OHA Investment Corporation
NGP Capital Resources CO (Form: 10-Q, Received: 05/08/2008 06:04:50)
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
  (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2008
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period              to             
 
Commission file number: 814-00672
 
 
NGP Capital Resources Company
(Exact name of registrant as specified in its charter)
 
 
 
   
Maryland
20-1371499
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification number)
   
1221 McKinney Street, Suite 2975
Houston, Texas
77010
(Address of principal executive offices)
(Zip Code)
 
(713) 752-0062
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:  

Common Stock, par value $.001 per share
The NASDAQ Stock Market LLC
(Title of class)
(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o   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 Exchange Act.
Yes o   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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. x
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer     o
Accelerated filer     x
Non-accelerated filer     o
(Do not check if smaller reporting company)
Smaller reporting company     o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o   No x

As of May 5, 2008, there were 21,628,202 shares of the registrant’s common stock outstanding.


 
 

 

PART I - FINANCIAL INFORMATION
I tem 1. Consolidated Financial Statements

 
NGP CAPITAL RESOURCES COMPANY
       CONSOLIDATED BALANCE SHEETS
(unaudited)
           
 
March 31, 2008
   
December 31, 2007
Assets
         
Investments in portfolio securities at fair value
         
   (cost:  $277,740,755 and $277,947,454, respectively)
 $         282,559,223
  $
284,228,573
 
Investments in corporate notes at fair value
         
   (cost:  $11,620,610 and $11,631,599, respectively)
                 8,661,000
   
                 8,955,500
 
Investments in U.S. Treasury Bills, at amortized cost
         
   which approximates fair value
            143,978,220
   
            163,925,625
 
Total investments
            435,198,443
   
            457,109,698
 
           
Cash and cash equivalents
                 8,744,574
   
              18,437,115
 
Accounts receivable
                      29,373
   
                      17,569
 
Interest receivable
                    877,410
   
                    647,839
 
Prepaid assets
                 1,714,153
   
                 2,020,655
 
           
Total assets
 $         446,563,953
  $
478,232,876
 
           
Liabilities and stockholders' equity (net assets)
         
Current liabilities
         
Accounts payable
 $                 510,915
  $
928,761
 
Management and incentive fees payable
                 2,148,721
   
                 2,032,107
 
Dividends payable
                 7,000,133
   
                 9,012,671
 
Total current liabilities
                 9,659,769
   
              11,973,539
 
           
Long-term debt
            191,250,000
   
            216,000,000
 
           
Total liabilities
            200,909,769
   
            227,973,539
 
           
Commitments and contingencies  (Note 8)
         
           
Stockholders’ equity (net assets)
         
Common stock, $.001 par value, 250,000,000 shares authorized;
         
   17,500,332 shares issued and outstanding
                      17,500
   
                      17,500
 
Paid-in capital in excess of par
            245,881,078
   
            245,881,078
 
Undistributed net investment income (loss)
               (2,962,385)
   
                  (103,394)
 
Undistributed net realized capital gain  (loss)
                    859,133
   
                    859,133
 
Net unrealized appreciation (depreciation) of
         
   portfolio securities and corporate notes
                 1,858,858
   
                 3,605,020
 
           
Total stockholders’ equity (net assets)
            245,654,184
   
            250,259,337
 
           
Total liabilities and stockholders' equity (net assets)
 $         446,563,953
  $
478,232,876
 
           
Net asset value per share
 $                     14.04
  $
14.30
 
           
           
(See accompanying notes to consolidated financial statements)
           

 
 

 

 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited)
 
                   
                 For the Three Months Ended
   
March 31, 2008
   
March 31, 2007
       
   
(unaudited)
   
(unaudited)
       
Investment income
                 
   Interest income
  $ 9,497,966     $ 8,421,255        
   Other income
    40,370       55,507        
                       
      Total investment income
    9,538,336       8,476,762        
                       
Operating expenses
                     
   Management fees
    1,800,206       1,564,509        
   Professional fees
    208,979       153,596        
   Insurance expense
    198,817       132,423        
   Interest expense and fees
    2,441,076       1,557,196        
   State franchise taxes
    9,516       -          
   Other general and administrative expenses
    738,600       651,553          
                         
