10/26/2015	  	  	 	21,000	  	  	 	20,174	  	  	 	20,553	  	  	 	3.59	  	
Indra Holdings Corp. (Totes Isotoner) (2)(3)(5)(13)	  	Non-durable Consumer Goods	  	 	5.25	  	 	 	5/1/2021	  	  	 	4/29/2014	  	  	 	14,285	  	  	 	14,173	  	  	 	13,818	  	  	 	2.42	  	
International Medical Group, Inc.(2)(3)(5)(12)	  	Banking, Finance, Insurance &
Real Estate	  	 	5.75	  	 	 	10/30/2020	  	  	 	10/30/2015	  	  	 	30,000	  	  	 	29,415	  	  	 	30,276	  	  	 	5.30	  	
Jackson Hewitt Inc. (2)(3)(4)(13)	  	Retail	  	 	8.00	  	 	 	7/30/2020	  	  	 	7/24/2015	  	  	 	14,800	  	  	 	14,526	  	  	 	14,600	  	  	 	2.55	  	
Language Line, LLC (2)(3)(4)(13)	  	Telecommunications	  	 	6.50	  	 	 	7/7/2021	  	  	 	7/1/2015	  	  	 	23,896	  	  	 	23,675	  	  	 	23,697	  	  	 	4.14	  	
Miller Heiman, Inc. (2)(3)(4)(13)	  	Business Services	  	 	6.75	  	 	 	9/30/2019	  	  	 	10/1/2013	  	  	 	19,094	  	  	 	18,901	  	  	 	16,904	  	  	 	2.96	  	
Ministry Brands, LLC (2)(3)(5)(10)(18)	  	High Tech Industries	  	 	8.00	  	 	 	11/20/2021	  	  	 	11/20/2015	  	  	 	936	  	  	 	926	  	  	 	901	  	  	 	0.16	  	
Ministry Brands, LLC (2)(3)(5)(12)(19)	  	High Tech Industries	  	 	8.00	  	 	 	11/20/2021	  	  	 	11/20/2015	  	  	 	17,471	  	  	 	17,190	  	  	 	17,371	  	  	 	3.04	  	
MSX International, Inc. (2)(3)(4)(13)	  	Automotive	  	 	6.00	  	 	 	8/21/2020	  	  	 	8/18/2014	  	  	 	9,499	  	  	 	9,424	  	  	 	9,218	  	  	 	1.61	  	
National Technical Systems, Inc. (2)(3)(4)(5)(13)(14)	  	Aerospace & Defense	  	 	7.00	  	 	 	6/12/2021	  	  	 	6/12/2015	  	  	 	25,935	  	  	 	25,609	  	  	 	24,919	  	  	 	4.36	  	
NES Global Talent Finance US LLC (United Kingdom)  (2)(3)(4)(8)(13)	  	Energy: Oil & Gas	  	 	6.50	  	 	 	10/3/2019	  	  	 	10/2/2013	  	  	 	11,875	  	  	 	11,715	  	  	 	11,327	  	  	 	1.98	  	
Paradigm Acquisition Corp. (2)(3)(5)(13)	  	Business Services	  	 	6.00	  	 	 	6/2/2022	  	  	 	6/2/2015	  	  	 	23,482	  	  	 	23,154	  	  	 	22,984	  	  	 	4.02	  	
 
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C\ARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	  	Industry	  	Interest
Rate	 	 	Maturity
Date	 	  	Acquisition
Date	 	  	Par/
Principal
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
First Lien Debt (75.53%) (continued)	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Pelican Products, Inc. (2)(3)(4)(13)	  	Containers, Packaging &
Glass	  	 	5.25	% 	 	 	4/11/2020	  	  	 	4/8/2014	  	  	$	7,817	  	  	$	7,832	  	  	$	7,444	  	  	 	1.30	% 	
Plano Molding Company, LLC (2)(3)(5)(13)	  	Hotel, Gaming & Leisure	  	 	7.00	  	 	 	5/12/2021	  	  	 	5/1/2015	  	  	 	22,487	  	  	 	22,294	  	  	 	21,779	  	  	 	3.81	  	
Product Quest Manufacturing, LLC (2)(3)(4)(5)(12)	  	Containers, Packaging &
Glass	  	 	6.75	  	 	 	9/9/2020	  	  	 	9/9/2015	  	  	 	28,000	  	  	 	27,477	  	  	 	27,810	  	  	 	4.86	  	
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC)  (2)(3)(4)	  	Wholesale	  	 	5.50	  	 	 	1/28/2020	  	  	 	1/24/2014	  	  	 	10,911	  	  	 	10,836	  	  	 	9,736	  	  	 	1.70	  	
PSC Industrial Holdings Corp (2)(3)(4)(13)	  	Environmental Industries	  	 	5.75	  	 	 	12/5/2020	  	  	 	12/5/2014	  	  	 	11,880	  	  	 	11,782	  	  	 	11,622	  	  	 	2.03	  	
PSI Services LLC (2)(3)(4)(5)(12)	  	Business Services	  	 	8.00	  	 	 	2/27/2021	  	  	 	2/27/2015	  	  	 	23,471	  	  	 	22,885	  	  	 	23,933	  	  	 	4.19	  	
SolAero Technologies Corp. (2)(3)(4)	  	Telecommunications	  	 	5.75	  	 	 	12/10/2020	  	  	 	12/9/2014	  	  	 	10,827	  	  	 	10,744	  	  	 	10,511	  	  	 	1.84	  	
SolAero Technologies Corp. (2)(3)(13)	  	Telecommunications	  	 	6.25	  	 	 	12/10/2020	  	  	 	5/1/2015	  	  	 	9,104	  	  	 	9,023	  	  	 	8,887	  	  	 	1.55	  	
Synarc-Biocore Holdings, LLC (2)(3)(4)(13)	  	Healthcare & Pharmaceuticals	  	 	5.50	  	 	 	3/10/2021	  	  	 	3/6/2014	  	  	 	13,264	  	  	 	13,162	  	  	 	12,599	  	  	 	2.20	  	
Systems Maintenance Services Holding, Inc. (2)(3)(13)	  	High Tech Industries	  	 	5.00	  	 	 	10/18/2019	  	  	 	10/18/2013	  	  	 	2,193	  	  	 	2,187	  	  	 	2,155	  	  	 	0.38	  	
TASC, Inc. (2)(3)(4)(8)(13)	  	Aerospace & Defense	  	 	7.00	  	 	 	5/23/2020	  	  	 	12/17/2014	  	  	 	18,351	  	  	 	17,713	  	  	 	17,916	  	  	 	3.13	  	
Teaching Strategies, LLC (2)(3)(4)(13)	  	Media: Advertising, Printing
& Publishing	  	 	6.00	  	 	 	10/1/2019	  	  	 	2/5/2015	  	  	 	13,953	  	  	 	13,904	  	  	 	13,844	  	  	 	2.42	  	
The Hilb Group, LLC (2)(3)(5)(12)(13)(15)	  	Banking, Finance, Insurance
& Real Estate	  	 	6.75	  	 	 	6/24/2021	  	  	 	6/24/2015	  	  	 	23,458	  	  	 	22,850	  	  	 	23,555	  	  	 	4.12	  	
The Hygenic Corporation (Performance
Health)  (2)(3)(4)(13)	  	Non-durable Consumer
Goods	  	 	6.00	  	 	 	10/11/2020	  	  	 	2/27/2015	  	  	 	15,920	  	  	 	15,721	  	  	 	15,368	  	  	 	2.69	  	
The SI Organization, Inc. (2)(3)(4)(13)	  	Aerospace & Defense	  	 	5.75	  	 	 	11/23/2019	  	  	 	5/16/2014	  	  	 	8,778	  	  	 	8,716	  	  	 	8,724	  	  	 	1.53	  	
The Topps Company, Inc. (2)(3)(4)(13)	  	Non-durable Consumer
Goods	  	 	7.25	  	 	 	10/2/2018	  	  	 	10/1/2013	  	  	 	11,395	  	  	 	11,326	  	  	 	11,395	  	  	 	1.99	  	
TruckPro, LLC (2)(3)(4)(13)	  	Automotive	  	 	6.00	  	 	 	8/6/2018	  	  	 	8/6/2013	  	  	 	9,683	  	  	 	9,648	  	  	 	9,546	  	  	 	1.67	  	
U.S. Farathane, LLC (2)(3)(4)(13)	  	Automotive	  	 	6.75	  	 	 	12/23/2021	  	  	 	2/6/2015	  	  	 	15,818	  	  	 	15,535	  	  	 	15,586	  	  	 	2.73	  	
Vetcor Professional Practices, LLC (2)(3)(4)(5)(13)(16)	  	Consumer Services	  	 	7.00	  	 	 	4/20/2021	  	  	 	5/19/2015	  	  	 	11,085	  	  	 	10,983	  	  	 	11,034	  	  	 	1.93	  	
Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom)  (2)(3)(4)(8)(13)	  	Business Services	  	 	5.75	  	 	 	12/20/2019	  	  	 	12/18/2013	  	  	 	11,252	  	  	 	11,176	  	  	 	11,241	  	  	 	1.97	  	
Vistage Worldwide Inc. (2)(3)(4)(13)	  	Business Services	  	 	6.50	  	 	 	8/19/2021	  	  	 	8/13/2015	  	  	 	29,813	  	  	 	29,529	  	  	 	29,505	  	  	 	5.16	  	
Vitera Healthcare Solutions, LLC (2)(3)(4)(13)	  	Healthcare & Pharmaceuticals	  	 	6.00	  	 	 	11/4/2020	  	  	 	11/1/2013	  	  	 	9,437	  	  	 	9,369	  	  	 	9,107	  	  	 	1.59	  	
Zest Holdings, LLC (2)(3)(4)(13)	  	Durable Consumer Goods	  	 	5.00	  	 	 	8/16/2020	  	  	 	8/18/2014	  	  	 	9,694	  	  	 	9,694	  	  	 	9,597	  	  	 	1.69	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
First Lien Debt Total	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	$	800,857	  	  	$	795,034	  	  	 	139.06	% 	

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C\ARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	  	Industry	  	Interest
Rate	 	 	Maturity
Date	 	  	Acquisition
Date	 	  	Par/
Principal
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
Second Lien Debt (19.98%)	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
AF Borrower LLC (Accuvant) (2)(3)(5)	  	High Tech Industries	  	 	10.00	% 	 	 	1/30/2023	  	  	 	12/15/2014	  	  	$	8,000	  	  	$	7,927	  	  	$	7,666	  	  	 	1.34	% 	
Allied Security Holdings LLC (2)(3)(5)(13)	  	Business Services	  	 	8.00	  	 	 	8/13/2021	  	  	 	9/25/2014	  	  	 	8,000	  	  	 	7,948	  	  	 	7,460	  	  	 	1.30	  	
AmeriLife Group, LLC (2)(3)(5)	  	Banking, Finance, Insurance &
Real Estate	  	 	9.75	  	 	 	1/10/2023	  	  	 	7/9/2015	  	  	 	20,000	  	  	 	19,619	  	  	 	19,598	  	  	 	3.44	  	
Argon Medical Devices, Inc. (2)(3)(4)(5)	  	Healthcare & Pharmaceuticals	  	 	12.00	  	 	 	6/23/2022	  	  	 	12/23/2015	  	  	 	24,000	  	  	 	23,294	  	  	 	23,354	  	  	 	4.09	  	
Berlin Packaging L.L.C. (2)(3)(5)(13)	  	Containers, Packaging &
Glass	  	 	7.75	  	 	 	10/1/2022	  	  	 	9/24/2014	  	  	 	9,200	  	  	 	9,139	  	  	 	8,694	  	  	 	1.52	  	
Charter NEX US Holdings, Inc. (2)(3)(5)(13)	  	Chemicals, Plastics & Rubber	  	 	9.25	  	 	 	2/5/2023	  	  	 	1/30/2015	  	  	 	10,000	  	  	 	9,864	  	  	 	9,459	  	  	 	1.65	  	
Confie Seguros Holding II Co. (2)(3)(5)	  	Banking, Finance, Insurance &
Real Estate	  	 	10.25	  	 	 	5/8/2019	  	  	 	6/29/2015	  	  	 	12,000	  	  	 	11,896	  	  	 	11,820	  	  	 	2.07	  	
Creganna Finance (US) LLC (Ireland) (2)(3)(5)(8)	  	Healthcare & Pharmaceuticals	  	 	9.00	  	 	 	6/1/2022	  	  	 	11/20/2014	  	  	 	9,900	  	  	 	9,814	  	  	 	9,740	  	  	 	1.70	  	
DiversiTech Corporation (2)(3)(5)(13)	  	Capital Equipment	  	 	9.00	  	 	 	11/19/2022	  	  	 	5/19/2015	  	  	 	8,400	  	  	 	8,294	  	  	 	8,131	  	  	 	1.42	  	
Drew Marine Group Inc. (2)(3)(4)(5)	  	Chemicals, Plastics & Rubber	  	 	8.00	  	 	 	5/19/2021	  	  	 	11/19/2013	  	  	 	12,500	  	  	 	12,478	  	  	 	11,743	  	  	 	2.05	  	
Genex Holdings, Inc. (2)(3)(5)	  	Banking, Finance, Insurance &
Real Estate	  	 	8.75	  	 	 	5/30/2022	  	  	 	5/22/2014	  	  	 	7,990	  	  	 	7,906	  	  	 	7,390	  	  	 	1.29	  	
Genoa, a QoL Healthcare Company, LLC (2)(3)(5)(13)	  	Retail	  	 	8.75	  	 	 	4/28/2023	  	  	 	4/21/2015	  	  	 	9,900	  	  	 	9,807	  	  	 	9,523	  	  	 	1.67	  	
Institutional Shareholder Services Inc. (2)(3)(5)(13)	  	Banking, Finance, Insurance &
Real Estate	  	 	8.50	  	 	 	4/30/2022	  	  	 	4/30/2014	  	  	 	12,500	  	  	 	12,397	  	  	 	12,014	  	  	 	2.10	  	
Jazz Acquisition, Inc. (Wencor) (2)(3)(5)(13)	  	Aerospace & Defense	  	 	7.75	  	 	 	6/19/2022	  	  	 	6/25/2014	  	  	 	6,700	  	  	 	6,674	  	  	 	5,759	  	  	 	1.01	  	
Landslide Holdings, Inc. (LANDesk
Software)  (2)(3)(13)	  	Software	  	 	8.25	  	 	 	2/25/2021	  	  	 	2/25/2014	  	  	 	3,500	  	  	 	3,480	  	  	 	3,113	  	  	 	0.54	  	
MRI Software, LLC(2)(3)(5)	  	Software	  	 	9.00	  	 	 	6/23/2022	  	  	 	6/19/2015	  	  	 	11,250	  	  	 	11,093	  	  	 	10,890	  	  	 	1.91	  	
Phillips-Medisize Corporation (2)(3)(5)(13)	  	Chemicals, Plastics & Rubber	  	 	8.25	  	 	 	6/16/2022	  	  	 	6/13/2014	  	  	 	5,000	  	  	 	4,958	  	  	 	4,700	  	  	 	0.82	  	
Power Stop, LLC (5)(17)	  	Automotive	  	 	11.00	  	 	 	5/29/2022	  	  	 	5/29/2015	  	  	 	10,000	  	  	 	9,811	  	  	 	10,080	  	  	 	1.76	  	
Prime Security Services Borrower, LLC (Protection One, Inc.)  (2)(3)(5)	  	Consumer Services	  	 	9.75	  	 	 	7/1/2022	  	  	 	6/19/2015	  	  	 	6,700	  	  	 	6,607	  	  	 	6,271	  	  	 	1.10	  	
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC)  (2)(3)(5)	  	Wholesale	  	 	9.50	  	 	 	7/28/2020	  	  	 	1/24/2014	  	  	 	3,000	  	  	 	2,953	  	  	 	2,493	  	  	 	0.44	  	
Systems Maintenance Services Holding, Inc. (2)(3)(4)	  	High Tech Industries	  	 	9.25	  	 	 	10/18/2020	  	  	 	10/18/2013	  	  	 	6,000	  	  	 	5,959	  	  	 	5,860	  	  	 	1.02	  	
TASC, Inc. (5)(8)	  	Aerospace & Defense	  	 	12.00	  	 	 	5/23/2021	  	  	 	12/17/2014	  	  	 	6,000	  	  	 	5,891	  	  	 	6,075	  	  	 	1.06	  	
Vitera Healthcare Solutions, LLC (2)(3)(4)(13)	  	Healthcare & Pharmaceuticals	  	 	9.25	  	 	 	11/4/2021	  	  	 	11/1/2013	  	  	 	2,000	  	  	 	1,976	  	  	 	1,784	  	  	 	0.31	  	
Watchfire Enterprises, Inc. (2)(3)(5)(13)	  	Media: Advertising, Printing
& Publishing	  	 	9.00	  	 	 	10/2/2021	  	  	 	10/2/2013	  	  	 	7,000	  	  	 	6,923	  	  	 	6,779	  	  	 	1.19	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Second Lien Debt Total	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	$	216,708	  	  	$	210,396	  	  	 	36.80	% 	

