Steele Creek Capital Corporation (which is referred to as the “Company”, “we”, “us” and “our”) is a financial services company that primarily invests in syndicated corporate bank loans, bonds, other debt securities, and structured products. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and has elected to be treated for U.S. federal income tax purposes, and to qualify annually thereafter, as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were formed on June 3, 2020 as a Delaware limited liability company under the name MSC Capital LLC. MSC Capital LLC was formed by Steele Creek Investment Management LLC (the “Investment Advisor”), Moelis Asset Management LP and two affiliates (the “Members”). On October 7, 2020, MSC Capital LLC converted to a Maryland corporation, named Steele Creek Capital Corporation. On September 3, 2020, we formed a wholly-owned consolidated special purpose financing vehicle, Steele Creek Capital Funding I, LLC (“Funding I”), a Delaware limited liability company.
We are externally managed by our Investment Advisor, an indirect subsidiary of Moelis Asset Management LP (“Moelis Asset”). Our Investment Advisor is a limited liability company that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Our Investment Advisor also serves as the Administrator of the Company.
Our investment objective is to generate high current income by investing primarily in fixed income instruments, including broadly syndicated bank loans, structured products, mezzanine financings and senior secured bonds. We provide moderate liquidity to our shareholders by offering a quarterly share repurchase program. As of December 31, 2022, no shares have been tendered through the share repurchase program. Broadly syndicated loans are generally more liquid than directly originated investments and may provide more attractive financing terms than less liquid assets. Mezzanine financings are generally unrated or below investment grade rated investments that have greater credit and liquidity risk than more highly rated debt obligations. Moreover, mezzanine financings are generally unsecured and subordinate to other obligations of the obligor and are subject to many of the same risks as those associated with high-yield debt securities.
Our investment objective is expected to be met through the investment in a pool of medium-to-large sized broadly syndicated corporate bank loans, bonds, and other loans and debt securities. Secondarily, the Company will invest in the debt and equity securities (“CLO Securities”) of issuers of collateralized loan obligations (“CLOs”) and securities from restructured or restructuring companies such as debtor in possession (“DIP”) financings and rights offerings. The majority of the investments are expected to be rated below investment grade by a rating agency. Investments that are rated below investment grade are sometimes referred to as “high yield bonds,” “junk bonds” or “leveraged loans” (i.e., loans to companies with existing debt). Our corporate debt securities and CLO debt investments typically have maturities of three to ten years. The Company can invest in both equity and junior debt tranches of CLOs.
We utilize leverage to enhance our returns and we are limited under the 1940 Act as a BDC on the amount of leverage we can utilize.
As of December 31, 2022, our investment portfolio was comprised of 164 first lien and second lien floating rate loans principally to large U.S. based companies that totaled approximately $127,619 thousand at fair value and our net asset value (“NAV”) was $50,375 thousand. Due to the liquidity in our portfolio and the leverage loan market, we invested $163,582 thousand and received $133,480 thousand from investments sold or repaid during the year ended December 31, 2022.
As of December 31, 2021, our investment portfolio was comprised of 130 floating rate loans principally to large U.S. based companies that totaled approximately $106,997 thousand at fair value and our net asset value (“NAV”) was $46,993 thousand. Due to the liquidity in our portfolio and the leverage loan market, we invested $606,314 thousand and received $569,373 thousand from investments sold or repaid during the year ended December 31, 2021.
Steele Creek Investment Management LLC, a Delaware limited liability company, serves as our investment advisor and is registered as an investment adviser with the SEC. Subject to the supervision of our Board of Directors (the “Board”), a majority of which is made up of directors that are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act (“Independent Directors”), our Investment Advisor manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. Directors who are “interested persons” as defined in Section 2(a)(19) of the 1940 Act are referred to herein as “Interested Directors.” Our Investment Advisor is a wholly-owned indirect subsidiary of Moelis Asset, indirectly controlled by Kenneth Moelis, and specializes in broadly syndicated loan investments.