      Total operating expenses
    5,397,194       4,059,277          
                         
Net investment income (loss)
    4,141,142       4,417,485          
                         
Net increase (decrease) in unrealized appreciation
                       
   (depreciation) on portfolio securities and corporate notes
    (1,746,162 )     3,729,986          
                         
Net increase (decrease) in stockholders' equity
                       
   (net assets) resulting from operations
  $ 2,394,980     $ 8,147,471          
                         
Net increase (decrease) in stockholders' equity (net assets)
                       
   resulting from operations per common share
  $ 0.14     $ 0.47          
                         
(See accompanying notes to consolidated financial statements)
 


 
 

 

 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (NET ASSETS)
 
(unaudited)
 
                                           
                                 
Net Unrealized
       
                                 
Appreciation
   
Total
 
               
Paid-in Capital
   
Undistributed
   
Undistributed
   
(Depreciation)
   
Stockholders'
 
   
Common Stock
   
in Excess
   
Net Investment
   
Net Realized
   
of Portfolio Securities
   
Equity
 
   
Shares
   
Amount
   
of Par
   
Income (Loss)
   
Capital Gain (Loss)
   
and Corporate Notes
   
(Net Assets)
 
Balance at December 31, 2007
    17,500,332     $ 17,500     $ 245,881,078     $ (103,394 )   $ 859,133     $ 3,605,020     $ 250,259,337  
Net increase in
                                                       
   stockholders' equity (net assets)
                                                       
   resulting from operations
    -       -       -       4,141,142       -       (1,746,162 )     2,394,980  
                                                         
Dividends declared
    -       -       -       (7,000,133 )     -       -       (7,000,133 )
Balance at March 31, 2008
    17,500,332     $ 17,500     $ 245,881,078     $ (2,962,385 )   $ 859,133     $ 1,858,858     $ 245,654,184  
                                                         
                                                         
(See accompanying notes to consolidated financial statements)
 



 
 

 

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited)
 
             
   
For the Three Months
   
For the Three Months
 
   
ended March 31, 2008
   
ended March 31, 2007
 
Cash flows from operating activities
           
   Net increase in stockholders' equity (net assets) resulting from operations
  $ 2,394,980     $ 8,147,471  
   Adjustments to reconcile net increase in stockholders' equity (net assets)
               
      resulting from operations to net cash used in operating activities
               
         Payment-in-kind interest
    (1,728,817 )     (1,115,048 )
         Net amortization of premiums, discounts and fees
    (301,353 )     (381,727 )
         Change in unrealized (appreciation) depreciation on portfolio securities
               
              and corporate notes
    1,746,162       (3,729,986 )
         Effects of changes in operating assets and liabilities
               
              Accounts receivable
    (11,804 )     420,203  
              Interest receivable
    (229,571 )     179,779  
              Prepaid assets
    306,502       238,584  
              Accounts payable
    (301,232 )     36,309  
   Purchase of investments in portfolio securities
    (25,776,473 )     (58,354,311 )
   Redemption of investments in portfolio securities
    28,024,331       587,526  
   Net sale of investments in U.S. Treasury Bills
    19,947,405       38,719,021  
                 
                 Net cash provided by (used in) operating activities
    24,070,130       (15,252,179 )
                 
Cash flows from financing activities
               
   Borrowings under revolving credit facility
    10,000,000       5,285,000  
   Repayments on revolving credit facility
    (34,750,000 )     -  
   Dividends paid
    (9,012,671 )     -  
                 
                 Net cash provided by (used in) financing activities
    (33,762,671 )     5,285,000  
                 
Net increase (decrease) in cash and cash equivalents
    (9,692,541 )     (9,967,179 )
Cash and cash equivalents, beginning of period
    18,437,115       12,334,329  
                 
Cash and cash equivalents, end of period
  $ 8,744,574     $ 2,367,150  
                 
                 
(See accompanying notes to consolidated financial statements)
 