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C\ARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	  	Industry	  	Maturity
Date	 	  	Acquisition
Date	 	  	Par/
Principal
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
Structured Finance Obligations (4.26%) (5) (8) (11)	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
1776 CLO I, Ltd., Subordinated Notes	  	Structured Finance	  	 	5/8/2020	  	  	 	2/27/2014	  	  	$	11,750	  	  	$	8,079	  	  	$	3,347	  	  	 	0.59	% 	
AIMCO CLO, Series 2014-A, Class F, 5.47% (2)	  	Structured Finance	  	 	7/20/2026	  	  	 	5/12/2014	  	  	 	2,700	  	  	 	2,369	  	  	 	1,701	  	  	 	0.30	  	
AIMCO CLO, Series 2014-A, Subordinated Notes	  	Structured Finance	  	 	7/20/2026	  	  	 	5/12/2014	  	  	 	11,500	  	  	 	8,369	  	  	 	5,779	  	  	 	1.00	  	
Ares XXVIII CLO Ltd., Subordinated Notes	  	Structured Finance	  	 	10/17/2024	  	  	 	10/10/2013	  	  	 	7,000	  	  	 	4,416	  	  	 	3,255	  	  	 	0.57	  	
Babson CLO Ltd. 2005-I, Subordinated Notes	  	Structured Finance	  	 	4/15/2019	  	  	 	7/16/2013	  	  	 	7,632	  	  	 	333	  	  	 	86	  	  	 	0.02	  	
CIFC Funding 2007-III, Ltd., Income Notes	  	Structured Finance	  	 	7/26/2021	  	  	 	5/20/2014	  	  	 	6,500	  	  	 	2,902	  	  	 	2,453	  	  	 	0.43	  	
Clydesdale CLO 2005, Ltd., Subordinated Notes	  	Structured Finance	  	 	12/6/2017	  	  	 	7/15/2013	  	  	 	5,750	  	  	 	—	 	  	 	11	  	  	 	0.00	  	
Flagship VII Limited, Subordinated Notes	  	Structured Finance	  	 	1/20/2026	  	  	 	12/18/2013	  	  	 	7,000	  	  	 	4,781	  	  	 	3,184	  	  	 	0.56	  	
ING IM CLO 2012-1 LLC, Preferred Shares	  	Structured Finance	  	 	3/14/2022	  	  	 	12/5/2014	  	  	 	7,610	  	  	 	4,637	  	  	 	3,789	  	  	 	0.66	  	
ING IM CLO 2012-1 LLC, Subordinated Notes	  	Structured Finance	  	 	3/14/2022	  	  	 	12/5/2014	  	  	 	2,500	  	  	 	1,523	  	  	 	1,245	  	  	 	0.22	  	
MSIM Peconic Bay, Ltd., Subordinated Notes	  	Structured Finance	  	 	7/20/2019	  	  	 	10/22/2013	  	  	 	4,500	  	  	 	1,112	  	  	 	923	  	  	 	0.16	  	
Nautique Funding Ltd., Income Notes	  	Structured Finance	  	 	4/15/2020	  	  	 	2/24/2014	  	  	 	5,000	  	  	 	2,760	  	  	 	2,275	  	  	 	0.40	  	
Steele Creek CLO 2014-I, LLC, Subordinated Notes	  	Structured Finance	  	 	8/21/2026	  	  	 	7/18/2014	  	  	 	18,000	  	  	 	13,453	  	  	 	12,241	  	  	 	2.14	  	
Venture VI CDO Limited, Preference Shares	  	Structured Finance	  	 	8/3/2020	  	  	 	4/17/2014	  	  	 	7,000	  	  	 	3,488	  	  	 	3,203	  	  	 	0.56	  	
Westwood CDO I, Ltd., Subordinated Notes	  	Structured Finance	  	 	3/25/2021	  	  	 	4/30/2015	  	  	 	4,000	  	  	 	1,718	  	  	 	1,320	  	  	 	0.23	  	
 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Structured Finance Obligations Total	  	 	  	 	 	 	  	$	59,940	  	  	$	44,812	  	  	 	7.84	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments—non-controlled/non-affiliated (1)	  	Industry	  	 	  	Acquisition
Date	 	  	Par/
Principal
Amount	 	  	Cost	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
Equity Investments (0.23%) (5)	  	 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Power Stop, LLC	  	Automotive	  	 	  	 	5/29/2015	  	  	$	7	  	  	$	715	  	  	$	788	  	  	 	0.14	% 	
The Hilb Group, LLC	  	Banking, Finance,
Insurance & Real
Estate	  	 	  	 	6/24/2015	  	  	 	1,500	  	  	 	1,500	  	  	 	1,636	  	  	 	0.28	  	
 	  	 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Equity Investments Total	  	 	  	 	  	 	 	 	  	 	 	 	  	$	2,215	  	  	$	2,424	  	  	 	0.42	% 	
 	  	 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Investments—non-controlled/non-affiliated	  	 	  	 	  	 	 	 	  	 	 	 	  	$	1,079,720	  	  	$	1,052,666	  	  	 	184.12	% 	
 
(1)	Unless otherwise indicated, issuers of debt and equity investments held by Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2015, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2015, the Company is not an “affiliated person” of any of these portfolio companies.	
 
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C\ARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)
 
(2)	Variable rate loans to the portfolio companies and variable rate notes of structured finance obligations bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally resets quarterly. For each such loan and note, the Company has provided the interest rate in effect as of December 31, 2015.	
(3)	Loan includes interest rate floor feature.	
(4)	Denotes that all or a portion of the assets are owned by the Company’s wholly-owned subsidiary, Carlyle GMS Finance SPV LLC (the “Borrower Sub”). The Borrower Sub has entered into a senior secured revolving credit facility (as amended, the “Revolving Credit Facility”). The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 5, Borrowings). Accordingly, such assets are not available to creditors of the Company or Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company.	
(5)	Denotes that all or a portion of the assets are owned by the Company. The Company has entered into a senior secured revolving credit facility (as amended, the “Facility”), which was subsequently amended on January 8, 2015. The lenders of the Facility have a first lien security interest in substantially all of the portfolio investments held by the Company (see Note 5, Borrowings). Accordingly, such assets are not available to borrowers or creditors of the Borrower Sub or 2015-1 Issuer.	
(6)	Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche collateralized loan obligation (“CLO”) fund investments, which are referred to as “structured finance obligations”, are recorded at amortized cost using the effective interest method.	
(7)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Notes 2 and 3), pursuant to the Company’s valuation policies.	
(8)	The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.	
(9)	Captive Resources Midco, LLC has an undrawn delayed draw term loan of $3,125 par value at LIBOR + 5.75%, 1.00% floor, and an undrawn revolver of $1,875 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.25% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.	
(10)	The Company receives less than the stated interest rate of this loan as a result of an agreement among lenders. Pursuant to the agreement among lenders, this investment represents a “first out” first lien loan, which has first priority ahead of the “last out” first lien loan with respect to principal, interest and other payments.	
(11)	As of December 31, 2015, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.	
(12)	In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders. Pursuant to the agreement among lenders, this investment represents a “last out” first lien loan, which has a secondary priority behind the “first out” first lien loan with respect to principal, interest and other payments.	
(13)	Denotes that all or a portion of the assets are owned by the 2015-1 Issuer and secure the notes issued in connection with a $400 million term debt securitization completed by the Company on June 26, 2015 (see Note 6, 2015-1 Notes). Accordingly, such assets are not available to the creditors of the Borrower Sub or the Company.	
(14)	National Technical Systems, Inc. has an undrawn delayed draw term loan of $4,469 par value at LIBOR + 6.00%, 1.00% floor, and an undrawn revolver of $2,031 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% and 0.50% is charged on the delayed draw term loan and revolver principal, respectively, while undrawn.	
(15)	The Hilb Group, LLC has an undrawn delayed draw term loan of $10,034 par value at LIBOR + 5.75%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn.	
(16)	Vetcor Professional Practices LLC has an undrawn delayed draw term loan of $1,473 par value at LIBOR + 6.00%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn.	
(17)	Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio company.	
(18)	Ministry Brands, LLC has an undrawn first out delayed draw term loan of $64 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.	
(19)	Ministry Brands, LLC has an undrawn last out delayed draw term loan of $1,530 par value at LIBOR + 7.00%, 1.00% floor. An unused rate of 1.00% is charged on the delayed draw term loan principal while undrawn.	
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)
As of December 31, 2015, investments—non-controlled/non-affiliated at fair value consisted of the following:

Type	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
First Lien Debt	  	$	800,857	  	  	$	795,034	  	  	 	75.53	% 	
Second Lien Debt	  	 	216,708	  	  	 	210,396	  	  	 	19.98	  	
Structured Finance Obligations	  	 	59,940	  	  	 	44,812	  	  	 	4.26	  	
Equity Investments	  	 	2,215	  	  	 	2,424	  	  	 	0.23	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,079,720	  	  	$	1,052,666	  	  	 	100.00	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
The industrial composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2015 was as follows:

Industry	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
Aerospace and Defense	  	$	64,603	  	  	$	63,393	  	  	 	6.02	% 	
Automotive	  	 	52,908	  	  	 	52,809	  	  	 	5.02	  	
Banking, Finance, Insurance & Real Estate	  	 	138,700	  	  	 	139,353	  	  	 	13.24	  	
Business Services	  	 	131,981	  	  	 	130,318	  	  	 	12.38	  	
Capital Equipment	  	 	18,335	  	  	 	17,993	  	  	 	1.71	  	
Chemicals, Plastics & Rubber	  	 	27,300	  	  	 	25,902	  	  	 	2.46	  	
Construction & Building	  	 	19,947	  	  	 	19,958	  	  	 	1.90	  	
Consumer Services	  	 	51,783	  	  	 	50,764	  	  	 	4.82	  	
Containers, Packaging & Glass	  	 	55,846	  	  	 	55,128	  	  	 	5.24	  	
Durable Consumer Goods	  	 	20,648	  	  	 	20,482	  	  	 	1.94	  	
Energy: Electricity	  	 	36,630	  	  	 	36,907	  	  	 	3.51	  	
Energy: Oil & Gas	  	 	11,715	  	  	 	11,327	  	  	 	1.08	  	
Environmental Industries	  	 	11,782	  	  	 	11,622	  	  	 	1.10	  	
Healthcare & Pharmaceuticals	  	 	65,037	  	  	 	64,140	  	  	 	6.09	  	
High Tech Industries	  	 	50,244	  	  	 	49,782	  	  	 	4.73	  	
Hotel, Gaming & Leisure	  	 	32,101	  	  	 	31,314	  	  	 	2.97	  	
Media: Advertising, Printing & Publishing	  	 	20,827	  	  	 	20,623	  	  	 	1.96	  	
Metals & Mining	  	 	10,329	  	  	 	10,168	  	  	 	0.97	  	
Non-durable Consumer Goods	  	 	41,220	  	  	 	40,581	  	  	 	3.85	  	
Retail	  	 	24,333	  	  	 	24,123	  	  	 	2.29	  	
Software	  	 	14,573	  	  	 	14,003	  	  	 	1.33	  	
Structured Finance	  	 	59,940	  	  	 	44,812	  	  	 	4.26	  	
Telecommunications	  	 	70,565	  	  	 	70,736	  	  	 	6.72	  	
Transportation: Cargo	  	 	19,582	  	  	 	19,134	  	  	 	1.82	  	
Transportation: Consumer	  	 	9,110	  	  	 	9,361	  	  	 	0.89	  	
Utilities: Electric	  	 	5,892	  	  	 	5,704	  	  	 	0.54	  	
Wholesale	  	 	13,789	  	  	 	12,229	  	  	 	1.16	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,079,720	  	  	$	1,052,666	  	  	 	100.00	% 	

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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2015
(dollar amounts in thousands)
The geographical composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2015 was as follows:

Geography	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
Cayman Islands	  	$	59,940	  	  	$	44,812	  	  	 	4.26	% 	
Ireland	  	 	9,814	  	  	 	9,740	  	  	 	0.93	  	
United Kingdom	  	 	22,891	  	  	 	22,568	  	  	 	2.14	  	
United States	  	 	987,075	  	  	 	975,546	  	  	 	92.67	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,079,720	  	  	$	1,052,666	  	  	 	100.00	% 	

