The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. References to the "Company," "we", "us", "our", "GARS" and "Garrison Capital" refer to Garrison Capital Inc. and its consolidated subsidiaries.

Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this Quarterly Report on Form 10-Q involve risks and uncertainties, including statements as to:





  • our future operating results;




     •   changes in political, economic or industry conditions, the interest rate
         environment or conditions affecting the financial and capital markets,
         which could result in changes to the value of our assets;




     •   our business prospects and the prospects of our current and prospective
         portfolio companies;




  • the impact of investments that we may make;




  • the impact of increased competition;




  • our contractual arrangements and relationships with third parties;




     •   the dependence of our business on the general economy, including general
         economic trends, and its impact on the industries in which we invest;




  • the ability of our portfolio companies to achieve their objectives;




     •   the relative and absolute performance of Garrison Capital Advisers LLC,
         or our Investment Adviser, including in identifying suitable investments
         for us;




  • any future financings and investments;




  • the adequacy of our cash resources and working capital;




  • our ability to make distributions to our stockholders;




  • the effects of applicable legislation and regulations and changes thereto;




     •   the timing of cash flows, if any, from the operations of our prospective
         portfolio companies;




  • the impact of future acquisitions and divestitures;




     •   the impact of COVID-19 on the economy and capital markets and on the
         operations of us and our portfolio companies;




     •   the ability of the parties to consummate the Mergers (as defined below)
         on the expected timeline, or at all;




  • the ability to realize the anticipated benefits of the proposed Mergers;




  • the effects of disruption on our business from the proposed Mergers;




     •   the combined company's plans, expectations, objectives and intentions, as
         a result of the Mergers;




     •   the effect that the announcement or consummation of the Mergers may have
         on the trading price of our common stock or the common stock of Portman
         Ridge Finance Corporation , or PTMN; and




     •   any potential termination of the Merger Agreement (as defined below) or
         action of our stockholders or PTMN's stockholders with respect to any
         proposed transaction.




                                       52

--------------------------------------------------------------------------------

We use words such as "anticipate," "believe," "expect," "intend," "may," "might," "will," "should," "could," "can," "would," "believe," "estimate," "anticipate," "predict," "potential" and similar words to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth as "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. 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 in the future may file with the Securities and Exchange Commission, or the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

You should understand that, under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this Quarterly Report on Form 10-Q or any periodic reports we file under the Exchange Act.

Overview

We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, and intend to qualify annually for such treatment. Our shares are currently listed on The Nasdaq Global Select Market under the symbol "GARS".

Our investment objective is to generate current income and capital appreciation by assembling a broad portfolio of loans and debt securities of U.S. based companies. The companies to which we typically extend credit are moderately leveraged and have been rated below investment grade by national rating agencies. For companies that have not been rated, we believe that they would typically receive a rating below investment grade. In addition, our investments typically range in maturity from one to seven years. However, we may make investments in securities with any maturity or duration.

We invest opportunistically in loans and debt securities that we believe have attractive risk adjusted returns. We also, to a lesser extent, may make select minority equity investments (usually in conjunction with a concurrent debt investment) in non-investment grade companies.

Our investment activities are managed by our Investment Adviser. The investment committee of our Investment Adviser is comprised of Joseph Tansey, Allison Adornato, Terence Moore and Daniel Hahn. Our Investment Adviser is responsible for sourcing potential investments, conducting research and diligence on prospective investments and equity sponsors, analyzing investment opportunities, structuring our investments and monitoring our investments and portfolio companies on an ongoing basis. Under an investment advisory agreement with the Investment Advisor, or the Investment Advisory Agreement, we pay a management fee and an incentive fee to our Investment Adviser for its services.

Garrison Capital Administrator LLC, or the Administrator, provides certain administrative services and facilities necessary for us to operate, including office facilities and equipment and clerical, bookkeeping and record-keeping services, pursuant to the Administration Agreement. The Administrator oversees our financial reporting and prepares our reports to stockholders and reports required to be filed with the SEC. The Administrator also manages the determination and publication of our net asset value, the preparation and filing of our tax returns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others. The Administrator may retain third parties to assist in providing administrative services to us. To the extent that the Administrator outsources any of its functions, we pay the fees associated with such functions on a direct basis without any profit to the Administrator.




                                       53

--------------------------------------------------------------------------------

Proposed Merger with Portman Ridge Finance Corporation

On June 24, 2020, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with PTMN, Citadel Acquisition Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of PTMN, or Acquisition Sub, and Sierra Crest Investment Management LLC, a Delaware limited liability company and the external investment adviser to PTMN. The Merger Agreement provides that (i) Acquisition Sub will merge with and into us, which we refer to as the Merger, with us continuing as the surviving corporation and as a wholly owned subsidiary of PTMN, and (ii) immediately after the effectiveness of the Merger, we will merge with and into PTMN, which we refer to collectively with the Merger as the Mergers, with PTMN continuing as the surviving corporation. For further information, see "Note 1. Organization-The Proposed Merger with Portman Ridge Finance Corporation" to our consolidated financial statements included elsewhere in this report.