 
 

 

NGP CAPITAL RESOURCES COMPANY
 
CONSOLIDATED SCHEDULE OF INVESTMENTS
 
March 31, 2008
 
(unaudited)
 
   
                       
Portfolio Company
Energy Industry Segment
Investment (2) (4)
 
Principal
   
Cost
   
Fair Value (3)
 
TARGETED INVESTMENTS
                     
Venoco, Inc. (1) (11)
Oil & Natural Gas
Senior Notes (7)
  $ 8,000,000     $ 7,969,143     $ 7,260,000  
 
 Production and Development
(8.75%, due 12/15/2011)
                       
                             
Venoco, Inc. (1) (11)
Oil & Natural Gas
Senior Notes (7)
    4,000,000       3,948,767       3,630,000  
 
 Production and Development
(8.75%, due 12/15/2011)
                       
                             
Chroma Exploration &
Oil & Natural Gas
9,154 Shares Series A Participating
    -       2,221,710       -  
    Production, Inc. (1) (12)
 Production and Development
Convertible Preferred Stock (10)
                       
   
8,359 Shares Series AA Participating
    -       2,089,870       1,567,402  
   
Convertible Preferred Stock (10)
                       
   
8.11 Shares Common Stock (5)
    -       -       -  
   
Warrants (5)
    -       -       -  
                             
Resaca Exploitation, LP (1) (12)
Oil & Natural Gas
Senior Secured
    26,993,572       26,515,386       26,515,386  
 
 Production and Development
Multiple-Advance Tranche A Term Loan
                       
   
(LIBOR + 6.00%, due 5/01/2012)
                       
   
Overriding Royalty Interest (6)
    30,000       29,127       400,000  
                             
   
Senior Secured Tranche B Term Loan
    6,000,000       6,000,000       6,000,000  
   
(LIBOR + 9.00%, due 11/30/2007) (9)
                       
   
Overriding Royalty Interest (6)
    30,000       29,127       400,000  
                             
   
Senior Subordinated
    4,000,000       4,000,000       4,000,000  
   
Secured Convertible Term Loan
                       
   
(6.00% cash, 8.00% PIK, due 5/01/2012)
                       
                             
Crossroads Energy, LP (1) (12)
Oil & Natural Gas
Senior Secured
    4,143,476       4,088,225       4,088,225  
 
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 5.50%, due 6/29/2009)
                       
   
Overriding Royalty Interest (6)
    10,000       7,432       250,000  
                             
Rubicon Energy Partners,
Oil & Natural Gas
Senior Subordinated Secured
    5,000,000       5,000,000       5,000,000  
   LLC (8) (12)
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 8.00%, due 5/01/2010)
                       
   
LLC Units (4,000 units) (5)
    -       4,000,000       12,000,000  
                             
BSR Loco Bayou, LLC (1) (12)
Oil & Natural Gas
Senior Secured
    2,978,367       2,572,869       1,710,781  
 
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 5.50% cash, +7.50% PIK - until 8/15/08,
                       
   
 cash only thereafter, due 8/15/2009) (10)
                       
   
Overriding Royalty Interest  (5) (6)
    20,000       20,000       20,000  
   
Warrants (5)
    10,000       10,000       -  
                             
Sonoran Energy, Inc. (1) (12)
Oil & Natural Gas
Warrants (5)
    10,000       10,000       10,000  
 
 Production and Development
                         
                             



 
 

 

NGP CAPITAL RESOURCES COMPANY
 
CONSOLIDATED SCHEDULE OF INVESTMENTS
 
March 31, 2008
 
(unaudited)
 
(Continued)
 
                       
Portfolio Company
Energy Industry Segment
Investment (2) (4)
 
Principal
   
Cost
   
Fair Value (3)
 
TARGETED INVESTMENTS - Continued
                   
Nighthawk Transport I, LP (1) (12)
Energy Services
Second Lien
    14,328,347       13,427,546       13,427,546  
   
Term Loan B
                       
   
(The greater of 12.5% or LIBOR + 8.00%,
                       
   
due 10/03/2010)
                       