 
The accompanying notes are an integral part of these consolidated financial statements.
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS
As of December 31, 2014
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	 	Industry	 	Interest
Rate	 	 	Maturity
Date	 	  	Acquisition
Date	 	  	Par
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	 	Percentage of
Net Assets	 	
First Lien Debt (73.68%)	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Access CIG, LLC (2)(3)(5)	 	Business Services	 	 	6.00	% 	 	 	10/17/2021	  	  	 	10/16/2014	  	  	$	15,000	  	  	$	14,855	  	  	$	14,865	  	 	 	4.40	% 	
Accuvant Finance, LLC (2)(3)(5)	 	High Tech Industries	 	 	7.00	  	 	 	10/22/2020	  	  	 	4/22/2014	  	  	 	8,988	  	  	 	8,917	  	  	 	8,988	  	 	 	2.66	  	
ACP Tower Merger Sub, Inc. (Telular
Corporation)  (2)(3)(4)	 	Telecommunications	 	 	5.50	  	 	 	6/24/2019	  	  	 	6/24/2013	  	  	 	5,781	  	  	 	5,764	  	  	 	5,689	  	 	 	1.68	  	
AF Borrower LLC (Accuvant) (2)(3)(5)	 	High Tech Industries	 	 	6.25	  	 	 	1/28/2022	  	  	 	12/15/2014	  	  	 	12,000	  	  	 	11,762	  	  	 	11,842	  	 	 	3.50	  	
Alpha Packaging Holdings, Inc. (2)(3)(4)	 	Containers, Packaging & Glass	 	 	5.25	  	 	 	5/12/2020	  	  	 	5/12/2014	  	  	 	11,567	  	  	 	11,554	  	  	 	11,301	  	 	 	3.34	  	
American Tire Distributors, Inc. (2)(3)(5)	 	Automotive	 	 	5.75	  	 	 	6/1/2018	  	  	 	6/12/2014	  	  	 	3,192	  	  	 	3,193	  	  	 	3,116	  	 	 	0.92	  	
Anaren, Inc. (2)(3)(4)	 	Telecommunications	 	 	5.50	  	 	 	2/18/2021	  	  	 	2/18/2014	  	  	 	11,497	  	  	 	11,396	  	  	 	11,363	  	 	 	3.36	  	
APX Group, Inc. (5)(8)	 	Consumer Services	 	 	6.38	  	 	 	12/1/2019	  	  	 	10/15/2014	  	  	 	10,000	  	  	 	9,688	  	  	 	9,575	  	 	 	2.83	  	
Blue Bird Body Company (2)(3)(4)(8)	 	Transportation: Consumer	 	 	6.50	  	 	 	6/27/2020	  	  	 	7/22/2014	  	  	 	11,250	  	  	 	10,719	  	  	 	10,940	  	 	 	3.24	  	
Brooks Equipment Company, LLC (2)(3)(4)	 	Construction & Building	 	 	6.75	  	 	 	8/29/2020	  	  	 	8/29/2014	  	  	 	7,890	  	  	 	7,826	  	  	 	7,766	  	 	 	2.30	  	
Capstone Logistics Acquisition, Inc. (2)(3)(4)	 	Transportation: Cargo	 	 	5.50	  	 	 	10/7/2021	  	  	 	10/3/2014	  	  	 	19,950	  	  	 	19,757	  	  	 	19,477	  	 	 	5.76	  	
Castle Management Borrower LLC (Highgate Hotels L.P.)  (2)(3)(4)(9)	 	Hotel, Gaming & Leisure	 	 	5.50	  	 	 	9/18/2020	  	  	 	10/10/2014	  	  	 	8,778	  	  	 	8,693	  	  	 	8,610	  	 	 	2.55	  	
Central Security Group, Inc. (2)(3)(4) 	 	Consumer Services	 	 	6.25	  	 	 	10/6/2020	  	  	 	10/3/2014	  	  	 	25,000	  	  	 	24,638	  	  	 	24,780	  	 	 	7.33	  	
Consolidated Aerospace Manufacturing, LLC. (2)(3)(4) 	 	Aerospace & Defense	 	 	5.00	  	 	 	3/27/2020	  	  	 	2/28/2014	  	  	 	6,730	  	  	 	6,708	  	  	 	6,558	  	 	 	1.94	  	
CRCI Holdings Inc. (CLEAResult Consulting,
Inc.)  (2)(3)(4)	 	Utilities: Electric	 	 	5.25	  	 	 	7/10/2019	  	  	 	7/29/2014	  	  	 	5,985	  	  	 	5,962	  	  	 	5,858	  	 	 	1.73	  	
DTZ U.S. Borrower, LLC (2)(3)(4)	 	Construction & Building	 	 	5.50	  	 	 	11/5/2021	  	  	 	10/28/2014	  	  	 	10,500	  	  	 	10,347	  	  	 	10,290	  	 	 	3.04	  	
EP Minerals, LLC (2)(3)(4)	 	Metals & Mining	 	 	5.50	  	 	 	8/20/2020	  	  	 	8/20/2014	  	  	 	10,474	  	  	 	10,426	  	  	 	10,298	  	 	 	3.04	  	
FCX Holdings Corp. (2)(3)(4)	 	Capital Equipment	 	 	5.50	  	 	 	8/4/2020	  	  	 	8/4/2014	  	  	 	10,149	  	  	 	10,141	  	  	 	9,942	  	 	 	2.94	  	
Genex Holdings, Inc. (2)(3)(4)	 	Banking, Finance, Insurance &
Real Estate	 	 	5.25	  	 	 	5/30/2021	  	  	 	5/22/2014	  	  	 	4,286	  	  	 	4,268	  	  	 	4,227	  	 	 	1.25	  	
Green Energy Partners/Stonewall LLC (2)(3)(5)(10)	 	Energy: Electricity	 	 	6.50	  	 	 	11/13/2021	  	  	 	11/12/2014	  	  	 	8,300	  	  	 	8,136	  	  	 	8,338	  	 	 	2.46	  	
Hercules Achievement, Inc. (Varsity Brands Holding Co., Inc.)  (2)(3)(5)	 	Durable Consumer Goods	 	 	6.00	  	 	 	12/11/2021	  	  	 	12/10/2014	  	  	 	20,000	  	  	 	19,803	  	  	 	19,820	  	 	 	5.86	  	
Indra Holdings Corp. (Totes Isotoner) (2)(3)(5)	 	Non-durable Consumer Goods	 	 	5.25	  	 	 	5/1/2021	  	  	 	4/29/2014	  	  	 	14,925	  	  	 	14,790	  	  	 	14,701	  	 	 	4.35	  	
Landslide Holdings, Inc. (LANDesk Software) (2)(3)(4)	 	Software	 	 	5.00	  	 	 	2/25/2020	  	  	 	2/25/2014	  	  	 	9,875	  	  	 	9,878	  	  	 	9,705	  	 	 	2.87	  	
Meritas Schools Holdings, LLC (2)(3)(4)	 	Consumer Services	 	 	7.00	  	 	 	6/25/2019	  	  	 	6/21/2013	  	  	 	7,080	  	  	 	7,025	  	  	 	7,138	  	 	 	2.11	  	
Miller Heiman, Inc. (2)(3)(4)	 	Business Services	 	 	6.75	  	 	 	9/30/2019	  	  	 	10/1/2013	  	  	 	19,719	  	  	 	19,479	  	  	 	19,338	  	 	 	5.72	  	
MRI Software LLC (2)(3)(4)	 	Software	 	 	5.25	  	 	 	2/4/2021	  	  	 	1/31/2014	  	  	 	14,888	  	  	 	14,823	  	  	 	14,560	  	 	 	4.30	  	
MSX International, Inc. (2)(3)(4)	 	Automotive	 	 	6.00	  	 	 	8/21/2020	  	  	 	8/18/2014	  	  	 	11,176	  	  	 	11,072	  	  	 	11,039	  	 	 	3.26	  	
NES Global Talent Finance US LLC (United Kingdom)  (2)(3)(4)(8)	 	Energy: Oil & Gas	 	 	6.50	  	 	 	10/3/2019	  	  	 	10/2/2013	  	  	 	12,188	  	  	 	11,988	  	  	 	12,188	  	 	 	3.60	  	
Novetta, LLC (2)(3)(4)	 	Aerospace & Defense	 	 	6.00	  	 	 	10/2/2020	  	  	 	11/19/2014	  	  	 	12,220	  	  	 	12,112	  	  	 	12,017	  	 	 	3.55	  	
Pelican Products, Inc. (2)(3)(4)	 	Containers, Packaging & Glass	 	 	5.25	  	 	 	4/11/2020	  	  	 	4/8/2014	  	  	 	7,897	  	  	 	7,915	  	  	 	7,748	  	 	 	2.29	  	
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC)  (2)(3)(4)	 	Wholesale	 	 	5.50	  	 	 	1/28/2020	  	  	 	1/24/2014	  	  	 	11,024	  	  	 	10,933	  	  	 	10,764	  	 	 	3.18	  	
PSC Industrial Holdings Corp (2)(3)(4)	 	Environmental Industries	 	 	7.00	  	 	 	12/5/2020	  	  	 	12/5/2014	  	  	 	12,000	  	  	 	11,884	  	  	 	11,820	  	 	 	3.50	  	
QoL Meds, LLC (2)(3)(4)	 	Retail	 	 	5.50	  	 	 	7/15/2020	  	  	 	7/14/2014	  	  	 	12,988	  	  	 	12,929	  	  	 	12,757	  	 	 	3.77	  	
RCHP, Inc. (Regionalcare) (2)(3)(4)	 	Healthcare & Pharmaceuticals	 	 	6.00	  	 	 	4/23/2019	  	  	 	4/21/2014	  	  	 	19,792	  	  	 	19,612	  	  	 	19,630	  	 	 	5.80	  	
SolAero Technologies Corp. (2)(3)(4)	 	Telecommunications	 	 	5.75	  	 	 	12/10/2020	  	  	 	12/9/2014	  	  	 	11,250	  	  	 	11,150	  	  	 	10,936	  	 	 	3.23	  	
 
89

Table of Contents
CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2014
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	 	Industry	 	Interest
Rate	 	 	Maturity
Date	 	  	Acquisition
Date	 	  	Par
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	 	Percentage of
Net Assets	 	
First Lien Debt (73.68%) (continued)	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Stafford Logistics, Inc. (Custom Ecology, Inc.) (2)(3)(4)	 	Environmental Industries	 	 	6.75	% 	 	 	6/26/2019	  	  	 	7/1/2013	  	  	$	9,540	  	  	$	9,466	  	  	$	9,006	  	 	 	2.66	% 	
Sterling Infosystems, Inc (2)(3)(4)	 	Business Services	 	 	5.50	  	 	 	5/13/2021	  	  	 	5/12/2014	  	  	 	8,955	  	  	 	8,916	  	  	 	8,895	  	 	 	2.63	  	
Synarc-Biocore Holdings, LLC (2) (3) (4)	 	Healthcare & Pharmaceuticals	 	 	5.50	  	 	 	3/10/2021	  	  	 	3/6/2014	  	  	 	13,399	  	  	 	13,280	  	  	 	12,953	  	 	 	3.83	  	
Systems Maintenance Services Holding, Inc. (2)(3)(4)	 	High Tech Industries	 	 	5.00	  	 	 	10/18/2019	  	  	 	10/18/2013	  	  	 	2,215	  	  	 	2,208	  	  	 	2,170	  	 	 	0.64	  	
TASC, Inc. (2)(3)(5)(8)	 	Aerospace & Defense	 	 	7.00	  	 	 	5/23/2020	  	  	 	12/17/2014	  	  	 	20,000	  	  	 	19,200	  	  	 	19,600	  	 	 	5.79	  	
The SI Organization, Inc. (2)(3)(4)	 	Aerospace & Defense	 	 	5.75	  	 	 	11/23/2019	  	  	 	5/16/2014	  	  	 	9,372	  	  	 	9,288	  	  	 	9,465	  	 	 	2.80	  	
The Topps Company, Inc. (2)(3)(4)	 	Non-durable Consumer Goods	 	 	7.25	  	 	 	10/2/2018	  	  	 	10/1/2013	  	  	 	11,512	  	  	 	11,422	  	  	 	11,363	  	 	 	3.36	  	
TruckPro, LLC (2) (3) (4)	 	Automotive	 	 	5.75	  	 	 	8/6/2018	  	  	 	8/6/2013	  	  	 	9,499	  	  	 	9,456	  	  	 	9,415	  	 	 	2.78	  	
Violin Finco S.A.R.L. (Alexander Mann Solutions) (United Kingdom)  (2)(3)(4)(8)	 	Business Services	 	 	5.75	  	 	 	12/20/2019	  	  	 	12/18/2013	  	  	 	12,375	  	  	 	12,274	  	  	 	12,375	  	 	 	3.66	  	
Vitera Healthcare Solutions, LLC (2) (3) (4)	 	Healthcare & Pharmaceuticals	 	 	6.00	  	 	 	11/4/2020	  	  	 	11/1/2013	  	  	 	9,533	  	  	 	9,453	  	  	 	9,462	  	 	 	2.80	  	
Zest Holdings, LLC (2)(3)(4)	 	Durable Consumer Goods	 	 	5.25	  	 	 	8/16/2020	  	  	 	8/18/2014	  	  	 	12,344	  	  	 	12,344	  	  	 	12,099	  	 	 	3.58	  	
 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
First Lien Debt Total	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	$	517,450	  	  	$	514,787	  	 	 	152.19	% 	
 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Second Lien Debt (15.44%)	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
AF Borrower LLC (Accuvant) (2)(3)(5)	 	High Tech Industries	 	 	10.00	% 	 	 	1/30/2023	  	  	 	12/15/2014	  	  	$	8,000	  	  	$	7,921	  	  	$	7,839	  	 	 	2.32	% 	
Allied Security Holdings LLC (2)(3)(5)	 	Business Services	 	 	8.00	  	 	 	8/13/2021	  	  	 	9/25/2014	  	  	 	8,000	  	  	 	7,942	  	  	 	7,850	  	 	 	2.32	  	
Ascensus Inc. (2)(3)(4)	 	Banking, Finance, Insurance &
Real Estate	 	 	9.00	  	 	 	12/2/2020	  	  	 	12/2/2013	  	  	 	8,000	  	  	 	7,896	  	  	 	7,983	  	 	 	2.36	  	
Berlin Packaging L.L.C. (2)(3)(5)	 	Containers, Packaging & Glass	 	 	7.75	  	 	 	10/1/2022	  	  	 	9/24/2014	  	  	 	9,200	  	  	 	9,132	  	  	 	9,062	  	 	 	2.68	  	
Creganna Finance (US) LLC (Ireland) (2)(3)(5)(8)	 	Healthcare & Pharmaceuticals	 	 	9.00	  	 	 	6/1/2022	  	  	 	11/20/2014	  	  	 	9,900	  	  	 	9,804	  	  	 	9,402	  	 	 	2.78	  	
Drew Marine Group Inc. (2)(3)(5)	 	Chemicals, Plastics & Rubber	 	 	8.00	  	 	 	5/19/2021	  	  	 	11/19/2013	  	  	 	12,500	  	  	 	12,475	  	  	 	11,720	  	 	 	3.46	  	
Genex Holdings, Inc. (2)(3)(5)	 	Banking, Finance, Insurance &
Real Estate	 	 	8.75	  	 	 	5/30/2022	  	  	 	5/22/2014	  	  	 	4,990	  	  	 	4,936	  	  	 	4,740	  	 	 	1.40	  	
Institutional Shareholder Services Inc. (2)(3)(5)	 	Banking, Finance, Insurance &
Real Estate	 	 	8.50	  	 	 	4/30/2022	  	  	 	4/30/2014	  	  	 	12,500	  	  	 	12,386	  	  	 	11,600	  	 	 	3.43	  	
Jazz Acquisition, Inc. (Wencor) (2)(3)(5)	 	Aerospace & Defense	 	 	7.75	  	 	 	6/19/2022	  	  	 	6/25/2014	  	  	 	6,700	  	  	 	6,671	  	  	 	6,283	  	 	 	1.86	  	
Landslide Holdings, Inc. (LANDesk Software) (2)(3)(5)	 	Software	 	 	8.25	  	 	 	2/25/2021	  	  	 	2/25/2014	  	  	 	3,500	  	  	 	3,477	  	  	 	3,335	  	 	 	0.99	  	
Phillips-Medisize Corporation (2)(3)(5)	 	Chemicals, Plastics & Rubber	 	 	8.25	  	 	 	6/16/2022	  	  	 	6/13/2014	  	  	 	5,000	  	  	 	4,954	  	  	 	4,743	  	 	 	1.40	  	
Prowler Acquisition Corp. (Pipeline Supply and Service, LLC)  (2)(3)(5)	 	Wholesale	 	 	9.50	  	 	 	7/28/2020	  	  	 	1/24/2014	  	  	 	3,000	  	  	 	2,947	  	  	 	2,816	  	 	 	0.83	  	
Systems Maintenance Services Holding, Inc. (2)(3)(4)	 	High Tech Industries	 	 	9.25	  	 	 	10/18/2020	  	  	 	10/18/2013	  	  	 	6,000	  	  	 	5,953	  	  	 	5,830	  	 	 	1.72	  	
TASC, Inc. (5)(8)	 	Aerospace & Defense	 	 	12.00	  	 	 	5/23/2021	  	  	 	12/17/2014	  	  	 	6,000	  	  	 	5,880	  	  	 	6,060	  	 	 	1.79	  	
Vitera Healthcare Solutions, LLC (2)(3)(5)	 	Healthcare & Pharmaceuticals	 	 	9.25	  	 	 	11/4/2021	  	  	 	11/1/2013	  	  	 	2,000	  	  	 	1,973	  	  	 	1,929	  	 	 	0.57	  	
Watchfire Enterprises, Inc. (2)(3)(5)	 	Media: Advertising, Printing &
Publishing	 	 	9.00	  	 	 	10/2/2021	  	  	 	10/2/2013	  	  	 	7,000	  	  	 	6,914	  	  	 	6,682	  	 	 	1.98	  	
 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Second Lien Debt Total	 	 	 	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	$	111,261	  	  	$	107,874	  	 	 	31.89	% 	

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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)
As of December 31, 2014
(dollar amounts in thousands)

Investments—non-controlled/non-affiliated (1)	  	Industry	  	Maturity
Date	 	  	Acquisition
Date	 	  	Par
Amount	 	  	Amortized
Cost  (6)	 	  	Fair
Value  (7)	 	  	Percentage of
Net Assets	 	
Structured Finance Obligations (10.88%) (5)(8)(11)	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
1776 CLO I, Ltd., Subordinated Notes	  	Structured Finance	  	 	5/8/2020	  	  	 	2/27/2014	  	  	$	11,750	  	  	$	10,106	  	  	$	8,813	  	  	 	2.61	% 	
AIMCO CLO, Series 2014-A, Class F, 5.47% (2)	  	Structured Finance	  	 	7/20/2026	  	  	 	5/12/2014	  	  	 	2,700	  	  	 	2,350	  	  	 	2,187	  	  	 	0.65	  	
AIMCO CLO, Series 2014-A, Subordinated Notes	  	Structured Finance	  	 	7/20/2026	  	  	 	5/12/2014	  	  	 	11,500	  	  	 	9,732	  	  	 	9,832	  	  	 	2.91	  	
Ares XXVIII CLO Ltd., Subordinated Notes	  	Structured Finance	  	 	10/17/2024	  	  	 	10/10/2013	  	  	 	7,000	  	  	 	5,242	  	  	 	5,278	  	  	 	1.56	  	
Babson CLO Ltd. 2005-I, Subordinated Notes	  	Structured Finance	  	 	4/15/2019	  	  	 	7/16/2013	  	  	 	7,632	  	  	 	432	  	  	 	161	  	  	 	0.05	  	
Blackrock Senior Income Series V, Limited, Subordinated Notes (Ireland)	  	Structured Finance	  	 	8/13/2019	  	  	 	3/11/2014	  	  	 	4,600	  	  	 	2,592	  	  	 	2,521	  	  	 	0.75	  	
CIFC Funding 2007-III, Ltd., Income Notes	  	Structured Finance	  	 	7/26/2021	  	  	 	5/20/2014	  	  	 	6,500	  	  	 	3,525	  	  	 	3,510	  	  	 	1.04	  	
Clydesdale CLO 2005, Ltd., Subordinated Notes	  	Structured Finance	  	 	12/6/2017	  	  	 	7/15/2013	  	  	 	5,750	  	  	 	—  	 	  	 	10	  	  	 	0.00	  	
Flagship VII Limited, Subordinated Notes	  	Structured Finance	  	 	1/20/2026	  	  	 	12/18/2013	  	  	 	7,000	  	  	 	5,823	  	  	 	5,628	  	  	 	1.66	  	
GoldenTree Loan Opportunities V, Limited, Subordinated Notes	  	Structured Finance	  	 	10/18/2021	  	  	 	10/11/2013	  	  	 	5,000	  	  	 	3,136	  	  	 	2,920	  	  	 	0.86	  	
ING Investment Management CLO IV, Ltd., Preferred Shares	  	Structured Finance	  	 	6/14/2022	  	  	 	5/7/2014	  	  	 	8,925	  	  	 	5,327	  	  	 	5,690	  	  	 	1.68	  	
ING IM CLO 2012-1 LLC, Preferred Shares	  	Structured Finance	  	 	3/14/2022	  	  	 	12/5/2014	  	  	 	3,500	  	  	 	2,367	  	  	 	2,494	  	  	 	0.74	  	
ING IM CLO 2012-1 LLC, Subordinated Notes	  	Structured Finance	  	 	3/14/2022	  	  	 	12/5/2014	  	  	 	2,500	  	  	 	1,691	  	  	 	1,781	  	  	 	0.53	  	
Landmark VIII, CLO Ltd., Income Notes	  	Structured Finance	  	 	10/19/2020	  	  	 	10/22/2013	  	  	 	8,600	  	  	 	3,603	  	  	 	3,337	  	  	 	0.99	  	
MSIM Peconic Bay, Ltd., Subordinated Notes	  	Structured Finance	  	 	7/20/2019	  	  	 	10/22/2013	  	  	 	4,500	  	  	 	1,210	  	  	 	1,018	  	  	 	0.30	  	
Nautique Funding Ltd., Income Notes	  	Structured Finance	  	 	4/15/2020	  	  	 	2/24/2014	  	  	 	5,000	  	  	 	2,991	  	  	 	2,980	  	  	 	0.88	  	
Pacifica CDO V, Ltd., Subordinated Notes	  	Structured Finance	  	 	1/26/2020	  	  	 	3/28/2014	  	  	 	4,700	  	  	 	87	  	  	 	70	  	  	 	0.02	  	
Steele Creek CLO 2014-I, LLC, Subordinated Notes	  	Structured Finance	  	 	8/21/2026	  	  	 	7/18/2014	  	  	 	18,000	  	  	 	15,030	  	  	 	14,040	  	  	 	4.15	  	
Venture VI CDO Limited, Preference Shares	  	Structured Finance	  	 	8/3/2020	  	  	 	4/17/2014	  	  	 	7,000	  	  	 	3,746	  	  	 	3,731	  	  	 	1.09	  	
 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Structured Finance Obligations Total	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	$	78,990	  	  	$	76,001	  	  	 	22.47	% 	
 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Investments—non-controlled/non-affiliated	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	$	707,701	  	  	$	698,662	  	  	 	206.55	% 	