Recent Developments

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread across the globe and to the United States. As a result of the pandemic, the United States government has reacted to the COVID-19 outbreak with interest rate cuts and economic stimulus. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to spread, this has directly impacted the financial markets, creating disruptions in global supply chains, increasing rates of unemployment and adversely impacting many industries and limiting the operations of us and our portfolio companies.

The outbreak of COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, and results of operations. We expect that these impacts are likely to continue and given the uncertainty, this poses risks with respect to us and the performance of our portfolio companies. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. For additional information regarding the potential impact of the COVID-19 pandemic, see "Global economic, political and market conditions caused by the current COVID-19 pandemic have (and in the future could further) adversely affect our business, results of operations and financial condition and those of our portfolio companies." in our Risk Factors below.

On July 10, 2020, Garrison Capital SBIC LP, or Garrison SBIC, surrendered its small business investment company, or SBIC, license to the Small Business Administration, or SBA.

On August 4, 2020, our board of directors, or the Board, declared a distribution in the amount of $0.8 million, or $0.05 a share, which will be paid on September 25, 2020 to stockholders of record as of September 11, 2020.

Revenues

In general, we generate revenue in the form of interest earned on the debt investments that we hold and capital gains and distributions, if any, to a lesser extent, on the equity interests or warrants held in portfolio companies. Our debt investments, whether in the form of senior secured, unitranche or mezzanine loans, typically have a term that ranges from three to seven years and may generally bear interest at a fixed or floating rate. Interest is generally payable monthly or quarterly, and in some cases, loans may contain a payment-in-kind, or PIK, feature.

We also earn fee income which is generally comprised of amendment, forbearance, prepayment, syndication, structuring, diligence, consulting and possible fees for providing managerial assistance to a portfolio company. Amendment and forbearance fees are generally received in connection with loan amendments or waivers and are recognized upon completion of the amendments or waivers, generally when such fees are receivable. We record prepayment premiums on loans and debt securities into income when we receive such amounts.




                                       54

--------------------------------------------------------------------------------

In addition, we may receive structuring, diligence fees, consulting and managerial assistance fees for periodically providing services to a portfolio company or third party. These fees are recognized when such services have been completed and the fees are generally receivable. Any such fee income received is recorded and classified as other income and included in investment income on the consolidated statements of operations. As these fees are generally paid and recognized in connection with specific loan event or the performance of a service, there may be significant fluctuations from period to period in the amount and size of such fee and they are typically non-recurring in nature.

In addition, we may receive periodic dividends or distributions from our preferred or equity investments. Such amounts are recorded and classified as other income. Dividend income on preferred equity securities is recorded as a component of other income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Expenses

Our primary operating expenses include the payment of (1) the interest expense on our outstanding debt; (2) the management and incentive fees to the Investment Adviser under the Investment Advisory Agreement, if applicable; (3) the allocable portion of overhead to the Administrator under the Administration Agreement; and (4) our other operating costs, as detailed below. We bear all other costs and expenses of our operations and transactions, including:





  • our organization;




     •   calculating our net asset value and net asset value per share (including
         the cost and expenses of any independent valuation firms);




     •   fees and expenses, including travel expenses, incurred by the Investment
         Adviser or payable to third parties in performing due diligence on
         prospective portfolio companies, monitoring our investments and, if
         necessary, enforcing our rights;




  • offerings of our common stock and other securities;




  • distributions on our shares;




  • transfer agent and custody fees and expenses;




     •   amounts payable to third parties relating to, or associated with,
         evaluating, making and disposing of investments;




  • brokerage fees and commissions;




  • registration fees;




  • listing fees;




  • taxes;




  • independent director fees and expenses;


     •   costs associated with our reporting and compliance obligations under the
         1940 Act and applicable U.S. federal and state securities laws;




     •   the costs of any reports, proxy statements or other notices to our
         stockholders, including printing costs;




  • costs of holding stockholder meetings;




  • our fidelity bond;




     •   directors and officers/errors and omissions liability insurance and any
         other insurance premiums;




     •   litigation, indemnification and other non-recurring or extraordinary
         expenses;




                                       55

--------------------------------------------------------------------------------




     •   direct costs and expenses of administration and operation, including
         audit and legal costs;




  • fees and expenses associated with marketing efforts;




  • dues, fees and charges of any trade association of which we are a member; and




     •   all other expenses reasonably incurred by us or the Administrator in
         connection with administering our business, including rent and our
         allocable portion of the costs and expenses of our chief compliance
         officer, chief financial officer and their respective staffs.

Consolidated Results of Operations

The results of operations described below may not be indicative of the results we report in future periods. Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized gains and losses. As a result, quarterly comparisons of net investment income may not be meaningful.

Consolidated operating results for the three and six months ended June 30, 2020 and 2019 are as follows:

© Edgar Online, source Glimpses