The Investment Advisor’s investment team (the “Investment Team”) is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, structuring our investments, and monitoring and servicing our investments. As of December 31, 2022, the Investment Team was comprised of 11 investment professionals, all of whom dedicate a substantial portion of their time to the Company. These individuals may have additional responsibilities other than those relating to us, but generally allocate a substantial portion of their time in support of our business and our investment objective as a whole. In addition, the Investment Advisor believes that, from its own resources and from that of its affiliate, Moelis Asset, it has access to excellent support personnel, including expertise in risk management, legal, accounting, tax, information technology and compliance, among others. We benefit from the support provided by these personnel in our operations. The Investment Team employs a bottom-up analysis. The senior members of the Investment Team have been actively involved in the broadly syndicated loan investing market for an average of over 20 years and have built strong relationships with private equity sponsors, banks and financial intermediaries.
The Investment Advisor has an investment committee (the “Investment Committee”) comprised of nine members that is responsible for approving all of our investments. The Investment Committee is chaired by Glenn Duffy, and the other members of the Investment Committee are Matthew Stouffer, Michael Audino, Alan DeKeukelaere, Paul Cal, Christopher Ryan, Jay Murphy, Nick Skudlarek, and Max Wagenberg.
The day to day management of the portfolio is overseen by the Investment Advisor’s Chief Investment Officer, Head of Portfolio Management & Trading, Chief Operating Officer and Senior Portfolio Manager. The extensive experience of the investment professionals serving on the Investment Committee includes expertise in broadly syndicated loans. The Investment Committee employs a due diligence process that assesses a prospective borrower’s credit risk and loss in default by examining the borrower’s financial projections, management teams, and relative value, and by modeling various default scenarios and other factors. The Investment Committee requires supermajority (two-thirds) approval, including by the Chief Investment Officer for all investment decisions taken, including the origination or purchase of new investments, by the Investment Advisor on our behalf. Additionally, the supermajority must include at least one member who is a representative of Moelis Asset.
The Investment Advisor has entered into a Resource Sharing Agreement (the “Resource Sharing Agreement”) with Moelis Asset, pursuant to which Moelis Asset will provide the Investment Advisor with access to the resources of Moelis Asset so as to enable the Investment Advisor to fulfill its obligations under the investment advisory agreement between the Investment Advisor and the Company (the “Investment Advisory Agreement”) and administration agreement between the Administrator and the Company (the “Administration Agreement”). Through the Resource Sharing Agreement, the Investment Advisor leverages the Moelis Asset infrastructure, including finance, accounting, legal, compliance and information technologies assistance. There can be no assurance that Moelis Asset will perform its obligations under the Resource Sharing Agreement. The Resource Sharing Agreement may be terminated upon 30 days’ notice if there is a breach by either party, or by either party on 90 days’ notice, which if terminated may have a material adverse consequence on the Company’s operations.
The Investment Advisor, in its capacity as Administrator, provides the administrative services necessary for us to operate pursuant to the Administration Agreement. The Administrator has also entered into an agreement (the “Sub-Administration Agreement”) to delegate certain administrative functions to U.S. Bank (the “Sub-Administrator”).
The Board, including a majority of the Independent Directors, will review the compensation paid to the Administrator to determine if the provisions of the Administration Agreement are carried out satisfactorily and to determine, among other things, whether the fees payable under the Administration Agreement are reasonable in light of the services provided. The Board will consider the possibility of obtaining the services from a third-party and whether any single third-party service provider would be capable of providing all such services at comparable cost and quality.