(1)	Unless otherwise indicated, issuers of debt investments held by GMS Finance are domiciled in the United States and issuers of structured finance obligations are domiciled in the Cayman Islands. Under the Investment Company Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2014, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2014, the Company is not an “affiliated person” of any of these portfolio companies.	
(2)	Variable rate loans to the portfolio companies and variable rate notes of structured finance obligations bear interest at a rate that may be determined by reference to either LIBOR or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), which generally resets quarterly. For each such loan and note, the Company has provided the interest rate in effect as of December 31, 2014.	
(3)	Loan includes interest rate floor feature.	
(4)	These assets are owned by the Borrower Sub. The Borrower Sub has entered into the Revolving Credit Facility. The lenders of the Revolving Credit Facility have a first lien security interest in substantially all of the assets of the Borrower Sub (see Note 5, Borrowings). Accordingly, such assets are not available to creditors of the Company.	
(5)	These assets are owned by the Company. The Company has entered into the Facility, which was subsequently amended on January 8, 2015. The lenders of the Facility have a first lien security interest in substantially all of the portfolio investments held by the Company. The lenders of the Facility also have a perfected first-priority security interest in the unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lenders is limited to $100,000) and such security interest will be released once the Company receives equity capital contributions in an amount equal to $100,000 subsequent to January 8, 2015 (see Note 5, Borrowings).	
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2014
(dollar amounts in thousands)
 
(6)	Amortized cost represents original cost, including origination fees, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method. Equity tranche collateralized loan obligation (“CLO”) fund investments, which are referred to as “structured finance obligations”, are recorded at amortized cost using the effective interest method.	
(7)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Notes 2 and 3), pursuant to the Company’s valuation policies.	
(8)	The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.	
(9)	Castle Management Borrower LLC (Highgate Hotels L.P.) has an undrawn delayed draw term loan of $1,200 par value at LIBOR + 4.50%, 1.00% floor. An unused rate of 1.00% is charged on the principal while undrawn. The delayed draw term loan is owned by the Company.	
(10)	Green Energy Partners/Stonewall LLC has an undrawn delayed draw term loan of $8,300 par value at LIBOR + 5.50%, 1.00% floor. An unused rate of 3.00% is charged on the principal while undrawn.	
(11)	As of December 31, 2014, the Company has a greater than 25% but less than 50% equity or subordinated notes ownership interest in certain structured finance obligations. These investments have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the issuer of the investment is not a controlled affiliate or a non-controlled affiliate because the investments are not “voting securities”.	
 
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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2014
(dollar amounts in thousands)
As of December 31, 2014, investments—non-controlled/non-affiliated at fair value consisted of the following:

Type	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
First Lien Debt	  	$	517,450	  	  	$	514,787	  	  	 	73.68	% 	
Second Lien Debt	  	 	111,261	  	  	 	107,874	  	  	 	15.44	  	
Structured Finance Obligations	  	 	78,990	  	  	 	76,001	  	  	 	10.88	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	707,701	  	  	$	698,662	  	  	 	100.00	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
The industrial composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2014 was as follows:

Industry	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
Aerospace and Defense	  	$	59,859	  	  	$	59,983	  	  	 	8.59	% 	
Automotive	  	 	23,721	  	  	 	23,570	  	  	 	3.37	  	
Banking, Finance, Insurance & Real Estate	  	 	29,486	  	  	 	28,550	  	  	 	4.09	  	
Business Services	  	 	63,466	  	  	 	63,323	  	  	 	9.06	  	
Capital Equipment	  	 	10,141	  	  	 	9,942	  	  	 	1.42	  	
Chemicals, Plastics & Rubber	  	 	17,429	  	  	 	16,463	  	  	 	2.36	  	
Construction & Building	  	 	18,173	  	  	 	18,056	  	  	 	2.58	  	
Consumer Services	  	 	41,351	  	  	 	41,493	  	  	 	5.94	  	
Containers, Packaging & Glass	  	 	28,601	  	  	 	28,111	  	  	 	4.02	  	
Durable Consumer Goods	  	 	32,147	  	  	 	31,919	  	  	 	4.57	  	
Energy: Electricity	  	 	8,136	  	  	 	8,338	  	  	 	1.19	  	
Energy: Oil & Gas	  	 	11,988	  	  	 	12,188	  	  	 	1.74	  	
Environmental Industries	  	 	21,350	  	  	 	20,826	  	  	 	2.98	  	
Healthcare & Pharmaceuticals	  	 	54,122	  	  	 	53,376	  	  	 	7.64	  	
High Tech Industries	  	 	36,761	  	  	 	36,669	  	  	 	5.25	  	
Hotel, Gaming & Leisure	  	 	8,693	  	  	 	8,610	  	  	 	1.23	  	
Media: Advertising, Printing & Publishing	  	 	6,914	  	  	 	6,682	  	  	 	0.96	  	
Metals & Mining	  	 	10,426	  	  	 	10,298	  	  	 	1.47	  	
Non-durable Consumer Goods	  	 	26,212	  	  	 	26,064	  	  	 	3.73	  	
Retail	  	 	12,929	  	  	 	12,757	  	  	 	1.83	  	
Software	  	 	28,178	  	  	 	27,600	  	  	 	3.95	  	
Structured Finance	  	 	78,990	  	  	 	76,001	  	  	 	10.88	  	
Telecommunications	  	 	28,310	  	  	 	27,988	  	  	 	4.01	  	
Transportation: Cargo	  	 	19,757	  	  	 	19,477	  	  	 	2.79	  	
Transportation: Consumer	  	 	10,719	  	  	 	10,940	  	  	 	1.57	  	
Utilities: Electric	  	 	5,962	  	  	 	5,858	  	  	 	0.84	  	
Wholesale	  	 	13,880	  	  	 	13,580	  	  	 	1.94	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	707,701	  	  	$	698,662	  	  	 	100.00	% 	

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CARLYLE GMS FINANCE, INC.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
As of December 31, 2014
(dollar amounts in thousands)
 
The geographical composition of investments—non-controlled/non-affiliated at fair value as of December 31, 2014 was as follows:

Geography	  	Amortized
Cost	 	  	Fair Value	 	  	% of Fair
Value	 	
Cayman Islands	  	$	76,398	  	  	$	73,480	  	  	 	10.52	% 	
Ireland	  	 	12,396	  	  	 	11,923	  	  	 	1.70	  	
United Kingdom	  	 	24,262	  	  	 	24,563	  	  	 	3.51	  	
United States	  	 	594,645	  	  	 	588,696	  	  	 	84.27	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	707,701	  	  	$	698,662	  	  	 	100.00	% 	

 
The accompanying notes are an integral part of these consolidated financial statements.
 
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CARLYLE GMS FINANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2015
(dollar amounts in thousands, except per share data)
1. ORGANIZATION
Carlyle GMS Finance, Inc. (“GMS Finance” or the “Company”) is a Maryland corporation formed on February 8, 2012, and structured as an externally managed, non-diversified closed-end investment company. On May 2, 2013, GMS Finance filed its election to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
GMS Finance’s investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle market companies, which the Company defines as companies with approximately $10 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). GMS Finance seeks to achieve its investment objective by investing primarily in first lien senior secured loans (which may include stand-alone first lien loans; “last out” first lien loans, which are loans that have a secondary priority behind “first out” first lien loans; “unitranche” loans, which are loans that combine features of first lien, second lien or subordinated loans, generally in a first lien position; and secured corporate bonds with features similar to the features of these categories of first lien loans) and second lien senior secured loans (which may include senior secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first lien loans) (collectively, “Middle Market Senior Loans”). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. Depending on market conditions, GMS Finance expects that between 70% and 80% of the value of its assets will be invested in Middle Market Senior Loans, with the balance invested in higher-yielding investments, which may include middle market junior loans such as corporate mezzanine loans, equity co-investments, broadly syndicated first lien and second lien senior secured loans, high-yield bonds, structured finance obligations and/or other opportunistic investments. GMS Finance expects that the composition of its portfolio will change over time given Carlyle GMS Investment Management L.L.C.’s (the “Investment Adviser”) view on, among other things, the economic and credit environment (including with respect to interest rates) in which the Company is operating.
On May 2, 2013, GMS Finance completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations. Prior to May 2, 2013, GMS Finance had not commenced operations and was a development stage company as defined by Accounting Standards Codification (“ASC”) 915,  Development Stage Entity . During this time, GMS Finance focused substantially all of its efforts on establishing its business. If GMS Finance has not consummated an initial public offering of its common stock that results in an unaffiliated public float of at least 15% of the aggregate capital commitments received prior to the date of such initial public offering (a “Qualified IPO”) by May 2, 2018, then GMS Finance (subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act) will use its best efforts to wind down and/or liquidate and dissolve.
GMS Finance is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. GMS Finance will remain an emerging growth company for up to five years following an initial public offering, although if the market value of the common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time, GMS Finance would cease to be an emerging growth company as of the following December 31.
Carlyle GMS Finance SPV LLC (the “Borrower Sub”) is a Delaware limited liability company that was formed on January 3, 2013. The Borrower Sub invests in first and second lien senior secured loans. The
 
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Borrower Sub is a wholly-owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, January 3, 2013.
On June 26, 2015, the Company completed a $400 million term debt securitization (the “2015-1 Debt Securitization”). The notes offered in the 2015-1 Debt Securitization (the “2015-1 Notes”) were issued by Carlyle GMS Finance MM CLO 2015-1 LLC (the “2015-1 Issuer”), a wholly-owned and consolidated subsidiary of the Company, and are secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. Refer to Note 6 for details. The 2015-1 Issuer is consolidated in these consolidated financial statements commencing from the date of its formation, May 8, 2015.
GMS Finance is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended. Carlyle GMS Finance Administration L.L.C. (the “Administrator”) provides the administrative services necessary for GMS Finance to operate. Both the Investment Adviser and the Administrator are wholly-owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group L.P. “Carlyle” refers to The Carlyle Group L.P., its affiliates and its consolidated subsidiaries, a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.
As a BDC, GMS Finance is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).
GMS Finance has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a RIC under the Code, and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, GMS Finance must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, GMS Finance generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that GMS Finance satisfies those requirements.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies  (“ASU 2013-08”):  Amendments to the Scope, Measurement and Disclosure Requirements.  The consolidated financial statements include the accounts of GMS Finance and its wholly-owned subsidiaries, the Borrower Sub and the 2015-1 Issuer. All significant intercompany balances and transactions have been eliminated. US GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.
The annual financial statements have been prepared in accordance with US GAAP for annual financial information and pursuant to the requirements for reporting on Form 10-K and Article 6 of Regulation S-X. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the years presented have been included.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of
 
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contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on base management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 3 for further information about fair value measurements.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g. money market funds, U.S. treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost, which approximates fair value. The Company’s cash and cash equivalents are held with two large financial institutions and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.
Revenue Recognition
Interest from Investments and Realized Gain/Loss on Investments
Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.
The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. As of December 31, 2015 and 2014 and for the years then ended, no loans in the portfolio contained PIK provisions.
Interest income from investments in the “equity” class of collateralized loan obligation (“CLO”) funds, which are included in “structured finance obligations”, is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40,  Beneficial Interests in Securitized Financials Assets . We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments and the effective yield is determined and updated at least quarterly. In estimating these cash flows, there are a number of assumptions that are subject to uncertainties, including the amount and timing of principal payments which are impacted by prepayments, repurchases, defaults, delinquencies and liquidations of or within the CLO funds. These uncertainties are difficult to predict and are subject to future events that could have impacted the Company’s estimates if the information was known at the time. As a result, actual results may differ significantly from these estimates.
 
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Other Income
Other income may include income such as consent, waiver and amendment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees will be amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities.
Non-Accrual Income
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. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of December 31, 2015 and 2014 and for the years then ended, no loans in the portfolio were on non-accrual status.
Revolving Credit Facility, Facility and 2015-1 Notes Related Costs, Expenses and Deferred Financing Costs (See Note 5, Borrowings, and Note 6, 2015-1 Notes)
Interest expense and unused commitment fees on the Revolving Credit Facility and Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.
The Revolving Credit Facility and Facility are recorded at carrying value, which approximates fair value.
Deferred financing costs include capitalized expenses related to the closing of the Revolving Credit Facility and Facility. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility, except for a portion that was accelerated in connection with the amendment of the Revolving Credit Facility as described in Note 5. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.
Deferred financing costs also include capitalized expenses including structuring and arrangement fees related to the offering of the 2015-1 Notes. Amortization of deferred financing costs for the 2015-1 Notes is computed on the effective yield method over the term of 2015-1 Notes. The amortization of such costs is included in interest expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2015.
Organization and Offering Costs
The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of GMS Finance up to $1,500. As of December 31, 2015 and 2014, $1,500 of organization and offering costs had been incurred by GMS Finance and $57 of excess organization and offering costs had been incurred by the Investment Adviser since inception. The $1,500 of incurred organization and offering costs are allocated to all stockholders based on their respective capital commitment and are re-allocated amongst all stockholders at the time of each capital drawdown subsequent to the Initial Closing. The Company’s organization costs incurred are expensed and the offering costs are charged against equity when incurred.
 
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Income Taxes
For federal income tax purposes, GMS Finance has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, GMS Finance must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then GMS Finance is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.
The minimum distribution requirements applicable to RICs require GMS Finance to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, GMS Finance may choose to carry forward ICTI in excess of current year distributions into the next tax year. 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.
In addition, based on the excise distribution requirements, GMS Finance is subject to a 4% nondeductible federal excise tax on undistributed income unless GMS Finance distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by GMS Finance that is subject to corporate income tax is considered to have been distributed. GMS Finance intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense.
The Borrower Sub and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of GMS Finance.
Capital Calls and Dividends and Distributions to Common Stockholders
The Company records the shares issued in connection with capital calls as of the effective date of the capital call. To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions on behalf of its stockholders, for those who have elected to participate in the plan. As a result of adopting such a plan, if the Board of Directors authorizes, and GMS Finance declares a cash dividend or distribution, the stockholders who have elected to participate in the dividend reinvestment plan would have their cash dividends or distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash. Prior to a Qualified IPO, the Company intends to use primarily newly issued shares of its common stock to implement the plan issued at the net asset value per share most recently determined by the Board of Directors. After a Qualified IPO, the Company intends to use primarily newly issued shares to implement the plan so long as the market value per share is equal to or greater than the net asset value per share as of the close of business on the relevant payment date for such dividend or distribution. If the market value per
 
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share is less than the net asset value per share as of the close of business on the relevant payment date, the plan administrator would purchase the common stock on behalf of participants in the open market, unless the Company instructs the plan administrator otherwise.
Functional Currency
The functional currency of the Company is the U.S. Dollar and all transactions were in U.S. Dollars.
Recent Accounting Standards Updates
On April 7, 2015, the Financial Accounting Standards Board issued ASU 2015-3, Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs  (“ASU 2015-3”). ASU 2015-3 requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. This guidance is effective for the Company on January 1, 2016 and the ASU requires the guidance to be applied on a retrospective basis. This guidance is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
In August 2015, the Financial Accounting Standards Board issued ASU 2015-15, Interest—Imputation of Interest (Sub-topic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements  (“ASU 2015-15”). ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. In accordance with ASU 2015-15, an entity may defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is effective for the Company on January 1, 2016 and is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
3. FAIR VALUE MEASUREMENTS
The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820,  Fair Value Measurement  (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to US GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.
Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or GMS Finance’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and
 
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reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.
All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:
 
 	•	 	the nature and realizable value of any collateral;	
 
 	•	 	call features, put features and other relevant terms of debt;	
 
 	•	 	the portfolio company’s leverage and ability to make payments;	
 
 	•	 	the portfolio company’s public or private credit rating;	
 
 	•	 	the portfolio company’s actual and expected earnings and discounted cash flow;	
 
 	•	 	prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;	
 
 	•	 	the markets in which the portfolio company does business and recent economic and/or market events; and	
 
 	•	 	comparisons to comparable transactions and publicly traded securities.	
Investment performance data utilized are the most recently available financial statements and compliance certificates received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of December 31, 2015, 2014 and 2013.
US GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.
 