   
LP Units (5)
    224       224       150,000  
   
Warrants (5)
    850,000       850,000       850,000  
                             
   
Second Lien
    1,595,043       1,569,974       1,569,974  
   
Delayed Draw Term Loan B
                       
   
(The greater of 12.5% or LIBOR + 8.00%,
                       
   
due 10/03/2010)
                       
                             
Alden Resources, LLC (1) (12)
Coal Production
Senior Secured
    36,285,168       33,452,204       33,452,204  
   
Multiple-Advance Term Loan
                       
   
(LIBOR + 8.00% cash, +10.00% PIK - until 2/29/2008)
                       
   
 cash only thereafter, due 1/05/2013)
                       
   
Royalty Interest (6)
    2,660,000       2,613,803       2,660,000  
   
Warrants (5)
    100,000       100,000       100,000  
                             
Tammany Oil & Gas, LLC (1) (12)
Oil & Natural Gas
Senior Secured
    23,285,796       22,940,718       22,940,718  
 
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 6.00%, due 3/21/2010)
                       
   
Overriding Royalty Interest (5) (6)
    200,000       200,000       300,000  
                             
TierraMar Energy LP (8) (12)
Oil & Natural Gas
Overriding Royalty Interest (6)
    20,000       18,185       200,000  
 
 Production and Development
Class A Preferred LP Units (5)
    15,880,186       15,880,186       15,880,186  
                             
Anadarko Petroleum Corporation
Oil & Natural Gas
Multiple-Advance Net Profits Interest
    52,575,286       52,600,647       52,600,647  
   2007-III Drilling Fund (1) (12)
 Production and Development
(Due 4/23/2032)
                       
                             
Formidable, LLC (1) (12)
Oil & Natural Gas
Senior Secured
    37,000,000       37,000,000       37,000,000  
 
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 5.50% cash, +7.50% PIK ,
                       
   
due 5/31/2008)
                       
   
Warrants (5)
    500,000       500,000       500,000  
                             
DeanLake Operator, LLC (1) (12)
Oil & Natural Gas
Senior Secured
    13,195,080       12,972,829       12,972,829  
 
 Production and Development
Multiple-Advance Term Loan
                       
   
(LIBOR + 7.00%, due 6/25/2010)
                       
   
Overriding Royalty Interest (6)
    20,000       19,458       20,000  
   
Warrants (5)
    10,000       10,000       10,000  
Bionol Clearfield, LLC (1) (12)
Alternative Fuels and
Senior Secured Tranche C
    5,000,000       5,049,283       5,049,283  
 
Specialty Chemicals
Construction Loan
                       
   
(LIBOR + 7.00%, due 09/06/2016)
                       
                             
BioEnergy Holding, LLC (1) (12)
Alternative Fuels and
Senior Secured Notes
    10,000,000       9,051,510       9,051,510  
 
Specialty Chemicals
(15.00%, due 03/06/2015)
                       
   
BioEnergy International Warrants (5)
    595,845       595,845       595,845  
   
BioEnergy Holding Units (5)
    376,687       376,687       376,687  
                             
   Subtotal Targeted Investments (63.67% of total investments)
            $ 277,740,755     $ 282,559,223  



 
 

 

  NGP CAPITAL RESOURCES COMPANY
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2008
(unaudited)
 
(Continued)
 
                       
Issuing Company
Energy Industry Segment
Investment (2) (4)
 
Principal
   
Cost
   
Fair Value (3)
 
CORPORATE NOTES
                     
Pioneer Natural Resources Co. (11)
Oil & Natural Gas
Senior Notes, 7.2%, due 2028
  $ 10,000,000     $ 11,620,610     $ 8,661,000  
 
 Production and Development
                       
                             
   Subtotal Corporate Notes ( 1.95% of total investments)
            $ 11,620,610     $ 8,661,000  
                             
GOVERNMENT SECURITIES (13)
                         