Moelis Asset, the owner of the Investment Advisor, is a Delaware limited partnership formerly known as Moelis & Company Holdings LP, which, as of April 2014, acts as the parent company for various Kenneth Moelis-affiliated alternative asset management firms due to the initial public offering of Moelis & Company, a Delaware corporation (“Moelis & Company”). These Moelis Asset firms are wholly-owned by or are joint ventures with unaffiliated parties, and include Freeport Financial Partners LLC (direct lending), Gracie Asset Management (credit funds), Moelis Capital Partners LLC (private equity), Archean Capital Partners (seed investments in private equity managers), Collegium Global Partners LLC (seed investments in hedge fund managers), Crossbeam Venture Partners LLC (venture capital) and Third Crest Capital, LLC (algorithmic trading). Moelis Asset is under common control with Moelis & Company. Moelis & Company is a leading global independent investment bank that provides innovative strategic and financial advice to a diverse client base, including corporations, governments, sovereign wealth funds and financial sponsors. Moelis & Company and Moelis Asset are separate legal entities and Moelis & Company does not have any ownership interest in Moelis Asset. Kenneth Moelis remains the ultimate controlling shareholder of both Moelis Asset and Moelis & Company (collectively, “Moelis”); however he does not exercise governance or investment control over the individual investment advisers of Moelis Asset. Moelis Asset is provided certain administrative services by Moelis & Company pursuant to a services agreement, and also provides certain infrastructure to the Investment Advisor.
Market Opportunity
The Investment Team is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, and monitoring and servicing our investments. The Investment Team believes that existing market conditions have combined to create an attractive investment environment for us.
Specifically:
Investment Strategy
Our investment objective is to generate high current income by investing primarily in fixed income instruments including broadly syndicated bank loans, structured products, mezzanine financings and senior secured bonds. We are a non-diversified company within the meaning of the 1940 Act. No assurance can be given that the Company’s investment objective will be achieved, and investment results may vary substantially on a monthly, quarterly and annual basis.
The Investment Advisor believes that the Company’s investment objective can be achieved by primarily investing in first lien secured loans, CLO Securities, and to a lesser extent second lien and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that are backed by an asset pledge and rank ahead of unsecured debt in a payment priority of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. The Investment Advisor believes that the Company’s investment objective can be achieved by primarily investing in a pool of medium-to-large sized broadly syndicated corporate bank loans, bonds, and other loans and debt securities. Secondarily, the Company will invest in CLO Securities and securities from restructured or restructuring companies such as DIP financings and rights offerings. The Company’s investments can include first lien secured loans, CLO Securities, and to a lesser extent second lien and unsecured debt, which in some cases includes an equity component, of small to large U.S. companies. First and second lien secured loans generally are senior debt instruments that are backed by an asset pledge and rank ahead of unsecured debt in a payment priority of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. A significant portion of the loans in which the Company may invest or get exposure to through its investments in structured securities may be deemed “Covenant-Lite Loans,” which means the loans contain fewer or no maintenance covenants than other loans and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached.
We will seek to maximize returns and minimize risk for our investors by applying detailed, fundamental credit analysis to make and monitor our portfolio investments. While the structure of our investments may vary, the Company can invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants and other instruments, many of which generate current yield. While our primary focus is to seek current income through investment in the debt of eligible privately-held companies, we may invest up to 30% of the portfolio in other purchases (either in the primary or secondary markets), including, for example, the equity and junior debt tranches of CLO Securities. Junior debt tranches of CLOs are subordinated and subject to prior repayment of different classes of senior debt that may be in priority ahead of the debt held by the company.
Structurally, CLOs are entities that are formed to hold a portfolio of senior secured loans made to companies whose debt is generally rated below investment grade or, in limited circumstances, unrated. The senior secured loans within a CLO are generally limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create an investment portfolio that is diverse by senior secured loan, borrower, and industry, with limitations on the number of non-U.S. borrowers. Within our 30% basket, we may make additional investments in debt and equity securities of financial companies and companies located outside of the United States, including emerging markets.
In addition, portfolio investments may also include corporate structured credit, CLO warehouses, collateralized debt obligations (“CDOs”), swaps, asset backed securities, preferred shares, corporate bonds, corporate bank loans, preferred stock, municipal bonds or loans and convertible securities. A CLO warehouse is a form of structured credit. Prior to a CLO closing, a CLO warehouse will be formed as a special purpose vehicle, which will purchase and “warehouse” a portion of the underlying loans that will be held by the CLO. The Company seeks to invest in credit and other assets that the Investment Advisor believes have strong structural protections, limited downside, and low long-term beta to the broader credit and equity markets. Beta measures the sensitivity of a security’s or portfolio’s return to the market’s return. Portfolios with high betas are generally more volatile than the market, and portfolios with low betas are less volatile.