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Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in determination of fair values, as follows:
 
 	•	 	Level I—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments in Level I generally include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.	
 
 	•	 	Level II—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. The type of financial instruments in this category generally includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.	
 
 	•	 	Level III—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are in this category generally include investments in privately-held entities, collateralized loan obligations, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.	
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
Transfers between levels, if any, are recognized at the beginning of the year in which the transfers occur. For the years ended December 31, 2015 and 2014, there were no transfers between levels.
The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of December 31, 2015 and 2014:

 	  	December 31, 2015	 	
 	  	Level I	 	  	Level II	 	  	Level III	 	  	Total	 	
Assets	  	 	 	 	  	 	 	 	  	 	 	 	
First Lien Debt	  	$	—  	  	  	$	9,575	 	  	$	785,459	  	  	$	795,034	  	
Second Lien Debt	  	 	—  	 	  	 	—  	 	  	 	210,396	  	  	 	210,396	  	
Structured Finance Obligations	  	 	—  	 	  	 	—  	 	  	 	44,812	  	  	 	44,812	  	
Equity Investments	  	 	—  	 	  	 	—  	 	  	 	2,424	  	  	 	2,424	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	—  	 	  	$	9,575	 	  	$	1,043,091	  	  	$	1,052,666	  	

 	  	December 31, 2014	 	
 	  	Level I	 	  	Level II	 	  	Level III	 	  	Total	 	
Assets	  	 	 	 	  	 	 	 	  	 	 	 	
First Lien Debt	  	$	—  	 	  	$	9,575	 	  	$	505,212	  	  	$	514,787	  	
Second Lien Debt	  	 	—  	 	  	 	—  	 	  	 	107,874	  	  	 	107,874	  	
Structured Finance Obligations	  	 	—  	 	  	 	—  	 	  	 	76,001	  	  	 	76,001	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	 	$—  	 	  	 	$9,575	 	  	 	$689,087	  	  	 	$698,662	  	

 
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The changes in the Company’s investments at fair value for which the Company has used Level III inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level III investments still held are as follows:

 	  	For the year ended December 31,2015	 	
 	  	First Lien
Debt	 	 	Second
Lien Debt	 	 	Structured
Finance
Obligations	 	 	Equity
Investments	 	  	Total	 	
Balance, beginning of year	  	$	505,212	  	 	$	107,874	  	 	$	76,001	  	 	$	—  	 	  	$	689,087	  	
Purchases	  	 	472,342	  	 	 	113,195	  	 	 	10,059	  	 	 	2,215	  	  	 	597,811	  	
Sales	  	 	(17,454	)	 	 	—  	 	 	 	(19,930	)	 	 	—  	  	  	 	(37,384	)	
Paydowns	  	 	(174,427	) 	 	 	(8,025	) 	 	 	(10,155	) 	 	 	—  	  	  	 	(192,607	) 	
Accretion of discount	  	 	2,677	  	 	 	277	  	 	 	20	  	 	 	—  	  	  	 	2,974	  	
Net realized gains (losses)	  	 	208	 	 	 	—  	 	 	 	956	 	 	 	—  	  	  	 	1,164	 	
Net change in unrealized appreciation (depreciation)	  	 	(3,099	) 	 	 	(2,925	) 	 	 	(12,139	) 	 	 	209	  	  	 	(17,954	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Balance, end of year	  	$	785,459	  	 	$	210,396	  	 	$	44,812	  	 	$	2,424	  	  	$	1,043,091	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of December 31, 2015 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	  	$	(4,423	) 	 	$	(2,838	) 	 	$	(12,219	) 	 	$	209	  	  	$	(19,271	) 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	For the year ended December 31, 2014	 	
 	  	First Lien
Debt	 	 	Second
Lien Debt	 	 	Structured
Finance
Obligations	 	 	Total	 	
Balance, beginning of year	  	$	141,676	  	 	$	39,767	  	 	$	31,364	  	 	$	212,807	  	
Purchases	  	 	442,328	  	 	 	79,993	  	 	 	82,613	  	 	 	604,934	  	
Sales	  	 	—  	 	 	 	(4,050	) 	 	 	(7,258	) 	 	 	(11,308	) 	
Paydowns	  	 	(77,040	) 	 	 	(5,571	) 	 	 	(27,310	) 	 	 	(109,921	) 	
Accretion of discount	  	 	964	  	 	 	133	  	 	 	11	  	 	 	1,108	  	
Net realized gains (losses)	  	 	—  	 	 	 	120	 	 	 	(48	) 	 	 	72	  	
Net change in unrealized appreciation (depreciation)	  	 	(2,716	) 	 	 	(2,518	) 	 	 	(3,371	) 	 	 	(8,605	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, end of year	  	$	505,212	  	 	$	107,874	  	 	$	76,001	  	 	$	689,087	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of December 31, 2014 included in net change in unrealized appreciation (depreciation) on investments non-controlled/non-affiliated on the Consolidated Statements of Operations	  	$	(2,550	) 	 	$	(2,544	) 	 	$	(3,367	) 	 	$	(8,461	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company generally uses the following framework when determining the fair value of investments that are categorized as Level III:
Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose
 
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multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.
Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.
Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the security’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies. Investments in debt securities may also be valued using consensus pricing.
Investments in structured finance obligations are generally valued using a discounted cash flow and/or consensus pricing.
Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.
The following tables summarize the quantitative information related to the significant unobservable inputs for Level III instruments which are carried at fair value as of December 31, 2015 and 2014:

 	  	Fair Value as
of December 31,
2015	 	  	Valuation Techniques	  	Significant
Unobservable
Inputs	  	Range	 	 	Weighted
Average	 	 	
 	  	 	 	  	 	  	 	  	Low	 	 	High	 	 	 	 	 	 	 	 	 	
Investments in First Lien Debt	  	$	618,172	  	  	Discounted Cash Flow	  	Discount Rate	  	 	5.57	% 	 	 	13.37	% 	 	 	8.19	% 	 	 	 	 	 	
 	  	 	167,287	  	  	Consensus Pricing	  	Indicative Quotes	  	 	96.50	  	 	 	99.38	  	 	 	97.97	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total First Lien Debt	  	 	785,459	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in Second Lien Debt	  	 	161,907	  	  	Discounted Cash Flow	  	Discount Rate	  	 	9.37	% 	 	 	15.44	% 	 	 	10.56	% 	 	 	 	 	 	
 	  	 	48,489	  	  	Consensus Pricing	  	Indicative Quotes	  	 	93.25	  	 	 	101.25	  	 	 	96.86	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Second Lien Debt	  	 	210,396	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in Structured Finance Obligations	  	 	43,016	  	  	Discounted Cash Flow	  	Discount Rate	  	 	13.00	% 	 	 	17.50	% 	 	 	14.05	% 	 	 	 	 	 	
 	  	 	 	 	  	 	  	Default Rate	  	 	0.19	  	 	 	1.56	  	 	 	1.09	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	Prepayment Rate	  	 	18.16	  	 	 	40.00	  	 	 	22.09	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	Recovery Rate	  	 	69.27	  	 	 	75.00	  	 	 	74.36	  	 	 	 	 	 	
 	  	 	1,796	  	  	Consensus Pricing	  	Indicative Quotes	  	 	0.18	  	 	 	63.00	  	 	 	59.69	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Structured Finance Obligations	  	 	44,812	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in Equity	  	 	2,424	  	  	Income Approach	  	Discount Rate	  	 	10.19	% 	 	 	10.90	% 	 	 	10.42	% 	 	 	 	 	 	
 	  	 	 	 	  	Market Approach	  	Comparable
Multiple	  	 	9.94x	  	 	 	11.09x	  	 	 	10.71x	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Equity Investments	  	 	2,424	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level III Investments	  	$	1,043,091	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

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 	  	Fair Value as
of December 31,
2014	 	  	Valuation Techniques	  	Significant
Unobservable
Inputs	  	Range	 	 	Weighted
Average	 	 	
 	  	 	 	  	 	  	 	  	Low	 	 	High	 	 	 	 	 	 	 	 	 	
Investments in First Lien Debt	  	$	469,796	  	  	Discounted Cash Flow	  	Discount Rate	  	 	5.23	% 	 	 	9.02	% 	 	 	6.33	% 	 	 	 	 	 	
 	  	 	35,416	  	  	Consensus Pricing	  	Indicative Quotes	  	 	98.50	  	 	 	99.33	  	 	 	98.71	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total First Lien Debt	  	 	505,212	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in Second Lien Debt	  	 	84,902	  	  	Discounted Cash Flow	  	Discount Rate	  	 	9.15	% 	 	 	11.32	% 	 	 	10.05	% 	 	 	 	 	 	
 	  	 	22,972	  	  	Consensus Pricing	  	Indicative Quotes	  	 	98.13	  	 	 	101.00	  	 	 	99.03	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Second Lien Debt	  	 	107,874	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments in Structured Finance Obligations	  	 	59,533	  	  	Discounted Cash Flow	  	Discount Rate	  	 	12.65	% 	 	 	15.80	% 	 	 	13.87	% 	 	 	 	 	 	
 	  	 	 	 	  	 	  	Default Rate	  	 	—  	  	 	 	1.32	  	 	 	0.60	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	Prepayment Rate	  	 	18.78	  	 	 	32.50	  	 	 	25.41	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	Recovery Rate	  	 	67.54	  	 	 	75.00	  	 	 	73.28	  	 	 	 	 	 	
 	  	 	16,468	  	  	Consensus Pricing	  	Indicative Quotes	  	 	0.18	  	 	 	81.00	  	 	 	77.28	  	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Structured Finance Obligations	  	 	76,001	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Level III Investments	  	$	689,087	  	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	  	 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates and indicative quotes. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in structured finance obligations are discount rates, default rates, prepayment rates, recovery rates and indicative quotes. Significant increases in discount rates, default rates or prepayment rates in isolation would result in a significantly lower fair value measurement, while a significant increase in recovery rates in isolation would result in a significantly higher fair value. Significant decreases in indicative quotes in isolation may result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples would result in a significantly lower fair value measurement.
Financial instruments disclosed but not carried at fair value:
The following table presents the carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value as of December 31, 2015 and 2014.

 	  	December 31, 2015	 	  	December 31, 2014	 	
 	  	Carrying Value	 	  	Fair Value	 	  	Carrying Value	 	  	Fair Value	 	
Secured borrowings	  	$	234,313	  	  	$	234,313	  	  	$	308,441	  	  	$	308,441	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	234,313	  	  	$	234,313	  	  	$	308,441	  	  	$	308,441	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The carrying values of the secured borrowings approximate their respective fair values and are categorized as Level III within the hierarchy. Secured borrowings are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.
 
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The following table represents the carrying values and fair values of the Company’s 2015-1 Notes disclosed but not carried at fair value as of December 31, 2015 and 2014:

 	  	December 31, 2015	 	  	December 31, 2014	 	
 	  	Carrying Value	 	  	Fair Value	 	  	Carrying Value	 	  	Fair Value	 	
Aaa/AAA Class A-1A Notes	  	$	160,000	  	  	$	157,200	  	  	$	—  	  	  	$	—  	  	
Aaa/AAA Class A-1B Notes	  	 	40,000	  	  	 	39,700	  	  	 	—  	  	  	 	—  	  	
Aaa/AAA Class A-1C Notes	  	 	27,000	  	  	 	26,823	  	  	 	—  	  	  	 	—  	  	
Aa2 Class A-2 Notes	  	 	46,000	  	  	 	45,122	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	273,000	  	  	$	268,845	  	  	$	—  	  	  	$	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The fair value determination of the Company’s 2015-1 Notes was based on the market quotation(s) received from broker/dealer(s). These fair value measurements were based on significant inputs not observable and thus represent Level III measurements as defined in the accounting guidance for fair value measurement.
The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.
4. RELATED PARTY TRANSACTIONS
Investment Advisory Agreement
On April 3, 2013, the Company’s Board of Directors, including a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (“Independent Directors”), approved an investment advisory agreement (the “Investment Advisory Agreement”) between the Company and the Investment Adviser in accordance with, and on the basis of an evaluation satisfactory to such directors as required by, Section 15(c) of the Investment Company Act. The initial term of the Investment Advisory Agreement is two years from April 3, 2013 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Advisory Agreement for a one year period. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a base management fee and an incentive fee.
Prior to a Qualified IPO, the base management fee is calculated and payable quarterly in arrears at an annual rate of 1.50% of the average daily gross assets of the Company for the period adjusted for share issuances or repurchases, excluding any cash and cash equivalents and including assets acquired with leverage from use of the Revolving Credit Facility, Facility and 2015-1 Notes (see Note 5, Borrowings, and Note 6, 2015-1 Notes). For purposes of this calculation, cash and cash equivalents include any temporary investments in cash-equivalents, U.S. government securities and other high quality investment grade debt investments that mature in 12 months or less from the date of investment. Base management fees for any partial quarter are prorated. The Investment Adviser contractually waived one-third (0.50%) of the base management fee prior to a Qualified IPO. The fee waiver will terminate if and when a Qualified IPO has been consummated.
 
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The incentive fee has two parts. The first part is calculated and payable quarterly in arrears based on the pre-incentive fee net investment income for the immediately preceding calendar quarter. The second part is determined and payable in arrears based on capital gains as of the end of each calendar year.
Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the base management fee, expenses payable under the administration agreement, and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Prior to any Qualified IPO of the Company’s common stock, pre-incentive fee net investment income, expressed as a rate of return on the average daily Hurdle Calculation Value (as defined below) throughout the immediately preceding calendar quarter, is compared to a “hurdle rate” of 1.50% per quarter (6% annualized). “Hurdle Calculation Value” means, on any given day, the sum of (x) the value of net assets as of the end of the calendar quarter immediately preceding such day plus (y) the aggregate amount of capital drawn from investors (or reinvested in the Company pursuant to a dividend reinvestment plan) from the beginning of the current quarter to such day minus (z) the aggregate amount of distributions (including share repurchases) made by the Company from the beginning of the current quarter to such day but only to the extent such distributions were not declared and accounted for on the books and records in a previous quarter.
GMS Finance pays its Investment Adviser an incentive fee with respect to its pre-incentive fee net investment income in each calendar quarter as follows:
 
 	•	 	no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which its pre-incentive fee net investment income does not exceed the hurdle of 1.50%;	
 
 	•	 	100% of pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle but is less than 1.875% in any calendar quarter (7.50% annualized). The Company refers to this portion of the pre-incentive fee net investment income (which exceeds the hurdle but is less than 1.875%) as the “catch-up.” The “catch-up” is meant to provide the Investment Adviser with approximately 20% of the Company’s pre-incentive fee net investment income as if a hurdle did not apply if this net investment income exceeds 1.875% in any calendar quarter; and	
 
 	•	 	20% of the amount of pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.50% annualized) will be payable to the Investment Adviser. This reflects that once the hurdle is reached and the catch-up is achieved, 20% of all pre-incentive fee investment income thereafter is allocated to the Investment Adviser.	
The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of realized capital gains, if any, on a cumulative basis from inception through the date of determination, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid capital gain incentive fees, provided that, the incentive fee determined at the end of the first calendar year of operations may be calculated for a period of shorter than twelve calendar months to take into account any realized capital gains computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation.
 
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The Company will defer payment of any incentive fee otherwise earned by the Investment Adviser if, during the most recent four full calendar quarter periods (or, if less, the number of full calendar quarters completed since the initial drawdown of capital from the stockholders, “Initial Drawdown”) ending on or prior to the date such payment is to be made, the sum of (a) the aggregate distributions to stockholders and (b) the change in net assets (defined as gross assets less indebtedness and before taking into account any incentive fees payable during the period) is less than 6.0% of net assets (defined as gross assets less indebtedness) at the beginning of such period, provided, that such percentage will be appropriately prorated during the four full calendar quarters immediately following the Initial Drawdown. These calculations are adjusted for any share issuances or repurchases. Any deferred incentive fees are carried over for payment in subsequent calculation periods. The Investment Adviser may earn an incentive fee under the Investment Advisory Agreement on the Company’s repurchase of debt issued by the Company at a gain.
Prior to a Qualified IPO, from time to time, CGMSIM intends to pay certain individuals providing services to CGMSIM, including members of the CGMSIM Investment Team, in shares of our common stock and/or in cash a portion of the net after-tax incentive fees that CGMSIM receives from us (not to exceed 25%) in consideration of their services on behalf of CGMSIM. To the extent that any such payment is in shares of our common stock, CGMSIM will purchase such shares from us and distribute the shares to the individuals eligible for such payment, and, to the extent that any such payment is in cash, CGMSIM will require the individuals eligible for such payment to make capital commitments to purchase newly issued shares of our common stock. In addition, following the completion of a Qualified IPO, from time to time, CGMSIM intends to purchase shares of our common stock in the open market at a purchase price, in the aggregate, equal to approximately 25% of each installment of the net after-tax incentive fees that CGMSIM receives from us, subject to market conditions. CGMSIM may then distribute those shares to members of the CGMSIM Investment Team and other individuals eligible for such payment in consideration of their services on behalf of CGMSIM.
For the years ended December 31, 2015, 2014 and 2013, base management fees were $8,907, $4,373 and $625, respectively (net of waiver of $4,454, $2,186 and $312, respectively), incentive fees related to pre-incentive fee net investment income were $8,881, $3,578 and $0, respectively, and there were no incentive fees related to realized capital gains. For the years ended December 31, 2015, 2014 and 2013, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) as of December 31, 2015, 2014 and 2013, respectively. The accrual for any capital gains incentive fee under US GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.
As of December 31, 2015 and 2014, $5,277 and $6,319, respectively, was included in base management and incentive fees payable in the accompanying Consolidated Statements of Assets and Liabilities.
On April 3, 2013, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.
Administration Agreement
On April 3, 2013, the Company’s Board of Directors approved an administration agreement (the “Administration Agreement”) between the Company and the Administrator. Pursuant to the Administration Agreement, the Administrator provides services and receives reimbursements equal to an amount that reimburses the Administrator for its costs and expenses and the Company’s allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Chief Financial Officer) and respective staff who provide services
 
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to the Company, operations staff who provide services to the Company, and any internal audit staff, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley Act internal control assessment. Reimbursement under the Administration Agreement occurs quarterly in arrears.
The initial term of the Administration Agreement is two years from April 3, 2013 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the continuance of the Administration Agreement for a one year period. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.
For the years ended December 31, 2015, 2014 and 2013, GMS Finance incurred $595, $626 and $650, respectively, in fees under the Administrative Agreement, which were included in administrative service fees in the accompanying Consolidated Statements of Operations. As of December 31, 2015 and 2014, $97 and $91, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities
Sub-Administration Agreements
On April 3, 2013, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP. Pursuant to the agreements, Carlyle Employee Co. and CELF Advisors LLP provide the Administrator with access to personnel.
On April 3, 2013, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (as amended, the “Sub-Administration Agreement”). On March 11, 2015, the Company’s Board of Directors, including a majority of the Independent Directors, approved an amendment to the Sub-Administration Agreement. The initial term of the Sub-Administration Agreement ends on April 1, 2017 and, unless terminated earlier, the Sub-Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. The Sub-Administration Agreement may be terminated upon at least 60 days’ written notice and without penalty by the vote of a majority of the outstanding securities of the Company, or by the vote of the Board of Directors or by either party to the Sub-Administration Agreement.
For the years ended December 31, 2015, 2014 and 2013, fees incurred in connection with the Sub-Administration Agreement, which amounted to $486, $222 and $50, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of December 31, 2015 and 2014, $138 and $80, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.
Placement Fees
On April 3, 2013, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser, which may require stockholders to pay a placement fee to TCG for TCG’s services.
For the years ended December 31, 2015, 2014 and 2013, TCG earned placement fees of $6, $1 and $0, respectively, from GMS Finance stockholders in connection with the issuance or sale of the Company’s common stock.
 
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Board of Directors
GMS Finance’s Board of Directors currently consists of seven members, four of whom are Independent Directors. On April 3, 2013, the Board of Directors also established an Audit Committee consisting of its Independent Directors, and may establish additional committees in the future. For the years ended December 31, 2015, 2014 and 2013, GMS Finance incurred $419, $395 and $322, respectively, in fees and expenses associated with its Independent Directors and Audit Committee. As of December 31, 2015 and 2014, $0 and $5, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities. As of December 31, 2015 and 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.
5. BORROWINGS
In accordance with the Investment Company Act, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of December 31, 2015 and 2014, asset coverage was 212.70% and 209.67%, respectively. During the years ended December 31, 2015, 2014 and 2013, there were secured borrowings of $402,200, $420,023 and $66,822, respectively, under the Revolving Credit Facility and Facility and repayments of $476,328, $178,404 and $0, respectively, under the Revolving Credit Facility and Facility. As of December 31, 2015 and 2014, there were $234,313 and $308,441, respectively, in secured borrowings outstanding.
Revolving Credit Facility
The Borrower Sub closed on May 24, 2013 on the Revolving Credit Facility, which was subsequently amended on June 30, 2014 (the “First Amendment”) and further amended on June 19, 2015. Advances under the Revolving Credit Facility first became available once the Borrower Sub held at least $30,000 of minimum equity in its assets. The Revolving Credit Facility provides for secured borrowings during the applicable revolving period up to an amount equal to the lesser of $400,000, the borrowing base as calculated pursuant to the terms of the Revolving Credit Facility, and the amount of net cash proceeds and unpledged capital commitments the Company has received with an accordion feature that can, subject to certain conditions, increase the aggregate maximum credit commitment up to an amount not to exceed $750,000, subject to restrictions imposed on borrowings under the Investment Company Act and certain restrictions and conditions set forth in the Revolving Credit Facility, including adequate collateral to support such borrowings. The Revolving Credit Facility has a revolving period through May 24, 2018 and a maturity date of May 22, 2021. Borrowings under the Revolving Credit Facility bear interest initially at the applicable commercial paper rate (if the lender is a conduit lender) or LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 1.90% per year during the revolving period, with pre-determined future interest rate increases of 1.00%-1.85% over the three years following the end of the revolving period. The Borrower Sub is also required to pay an undrawn commitment fee of between 0.25% and 0.75% per year depending on the usage of the Revolving Credit Facility. Payments under the Revolving Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the Borrower Sub.
As part of the Revolving Credit Facility, the Borrower Sub is subject to limitations as to how borrowed funds may be used and the types of loans that are eligible to be acquired by the Borrower Sub including, but not limited to, restrictions on sector and geographic concentrations, loan size, payment frequency, tenor and minimum investment ratings (or estimated ratings). In addition, borrowed funds are intended to be used primarily to purchase first lien loan assets, and the Borrower Sub is limited in its ability to purchase certain other assets (including, but not limited to, second lien loans, covenant-lite loans, revolving and delayed draw loans and discount loans) and other assets are not permitted to be purchased (including, but not limited to paid-in-kind loans and structured finance obligations). The Revolving Credit Facility has certain requirements relating to interest coverage, collateral quality and portfolio performance, including limitations on delinquencies and charge offs, certain violations of which could result in the acceleration of the amounts due under the Revolving Credit
 
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Facility. The Revolving Credit Facility is also subject to a borrowing base that applies different advance rates to assets held by the Borrower Sub based generally on the fair market value of such assets. Under certain circumstances as set forth in the Revolving Credit Facility, the Company could be obliged to repurchase loans from the Borrower Sub.
Related to the First Amendment, which reduced the maximum commitments under the Revolving Credit Facility, $827 of deferred financing costs (representing the prorated financing costs related to the reduction in commitments) were immediately expensed on June 30, 2014 in lieu of continuing to amortize over the term of the Revolving Credit Facility.
As of December 31, 2015 and 2014, the Borrower Sub was in compliance with all covenants and other requirements of the Revolving Credit Facility.
Facility
The Company closed on March 21, 2014 on the Facility, which was subsequently amended on January 8, 2015. The maximum principal amount of the Facility is $150,000, subject to availability under the Facility, which is based on certain advance rates multiplied by the value of the Company’s portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that the Company may incur in accordance with the terms of the Facility. Proceeds of the Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Facility may be increased to $225,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Facility includes a $20,000 limit for swingline loans and a $5,000 limit for letters of credit. The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Facility, including amounts drawn in respect of letters of credit, will bear interest at either LIBOR plus an applicable spread of 2.25%, or an “alternative base rate” (which is the highest of a prime rate, the federal funds effective rate plus 0.50%, or one month LIBOR plus 1.00%) plus an applicable spread of 1.25%. The Company may elect either the LIBOR or the “alternative base rate” at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a fee of 0.375% on undrawn amounts under the Facility and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then-applicable margin under the Facility while the letter of credit is outstanding. The availability period under the Facility will terminate on March 21, 2018 and the Facility will mature on March 21, 2019. During the period from March 21, 2018 to March 21, 2019, the Company will be obligated to make mandatory prepayments under the Facility out of the proceeds of certain asset sales, other recovery events and equity and debt issuances.
Subject to certain exceptions, the Facility is secured by a first lien security interest in substantially all of the portfolio investments held by the Company and the Company’s unfunded investor equity capital commitments (provided that the amount of unfunded capital commitments ultimately available to the lenders is limited to $100,000). The pledge of unfunded investor equity capital commitments was subject to release once $100,000 of incremental capital had been called and received by the Company subsequent to January 8, 2015. Such capital call commitment had not been satisfied as of December 31, 2014. The pledge of unfunded investor equity capital commitments had been released as of December 31, 2015. The Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.
As of December 31, 2015 and 2014, the Company was in compliance with all covenants and other requirements of the Facility.
 
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Summary of Facilities
The facilities of the Company and the Borrower Sub consisted of the following as of December 31, 2015 and 2014:

 	  	December 31, 2015	 	
 	  	Total
Facility	 	  	Borrowings
Outstanding	 	  	Unused Portion (1)	 	  	Amount
Available  (2)	 	
Revolving Credit Facility	  	$	400,000	  	  	$	170,313	  	  	$	229,687	  	  	$	3,155	  	
Facility	  	 	150,000	  	  	 	64,000	  	  	 	86,000	  	  	 	86,000	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	550,000	  	  	$	234,313	  	  	$	315,687	  	  	$	89,155	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2014	 	
 	  	Total
Facility	 	  	Borrowings
Outstanding	 	  	Unused Portion (1)	 	  	Amount
Available  (2)	 	
Revolving Credit Facility	  	$	400,000	  	  	$	246,441	  	  	$	153,559	  	  	$	10,557	  	
Facility	  	 	150,000	  	  	 	62,000	  	  	 	88,000	  	  	 	58,623	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	550,000	  	  	$	308,441	  	  	$	241,559	  	  	$	69,180	  	

(1)	The unused portion is the amount upon which commitment fees are based.	
(2)	Available for borrowing based on the computation of collateral to support the borrowings.	
As of December 31, 2015 and 2014, $966 and $1,025, respectively, of interest expense, $141 and $139, respectively, of unused commitment fees and $22 and $28, respectively, of other fees were included in interest and credit facility fees payable. For the years ended December 31, 2015 and 2014, the average interest rate was 2.23% and 2.18%, respectively, and average principal debt outstanding was $265,277 and $164,980, respectively. For the period from August 8, 2013 (initial date the Company borrowed under the Revolving Credit Facility) through December 31, 2013, the average interest rate was 1.98% and average principal debt outstanding was $44,063. As of December 31, 2015, 2014 and 2013, the interest rate was 2.37%, 2.17% and 1.97%, respectively, based on floating LIBOR rates.
For the years ended December 31, 2015, 2014 and 2013, the components of interest expense and credit facility fees were as follows:

 	  	For the years ended December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Interest expense	  	$	9,582	  	  	$	3,648	  	  	$	353	  	
Facility unused commitment fee	  	 	847	  	  	 	1,129	  	  	 	602	  	
Amortization of deferred financing costs	  	 	945	  	  	 	1,820	  	  	 	513	  	
Other fees	  	 	106	  	  	 	103	  	  	 	49	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total interest expense and credit facility fees	  	$	11,480	  	  	$	6,700	  	  	$	1,517	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash paid for interest expense	  	$	8,083	  	  	$	2,882	  	  	$	94	  	
For the year ended December 31, 2014, $827 of the amortization of deferred financing costs represents the prorated financing costs that were immediately expensed in lieu of continuing to amortize over the term of the Revolving Credit Facility related to the First Amendment which reduced the maximum commitments under the Revolving Credit Facility.
6. 2015-1 Notes
On June 26, 2015, the Company completed the 2015-1 Debt Securitization. The 2015-1 Notes were issued by the 2015-1 Issuer, a wholly-owned and consolidated subsidiary of the Company, and are secured by a
 
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diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. The 2015-1 Debt Securitization was executed through a private placement of the 2015-1 Notes, consisting of $160 million of Aaa/AAA Class A-1A Notes which bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 1.85%; $40 million of Aaa/AAA Class A-1B Notes, which bear interest at the three-month LIBOR plus 1.75% for the first 24 months and the three-month LIBOR plus 2.05% thereafter; $27 million of Aaa/AAA Class A-1C Notes, which bear interest at 3.75%; and $46 million of Aa2 Class A-2 Notes, which bear interest at the three-month LIBOR plus 2.70%. The 2015-1 Notes were issued at par and are scheduled to mature on July 15, 2027. The Company received 100% of the preferred interests (the “Preferred Interests”) issued by the 2015-1 Issuer on the closing date of the 2015-1 Debt Securitization in exchange for the Company’s contribution to the Issuer of the initial closing date loan portfolio. The Preferred Interests do not bear interest and had a nominal value of $125.9 million at closing. In connection with the contribution, the Company made customary representations, warranties and covenants to the 2015-1 Issuer in the purchase agreement. The Class A-1A, Class A-1B and Class A-1C and Class A-2 Notes are included in the December 31, 2015 consolidated financial statements. The Preferred Interests were eliminated in consolidation.
On the closing date of the 2015-1 Debt Securitization, the 2015-1 Issuer effected a one-time distribution to the Company of a substantial portion of the proceeds of the private placement of the 2015-1 Notes, net of expenses, which distribution was used to repay a portion of the certain amounts outstanding under the Revolving Credit Facility and the Facility. As part of the 2015-1 Debt Securitization, certain first and second lien senior secured loans were distributed by the Borrower Sub to the Company pursuant to a distribution and contribution agreement. The Company contributed the loans that comprised the initial closing date loan portfolio (including the loans distributed to the Company from the Borrower Sub) to the 2015-1 Issuer pursuant to a contribution agreement. Future loans transfers from the Company to the 2015-1 Issuer will be made pursuant to a sale agreement and are subject to the approval of the Company’s Board of Directors. Assets of the 2015-1 Issuer are not available to the creditors of the Borrower Sub or the Company. In connection with the issuance and sale of the 2015-1 Notes, the Company made customary representations, warranties and covenants in the purchase agreement.
During the reinvestment period, pursuant to the indenture governing the 2015-1 Notes, all principal collections received on the underlying collateral may be used by the 2015-1 Issuer to purchase new collateral under the direction of Investment Adviser in its capacity as collateral manager of the 2015-1 Issuer and in accordance with the Company’s investment strategy.
The Investment Adviser serves as collateral manager to the 2015-1 Issuer under a collateral management agreement (the “Collateral Management Agreement”). Pursuant to the Collateral Management Agreement, the 2015-1 Issuer pays management fees (comprised of base management fees, subordinated management fees and incentive management fees) (“Management Fees”) to the Investment Adviser for rendering collateral management services. As per the Collateral Management Agreement, for the period the Company retains all of the Preferred Interests, the Investment Adviser does not earn Management Fees for providing such collateral management services. The Company currently retains all of the Preferred Interests, thus there were no management fees earned from the 2015-1 Issuer for the year ended December 31, 2015.
Pursuant to an undertaking by the Company in connection with the 2015-1 Debt Securitization, the Company agreed to hold on an ongoing basis Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remain outstanding. As of December 31, 2015, the Company was in compliance with its undertaking.
The 2015-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2015-1 Issuer.
 
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As of December 31, 2015, there were 57 first lien and second lien senior secured loans with a total fair value of approximately $384,272 securing the 2015-1 Notes. The pool of loans in the securitization must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements as per the offering document of the 2015-1 Issuer.
For the year ended December 31, 2015, the effective annualized weighted average interest rate, which includes amortization of debt issuance costs on the 2015-1 Notes, was 2.45% based on floating LIBOR rates.
For the years ended December 31, 2015, 2014 and 2013, the components of interest expense on the 2015-1 Notes were as follows:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Interest expense	  	$	3,468	  	  	$	—  	 	  	$	—  	 	
Amortization of deferred financing costs	  	 	106	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total interest expense and credit facility fees	  	$	3,574	  	  	$	—  	  	  	$	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash paid for interest expense	  	$	2,021	  	  	$	—  	  	  	$	—  	  	
7. COMMITMENTS AND CONTINGENCIES
A summary of significant contractual payment obligations was as follows as of December 31, 2015 and 2014:

 	  	Revolving Credit Facility and Facility	 	  	2015-1 Notes	 	
Payment Due by Period	  	December 31,
2015	 	  	December 31,
2014	 	  	December 31,
2015	 	  	December 31,
2014	 	
Less than 1 Year	  	$	—  	 	  	$	—  	 	  	$	—  	 	  	$	—  	 	
1-3 Years	  	 	—  	 	  	 	—  	 	  	 	—  	 	  	 	—  	 	
3-5 Years	  	 	64,000	  	  	 	62,000	  	  	 	—  	 	  	 	—  	  	
More than 5 Years	  	 	170,313	  	  	 	246,441	  	  	 	273,000	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	234,313	  	  	$	308,441	  	  	$	273,000	  	  	$	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of December 31, 2015 and 2014 for any such exposure.
As of December 31, 2015 and 2014, the Company had $1,174,340 and $1,129,522, respectively, in total capital commitments from stockholders, of which $559,214 and $776,750, respectively, was unfunded. As of December 31, 2015 and 2014, certain current directors had committed $1,541 and $1,500, respectively, in capital commitments to the Company.
The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:

 	  	Par Value as of	 	
 	  	December 31, 2015	 	  	December 31, 2014	 	
Unfunded delayed draw commitments	  	$	20,695	  	  	$	9,500	  	
Unfunded revolving term loan commitments	  	 	3,906	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	
Total unfunded commitments	  	$	24,601	  	  	$	9,500	  	

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8. NET ASSETS
The Company has the authority to issue 200,000,000 shares of common stock, $0.01 per share par value.
During the year ended December 31, 2015, the Company issued 13,591,386 shares for $262,485 including reinvestment of dividends. The following table summarizes capital activity during the year ended December 31, 2015:

 	 	Common Stock	 	 	Capital
in Excess
of Par
Value	 	 	Offering
Costs	 	 	Accumulated
Net Investment
Income (Loss)	 	 	Accumulated
Net Realized
Gain (Loss)
on Investments	 	 	Accumulated Net
Unrealized
Appreciation
(Depreciation) on
Investments	 	 	Total
Net
Assets	 	 	
 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, beginning of year	 	 	17,932,697	  	 	$	179	  	 	$	351,636	  	 	$	(74	)	 	$	(4,388	) 	 	$	(57	)	 	$	(9,039	) 	 	$	338,257	  	 	 	 	 	
Common stock issued	 	 	13,584,508	  	 	 	136	  	 	 	262,218	  	 	 	—  	  	 	 	—  	  	 	 	—  	 	 	 	—  	 	 	 	262,354	  	 	 	 	 	
Reinvestment of dividends	 	 	6,878	  	 	 	—  	  	 	 	131	  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	131	  	 	 	 	 	
Net investment income (loss)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	35,524	  	 	 	—  	 	 	 	—  	 	 	 	35,524	  	 	 	 	 	
Net realized gain (loss) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	 	1,164	  	 	 	—  	 	 	 	1,164	  	 	 	 	 	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	 	—  	  	 	 	—  	 	 	 	(18,015	) 	 	 	(18,015	) 	 	 	 	 	
Dividends declared	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	 	—  	 	 	 	(47,689	) 	 	 	—  	 	 	 	—  	 	 	 	(47,689	) 	 	 	 	 	
Tax reclassification of stockholders’ equity in accordance with US GAAP	 	 	—  	 	 	 	—  	 	 	 	(41	)	 	 	—  	 	 	 	3,559	 	 	 	(3,518	)	 	 	—  	 	 	 	—  	  	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, end of year	 	 	31,524,083	  	 	$	315	  	 	$	613,944	  	 	$	(74	)	 	$	(12,994	) 	 	$	(2,411	) 	 	$	(27,054	) 	 	$	571,726	  	 	 	 	 	

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During the year ended December 31, 2014, the Company issued 8,356,707 shares for $164,803 including reinvestment of dividends. The following table summarizes capital activity during the year ended December 31, 2014:

 	 	Common Stock	 	 	Capital
in Excess
of Par
Value	 	 	Offering
Costs	 	 	Accumulated
Net Investment
Income (Loss)	 	 	Accumulated
Net Realized
Gain (Loss)
on Investments	 	 	Accumulated Net
Unrealized
Appreciation
(Depreciation) on
Investments	 	 	Total
Net
Assets	 	 	
 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, beginning of year	 	 	9,575,990	  	 	$	96	  	 	$	186,965	  	 	$	(74	)	 	$	(664	) 	 	$	—  	 	 	$	(321	)	 	$	186,002	  	 	 	 	 	
Common stock issued	 	 	8,354,987	  	 	 	83	  	 	 	164,686	  	 	 	—  	  	 	 	—  	  	 	 	—  	 	 	 	—  	 	 	 	164,769	  	 	 	 	 	
Reinvestment of dividends	 	 	1,720	  	 	 	—  	 	 	 	34	  	 	 	—  	  	 	 	—  	  	 	 	—  	 	 	 	—  	 	 	 	34	  	 	 	 	 	
Net investment income (loss)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	 	14,260	  	 	 	—  	 	 	 	—  	 	 	 	14,260	  	 	 	 	 	
Net realized gain (loss) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	72	  	 	 	—  	 	 	 	72	  	 	 	 	 	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(8,718	) 	 	 	(8,718	) 	 	 	 	 	
Dividends declared	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	  	 	 	(18,162	) 	 	 	—  	 	 	 	—  	 	 	 	(18,162	) 	 	 	 	 	
Tax reclassification of stockholders’ equity in accordance with US GAAP	 	 	—  	 	 	 	—  	 	 	 	(49	) 	 	 	—  	 	 	 	178	  	 	 	(129	)	 	 	—  	 	 	 	—  	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, end of year	 	 	17,932,697	  	 	$	179	  	 	$	351,636	  	 	$	(74	)	 	$	(4,388	) 	 	$	(57	)	 	$	(9,039	) 	 	$	338,257	  	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
During the year ended December 31, 2013, the Company issued 9,575,890 shares for $188,001. The following table summarizes capital activity during the year ended December 31, 2013:

 	 	Common Stock	 	 	Capital
in Excess
of Par
Value	 	 	Offering
Costs	 	 	Accumulated
Net Investment
Income (Loss)	 	 	Accumulated
Net Realized
Gain (Loss)
on Investments	 	 	Accumulated Net
Unrealized
Appreciation
(Depreciation) on
Investments	 	 	Total
Net
Assets	 	 	
 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, beginning of year	 	 	100	  	 	$	—  	 	 	$	2	  	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	—  	 	 	$	2	  	 	 	 	 	
Common stock issued	 	 	9,575,890	  	 	 	96	  	 	 	187,905	  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	188,001	  	 	 	 	 	
Offering costs	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(74	) 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(74	) 	 	 	 	 	
Net investment income (loss)	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(1,669	) 	 	 	—  	 	 	 	—  	 	 	 	(1,669	) 	 	 	 	 	
Net realized gain (loss) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	63	  	 	 	—  	 	 	 	63	  	 	 	 	 	
Net change in unrealized appreciation (depreciation) on investments—non-controlled/ non-affiliated	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(321	) 	 	 	(321	) 	 	 	 	 	
Tax reclassification of stockholders’ equity in accordance with US GAAP	 	 	—  	 	 	 	—  	 	 	 	(942	) 	 	 	—  	 	 	 	1,005	  	 	 	(63	) 	 	 	—  	 	 	 	—  	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, end of year	 	 	9,575,990	  	 	$	96	  	 	$	186,965	  	 	$	(74	) 	 	$	(664	) 	 	$	—  	 	 	$	(321	) 	 	$	186,002	  	 	 	 	 	

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The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock and reinvestment of dividends during the year ended December 31, 2015:

 	  	Shares Issued	 	  	Proceeds Received	 	
January 16, 2015	  	 	924,977	  	  	$	18,000	  	
January 26, 2015**	  	 	1,051	  	  	 	20	  	
February 26, 2015	  	 	2,312,659	  	  	 	45,005	  	
April 21, 2015**	  	 	1,351	  	  	 	25	  	
May 1, 2015	  	 	1,462,746	  	  	 	28,085	  	
May 22, 2015	  	 	1,708,068	  	  	 	33,000	  	
June 25, 2015	  	 	2,412,386	  	  	 	46,992	  	
July 22, 2015**	  	 	2,018	  	  	 	38	  	
August 21, 2015	  	 	1,032,504	  	  	 	20,002	  	
September 30, 2015	  	 	104,954	  	  	 	2,009	  	
October 9, 2015	  	 	1,255,914	  	  	 	24,038	  	
October 22,2015**	  	 	2,458	  	  	 	47	  	
December 21, 2015	  	 	2,370,300	  	  	 	45,224	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	13,591,386	  	  	$	262,485	  	
 	  	 	 	 	  	 	 	 	
** Represents shares issued upon the reinvestment of dividends
The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock and reinvestment of dividends during the year ended December 31, 2014:

 	  	Shares Issued	 	  	Proceeds Received	 	
January 27, 2014	  	 	1,020,810	  	  	$	19,998	  	
February 21, 2014	  	 	491,849	  	  	 	9,689	  	
March 21, 2014	  	 	1,802,772	  	  	 	35,785	  	
April 14, 2014**	  	 	148	  	  	 	3	  	
July 14, 2014**	  	 	586	  	  	 	12	  	
September 17, 2014	  	 	643,060	  	  	 	12,790	  	
October 9, 2014**	  	 	986	  	  	 	19	  	
October 16, 2014	  	 	1,134,723	  	  	 	22,502	  	
November 3, 2014	  	 	1,008,570	  	  	 	20,000	  	
December 9, 2014	  	 	2,253,203	  	  	 	44,005	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	8,356,707	  	  	$	164,803	  	
 	  	 	 	 	  	 	 	 	
** Represents shares issued upon the reinvestment of dividends
The following table summarizes total shares issued and proceeds received related to capital drawdowns delivered pursuant to subscriptions for the Company’s common stock during the year ended December 31, 2013:

 	  	Shares Issued	 	  	Proceeds Received	 	
June 5, 2013	  	 	555,352	  	  	$	11,107	  	
June 10, 2013	  	 	371,918	  	  	 	7,438	  	
June 25, 2013	  	 	1,100,000	  	  	 	22,000	  	
July 31, 2013	  	 	750,000	  	  	 	15,000	  	
August 22, 2013	  	 	2,569,373	  	  	 	50,000	  	
September 23, 2013	  	 	1,130,526	  	  	 	22,000	  	
November 4, 2013	  	 	899,155	  	  	 	17,498	  	
November 26, 2013	  	 	2,199,566	  	  	 	42,958	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	9,575,890	  	  	$	188,001	  	

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Subscribed but unissued shares are presented in equity with a deduction of subscriptions receivable until cash is received for a subscription. There were no subscribed but unissued shares as of December 31, 2015, 2014 and 2013.
Subscription transactions during the years ended December 31, 2015, 2014 and 2013 were executed at an offering price at a premium to net asset value due to the requirement to use prior quarter net asset value as offering price unless it would result in the Company selling shares of its common stock at a price below the current net asset value and also in order to effect a reallocation of organizational costs to subsequent investors. Such subscription transactions increased net asset value by $0.11 per share, $0.09 per share, and $0.32 per share, respectively, for the years ended December 31, 2015, 2014 and 2013, respectively.
The Company computes earnings per common share in accordance with ASC 260, Earnings Per Share. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the year.
Basic and diluted earnings per common share were as follows:

 	  	For the years ended December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Net increase (decrease) in net assets resulting from operations	  	$	18,673	  	  	$	5,614	  	  	$	(1,927	) 	
Weighted-average common shares outstanding	  	 	24,830,200	  	  	 	13,091,544	  	  	 	3,016,298	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Basic and diluted earnings per common share	  	$	0.75	  	  	$	0.43	  	  	$	(0.64	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
The following table summarizes the Company’s dividends declared and payable since inception through the year ended December 31, 2015:

Date Declared	  	Record Date	  	Payment Date	  	Per Share
Amount	 	 	Total
Amount	 	
March 13, 2014	  	March 31, 2014	  	April 14, 2014	  	$	0.19	  	 	$	2,449	  	
June 26, 2014	  	June 30, 2014	  	July 14, 2014	  	$	0.27	  	 	$	3,481	  	
September 12, 2014	  	September 18, 2014	  	October 9, 2014	  	$	0.44	  	 	$	5,956	  	
December 19, 2014	  	December 29, 2014	  	January 26, 2015	  	$	0.35	  	 	$	6,276	  	
March 11, 2015	  	March 13, 2015	  	April 17, 2015	  	$	0.37	  	 	$	7,833	  	
June 24, 2015	  	June 30, 2015	  	July 22, 2015	  	$	0.37	  	 	$	9,902	  	
September 24, 2015	  	September 24, 2015	  	October 22, 2015	  	$	0.42	  	 	$	11,670	  	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.40	  	 	$	12,610	  	
December 29, 2015	  	December 29, 2015	  	January 22, 2016	  	$	0.18	(1) 	 	$	5,674	  	
 
(1)	Represents a special dividend.	
During the year ended December 31, 2013, no dividends or distributions had been declared or paid by the Company.
 
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9. CONSOLIDATED FINANCIAL HIGHLIGHTS
The following is a schedule of consolidated financial highlights for the years ended December 31, 2015, 2014 and 2013:
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	For the years ended December 31,	 	
 	  	2015	 	 	2014	 	 	2013	 	
Per Share Data:	  	 	 	 	 	 	 	 	 	 	 	 	
Net asset value per share, beginning of year	  	$	18.86	  	 	$	19.42	  	 	$	20.00	  	
Net investment income (loss) (1)	  	 	1.43	  	 	 	1.09	  	 	 	(0.55	) 	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	 	(0.52	) 	 	 	(0.49	) 	 	 	(0.34	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in net assets resulting from operations	  	 	0.91	  	 	 	0.60	  	 	 	(0.89	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Dividends declared (2)	  	 	(1.74	) 	 	 	(1.25	) 	 	 	—  	 	
Effect of subscription offering price (3)	  	 	0.11	  	 	 	0.09	  	 	 	0.32	  	
Offering costs	  	 	—  	 	 	 	—  	 	 	 	(0.01	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net asset value per share, end of year	  	$	18.14	  	 	$	18.86	  	 	$	19.42	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Number of shares outstanding, end of year	  	 	31,524,083	  	 	 	17,932,697	  	 	 	9,575,990	  	
Total return (4)	  	 	5.41	% 	 	 	3.55	% 	 	 	(2.90	)% 	
Net assets, end of year	  	$	571,726	  	 	$	338,257	  	 	$	186,002	  	
Ratio to average net assets (5):	  	 	 	 	 	 	 	 	 	 	 	 	
Expenses net of waiver, before incentive fees	  	 	5.11	% 	 	 	5.78	% 	 	 	9.75	% 	
Expenses net of waiver, after incentive fees	  	 	6.94	% 	 	 	7.15	% 	 	 	9.75	% 	
Expenses gross of waiver, after incentive fees	  	 	7.86	% 	 	 	7.98	% 	 	 	10.21	% 	
Net investment income (loss) (6)	  	 	7.33	% 	 	 	5.45	% 	 	 	(2.45	)% 	
Interest expense and credit facility fees	  	 	2.37	% 	 	 	2.56	% 	 	 	2.23	% 	
Ratios/Supplemental Data:	  	 	 	 	 	 	 	 	 	 	 	 	
Asset coverage	  	 	212.70	% 	 	 	209.67	% 	 	 	378.35	% 	
Portfolio turnover	  	 	26.04	% 	 	 	28.06	% 	 	 	6.43	% 	
Total committed capital, end of year	  	$	1,174,340	  	 	$	1,129,522	  	 	$	877,408	  	
Ratio of total contributed capital to total committed capital, end of year	  	 	52.38	% 	 	 	31.23	% 	 	 	21.43	% 	
Weighted-average shares outstanding	  	 	24,830,200	  	 	 	13,091,544	  	 	 	3,016,298	  	
 
(1)	For the years ended December 31, 2015 and 2014, net investment income (loss) per share was calculated as net investment income (loss) for the year divided by the weighted-average number of shares outstanding for the year. For the year ended December 31, 2013, net investment income (loss) per share was calculated as net investment income (loss) for the period divided by the weighted average number of shares outstanding for the period June 5, 2013 (date of issuance of shares related to the first capital drawdown) through December 31, 2013.	
(2)	For the years ended December 31, 2015 and 2014, dividends declared per share was calculated as the sum of dividends declared during the year divided by the number of shares outstanding at each respective quarter-end date (refer to Note 8).	
(3)	Increase is due to offering price of subscriptions during the year (refer to Note 8).	
(4)	Total return is based on the change in net asset value per share during the year plus the declared dividends, assuming reinvestment of dividends in accordance with the dividend reinvestment plan, divided by the beginning net asset value for the year. Total return based on change in net asset value for the year ended December 31, 2013 was calculated for the period from commencement of operations through December 31, 2013. Total return for the years ended December 31, 2015, 2014 and 2013 was inclusive of $0.11, $0.09, and $0.32, respectively, per share increase in net asset value related to the offering price of subscriptions. Excluding the effects of the higher offering price of subscriptions, total return would have been 4.83%, 3.09%, and (4.50%), respectively (refer to Note 8).	
 
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(5)	The Company commenced operations on May 2, 2013; therefore, ratios to average net assets and portfolio turnover for the year ended December 31, 2013 may have been different had there been a full year of operations.	
(6)	The net investment income ratio is net of the waiver of base management fees.	
10. LITIGATION
The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of December 31, 2015 and 2014, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.
In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.
11. TAX
The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income Taxes , as of December 31, 2015 and 2014.
In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2015 and 2014, the Company had filed tax returns and therefore is subject to examination.
Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from US GAAP. As of December 31, 2015 and 2014, permanent differences primarily due to net operating loss, the tax treatment of passive foreign investment companies and non-deductible excise tax resulted in a net decrease in accumulated net investment loss by $3,559 and $178, respectively, net decrease in accumulated net realized gain by $3,518 and $129, respectively, and net decrease in additional paid-in capital in excess of par by $41 and $49, respectively, on the Consolidated Statements of Assets and Liabilities. Total earnings and net asset value were not affected.
The tax character of the distributions paid for the fiscal years ended December 31, 2015, 2014 and 2013 was as follows:

 	  	For the years ended
December 31,	 	
 	  	2015	 	  	2014	 	  	2013	 	
Ordinary income	  	$	47,689	 	  	$	18,162	 	  	$	—  	 	
Tax return of capital	  	$	—  	 	  	$	—  	 	  	$	—  	 	
 
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Income Tax Information and Distributions to Stockholders
As of December 31, 2015 and 2014, the components of accumulated earnings (deficit) on a tax basis were as follows:

 	  	2015	 	  	2014	 	
Undistributed ordinary income	  	$	2,691	  	  	$	1,547	  	
Other book/tax temporary differences (1)	  	 	(2,012	) 	  	 	(2,009	) 	
Capital loss carryforwards	  	 	(2,411	) 	  	 	(56	) 	
Net unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated  (2)	  	 	(40,727	) 	  	 	(12,965	) 	
 	  	 	 	 	  	 	 	 	
Total accumulated earnings (deficit)	  	$	(42,459	) 	  	$	(13,483	) 	

(1)	Consists of the unamortized portion of organization costs as of December 31, 2015 and 2014, respectively. Also, consists of the unamortized portion of the prorated financing costs that were immediately expensed in lieu of continuing to amortize over the term of the Revolving Credit Facility related to the amendment that reduced commitments in the Revolving Credit Facility as of December 31, 2014.	
(2)	The difference between the book-basis and tax-basis unrealized appreciation (depreciation) on investments is attributable primarily to the tax treatment of passive foreign investment companies, which include the structured finance obligations. Also, consists of book to tax difference on interest income on CLO equity investments recognized using the effective yield method for financial statement purposes.	
As of December 31, 2015 and 2014, the cost of investments for federal income tax purposes and gross unrealized appreciation and depreciation on investments were as follows:

 	  	2015	 	  	2014	 	
Cost of investments—non-controlled/non-affiliated	  	$	1,093,393	  	  	$	711,628	  	
Gross unrealized appreciation on investments—non-controlled/non-affiliated	  	 	5,911	  	  	 	2,752	  	
Gross unrealized depreciation on investments—non-controlled/non-affiliated	  	 	(46,638	) 	  	 	(15,717	) 	
 	  	 	 	 	  	 	 	 	
Net unrealized appreciation (depreciation) on investments—non-controlled/non-affiliated	  	$	(40,727	) 	  	$	(12,965	) 	
 	  	 	 	 	  	 	 	 	
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “RIC Modernization Act”) was enacted which changed various technical rules governing the tax treatment of RICs. The changes are generally effective for taxable years beginning after the date of enactment. Under the RIC Modernization Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term losses rather than being considered all short-term as under previous law. As of December 31, 2015 and 2014, the Company did not have any pre-enactment capital loss carryforwards, and had $2,411 and $56, respectively, of post enactment short-term capital loss carryforwards.
 
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12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 	  	2015	 	
 	  	Q4	 	 	Q3	 	 	Q2	 	  	Q1	 	
Total investment income	  	$	20,685	  	 	$	19,601	  	 	$	15,925	  	  	$	12,979	  	
Net expenses	  	 	9,920	  	 	 	9,267	  	 	 	7,980	  	  	 	6,499	  	
Net investment income (loss)	  	 	10,765	  	 	 	10,334	  	 	 	7,945	  	  	 	6,480	  	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	 	(20,748	) 	 	 	(681	) 	 	 	1,270	  	  	 	3,308	  	
Net increase (decrease) in net assets resulting from operations	  	 	(9,983	) 	 	 	9,653	  	 	 	9,215	  	  	 	9,788	  	
Net asset value per share	  	 	18.14	  	 	 	19.02	  	 	 	19.09	  	  	 	19.05	  	
Basic and diluted earnings per common share	  	$	(0.34	) 	 	$	0.35	  	 	$	0.40	  	  	$	0.50	  	

 	  	2014	 	
 	  	Q4	 	 	Q3	 	 	Q2	 	  	Q1	 	
Total investment income	  	$	5,885	  	 	$	10,522	  	 	$	9,944	  	  	$	6,633	  	
Net expenses	  	 	4,906	  	 	 	4,816	  	 	 	5,408	  	  	 	3,594	  	
Net investment income (loss)	  	 	979	  	 	 	5,706	  	 	 	4,536	  	  	 	3,039	  	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	 	(4,910	) 	 	 	(4,769	) 	 	 	56	  	  	 	977	  	
Net increase (decrease) in net assets resulting from operations	  	 	(3,931	) 	 	 	937	  	 	 	4,592	  	  	 	4,016	  	
Net asset value per share	  	 	18.86	  	 	 	19.35	  	 	 	19.71	  	  	 	19.63	  	
Basic and diluted earnings per common share	  	$	(0.25	) 	 	$	0.07	  	 	$	0.36	  	  	$	0.37	  	

 	  	2013	 	
 	  	Q4	 	  	Q3	 	 	Q2	 	 	Q1	 	
Total investment income	  	$	3,804	  	  	$	1,145	  	 	$	20	  	 	$	—  	  	
Net expenses	  	 	2,092	  	  	 	1,951	  	 	 	2,595	  	 	 	—  	  	
Net investment income (loss)	  	 	1,712	  	  	 	(806	) 	 	 	(2,575	) 	 	 	—  	  	
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	  	 	43	  	  	 	(365	) 	 	 	64	  	 	 	—  	  	
Net increase (decrease) in net assets resulting from operations	  	 	1,755	  	  	 	(1,171	) 	 	 	(2,511	) 	 	 	—  	  	
Net asset value per share	  	 	19.42	  	  	 	19.11	  	 	 	18.72	  	 	 	—  	  	
Basic and diluted earnings per common share	  	$	0.22	  	  	$	(0.29	) 	 	$	(7.92	) 	 	$	—  	  	
13. SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.
On February 26, 2016, the Company issued a capital call and delivered capital drawdown notices totaling $33,000. Proceeds from the capital call were due and the related issuance of 1,815,181 shares occurred on March 11, 2016.
Subsequent to December 31, 2015, the Company borrowed $72,000 under the Facility to fund investment acquisitions. The Company also voluntarily repaid $42,000 under the Facility.
On March 10, 2016, the Company’s Board of Directors, including a majority of the Independent Directors, approved the renewal of the Company’s Investment Advisory Agreement with the Adviser and the Company’s Administration Agreement with the Administrator, each for an additional one year term.
On March 10, 2016, the Company’s Board of Directors declared a dividend of $0.40 per share, which is payable on or about April 22, 2016 to holders of record of the Company’s common stock at the close of business on March 14, 2016.
 
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On February 29, 2016, the Company and Credit Partners USA LLC (“Credit Partners”) entered into a Limited Liability Company agreement to co-manage Middle Market Credit Fund, LLC (“Credit Fund”). Credit Fund will primarily invest in first lien loans of middle-market companies. Credit Fund is managed by a six-member board of managers, on which the Company and Credit Partners each have equal representation. The Company and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $400 million each.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President (Principal Executive Officer) and our Chief Financial Officer and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our President and our Chief Financial Officer and Treasurer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Exchange Act.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control over financial reporting is a process designed under the supervision of its President (Principal Executive Officer) and Chief Financial Officer and Treasurer (Principal Financial Officer) and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the Company’s assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 based on the framework established in  Internal Control—Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting as of December 31, 2015 was effective.
 
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This annual report does not include an attestation report of the Company’s registered public accounting firm due to an exemption for emerging growth companies under the JOBS Act.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
 
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information in response to this item is incorporated by reference from our Proxy Statement relating to our 2016 annual meeting of stockholders. The Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A under the Exchange Act.
We have adopted a Code of Ethics for Principal Executive and Senior Financial Officers under the Sarbanes-Oxley Act of 2002 (the “SOX Code of Ethics”), which applies to, among others, our principal executive officer and principal financial officer. There have been no material changes to our SOX Code of Ethics or material waivers of the code that apply to our Chief Executive Officer or Chief Financial Officer. We hereby undertake to provide a copy of this code to any person, without charge, upon request. Requests for a copy of this code may be made in writing addressed to the Secretary of the Company, Matthew Cottrell, Carlyle GMS Finance, Inc., 520 Madison Avenue, 38th Floor, New York, NY.
Item 11. Executive Compensation
Information in response to this item is incorporated by reference from our Proxy Statement relating to our 2016 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information in response to this item is incorporated by reference from our Proxy Statement relating to our 2016 annual meeting of stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this item is incorporated by reference from our Proxy Statement relating to our 2016 annual meeting of stockholders.
Item 14. Principal Accountant Fees and Services
Information in response to this item is incorporated by reference from our Proxy Statement relating to our 2016 annual meeting of stockholders.
 
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this annual report:
(1) Financial Statements—Refer to Part II, Item 8 of this Form 10-K, which are incorporated herein by reference:

Report of Independent Registered Public Accounting Firm	  	 	77	  	
 	 	
Consolidated Statements of Assets and Liabilities as of December 31, 2015 and 2014	  	 	78	  	
 	 	
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013	  	 	79	  	
 	 	
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2015, 2014 and 2013	  	 	80	  	
 	 	
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013	  	 	81	  	
 	 	
Consolidated Schedules of Investments as of December 31, 2015 and 2014	  	 	82	  	
 	 	
Notes to Consolidated Financial Statements	  	 	95	  	
(2) Financial Statement Schedules required to be filed by Part II, Item 8 of this Form 10-K—None are required and therefore all financial statement schedules have been omitted.
(3) Exhibits

3.1	 	Articles of Amendment and Restatement (1)	
 	 	
3.2	 	Amended and Restated Bylaws (1)	
 	 	
4.1	 	Form of Subscription Agreement (1)	
 	 	
10.1	 	Advisory Agreement (1)	
 	 	
10.2	 	Administration Agreement (1)	
 	 	
10.3	 	Form of Indemnification Agreement (1)	
 	 	
10.4	 	Loan and Servicing Agreement (2)	
 	 	
10.5	 	Senior Secured Revolving Credit Agreement, dated as of March 21, 2014 (4)	
 	 	
10.6	 	First Amendment, dated as of June 30, 2014, to the Loan and Servicing Agreement, dated as of May 24, 2013 (5)	
 	 	
10.7	 	First Amendment, dated as of January 8, 2015, to the Senior Secured Revolving Credit Agreement, dated as of March 21, 2014  (6)	
 	 	
10.8	 	Second Amendment, dated as of June 19, 2015, to the Loan and Servicing Agreement, dated as of May 24, 2013 (7)	
 	 	
10.9	 	Indenture, dated as of June 26, 2015, between Carlyle GMS Finance MM CLO 2015-1 LLC, as issuer, and State Street Bank and Trust Company, as trustee  (7)	
 	 	
10.10	 	Collateral Management Agreement, dated as of June 26, 2015, by and between Carlyle GMS Finance MM CLO 2015-1 LLC, as issuer, and Carlyle GMS Investment Management L.L.C., as collateral manager  (7)	
 	 	
10.11	 	Contribution Agreement, dated as of June 26, 2015, by and between Carlyle GMS Finance, Inc., as the contributor, and Carlyle GMS Finance MM CLO 2015-1 LLC, as the contributee  (7)	
 	 	
21.1	 	List of Subsidiaries (3)	
 
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31.1	 	Certification of President (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*	
 	 	
31.2	 	Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*	
 	 	
32.1	 	Certification of President (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*	
 	 	
32.2	 	Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*	
 
(1)	Incorporated by reference to Form 10-12G/A filed by GMS Finance on April 11, 2013 (File No. 000-54899)	
(2)	Incorporated by reference to Form 10-Q filed by GMS Finance on July 31, 2013 (File No. 814-00995)	
(3)	Incorporated by reference to Form 10-12G filed by GMS Finance on February 11, 2013 (File No. 000-54899)	
(4)	Incorporated by reference to Form 10-Q filed by GMS Finance on May 9, 2014 (File No. 814-00995)	
(5)	Incorporated by reference to Form 10-Q filed by GMS Finance on August 13, 2014 (File No. 814-00995)	
(6)	Incorporated by reference to Form 10-K filed by GMS Finance on March 27, 2015 (File No. 814-00995)	
(7)	Incorporated by reference to Form 10-Q filed by GMS Finance on August 12, 2015 (File No. 814-00995)	
*	Filed herewith	
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	 	 	CARLYLE GMS FINANCE, INC.	
 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Michael Hart	
 	 	 	 	 	 	Michael Hart	
 	 	 	 	 	 	Director and President (principal executive officer)	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Venugopal Rathi	
 	 	 	 	 	 	Venugopal Rathi	
 	 	 	 	 	 	Chief Financial Officer
(principal financial and accounting officer)	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Michael J. Petrick	
 	 	 	 	 	 	Michael J. Petrick	
 	 	 	 	 	 	Chairman of the Board of Directors	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Nigel D.T. Andrews	
 	 	 	 	 	 	Nigel D.T. Andrews	
 	 	 	 	 	 	Director	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ William P. Hendry	
 	 	 	 	 	 	William P. Hendry	
 	 	 	 	 	 	Director	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Eliot P.S. Merrill	
 	 	 	 	 	 	Eliot P.S. Merrill	
 	 	 	 	 	 	Director	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ John G. Nestor	
 	 	 	 	 	 	John G. Nestor	
 	 	 	 	 	 	Director	

 	 	 	 	
Dated: March 11, 2016	 	 	 	By:	 	/s/ Michael L. Rankowitz	
 	 	 	 	 	 	Michael L. Rankowitz	
 	 	 	 	 	 	Director	
 
128

Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION
I, Michael Hart, certify that:
 
1.	I have reviewed this annual report on Form 10-K of Carlyle GMS Finance, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: March 11, 2016

 	
/s/ Michael Hart	
Michael Hart	
President
(Principal Executive Officer)	

Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATION
I, Venugopal Rathi, certify that:
 
1.	I have reviewed this annual report on Form 10-K of Carlyle GMS Finance, Inc.;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: March 11, 2016

 	
/s/ Venugopal Rathi	
Venugopal Rathi
Chief Financial Officer
(Principal Financial Officer)	

Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER, SECTION 906
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Hart, the President (Principal Executive Officer) of Carlyle GMS Finance, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	•	 	the Form 10-K of the Company for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and	
 
 	•	 	the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Dated: March 11, 2016	
 	
/s/ Michael Hart	
Michael Hart
President
(Principal Executive Officer)	
 
*	The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.	

Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER, SECTION 906
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Venugopal Rathi, the Chief Financial Officer (Principal Financial Officer) of Carlyle GMS Finance, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 	•	 	the Form 10-K of the Company for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and	
 
 	•	 	the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.	

Dated: March 11, 2016	
 	
/s/ Venugopal Rathi	
Venugopal Rathi
Chief Financial Officer
(Principal Financial Officer)	
 
*	The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.