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
  $ 8,000,000     $ 8,998,495     $ 8,998,495  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,994       11,997,994  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,994       11,997,994  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,994       11,997,994  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 3.073%, due 04/03/2008
    12,000,000       11,997,993       11,997,993  
U.S. Treasury Bills
Government
U.S. Treasury Bills, 0.253%, due 04/03/2008
    15,000,000       14,999,792       14,999,792  
                             
                             
   Subtotal Government Securities (32.41% of total investments)
          $ 143,978,220     $ 143,978,220  
                             
CASH
                           
   Subtotal Cash (1.97% of total investments)
            $ 8,744,574     $ 8,744,574  
                             
TOTAL INVESTMENTS, CASH AND CASH EQUIVALENTS
          $ 442,084,159     $ 443,943,017  
                             
LIABILITIES IN EXCESS OF OTHER ASSETS
                    $ (198,288,833 )
                             
NET ASSETS
                      $ 245,654,184  
                             
(1)    Portfolio company is not controlled by or affiliated with us as defined by the Investment Company Act of 1940.
                 
(2)   Percentages represent interest rates in effect at March 31, 2008, and due dates represent the contractual maturity dates.
                       
(3)   Fair value of targeted investments is determined by or under the direction of the Board of Directors.
                       
(4)   All investments are in entities with primary operations in the United States of America.
                       
(5)   Non-income producing securities.
                           
(6)   Securities are subject to restrictions as to their sale.
                         
(7)   Upon the March 30, 2006 closing of Venoco, Inc.'s TexCal acquisition, Venoco Inc.'s senior notes became
                       
        collateralized by second priority  liens.
                           
(8)   Portfolio company is controlled by us as defined by the Investment Company Act of 1940.
                       
(9)   Forbearance granted on maturity date until February 29, 2008. The Manager is in the process of renegotiating the Tranche B note with Resaca.
 
(10) Non-accrual status.
                           
(11) Level 2 security per SFAS No. 157 heirachy.
                         
(12) Level 3 security per SFAS No. 157 heirachy.
                         
(13) Level 1 security per SFAS No. 157 heirachy.
                         
                             
(See accompanying notes to consolidated financial statements)
   
 
 

 

 
CONSOLIDATED FINANCIAL HIGHLIGHTS
 
(unaudited)
 
             
   
For the Three Months
   
For the Three Months
 
   
ended March 31, 2008
   
ended March 31, 2007
 
Per Share Data  (1)
           
             
Net asset value, beginning of period
  $ 14.30     $ 13.96  
                 
Net investment income (loss)
    0.24       0.25  
Net realized and unrealized gain (loss) on portfolio securities
               
   and corporate notes
    (0.10 )     0.22  
                 
Net increase (decrease) in stockholders' equity (net assets)
               
   resulting from operations
    0.14       0.47  
                 
Dividends declared
    (0.40 )     (0.27 )
                 
Net asset value, end of period
  $ 14.04     $ 14.16  
                 
Market value, beginning of period
  $ 15.63     $ 16.75  
Market value, end of period
  $ 16.42     $ 15.81  
Market value return  (2)
    7.68 %     -4.03 %
Net asset value return (2)
    0.64 %     3.13 %
                 
Ratios and Supplemental Data
               
($ and shares in thousands)
               
                 
Net assets, end of period
  $ 245,654     $ 246,789  
Average net assets
  $ 247,957     $ 245,024  
Common shares outstanding at end of period
    17,500       17,422  
Total operating expenses less management and
               
  incentive fees and interest expense/average net assets (3)
    1.87 %     1.55 %
Total operating expenses less management
               
   and incentive fees/average net assets (3)
    5.83 %     4.13 %
Total operating expenses/average net assets (3)
    8.75 %     6.72 %
Net investment income (loss)/average net assets (3)
    6.72 %     7.31 %
Net increase (decrease) in net assets resulting from
               
   operations/average net assets (3)
    3.88 %     13.49 %
Portfolio turnover rate
    11.30 %     0.24 %
                 
                 
(1) Per Share Data is based on common shares outstanding at end of period.
         
(2) Return calculations assume reinvestment of dividends and are not annualized.
         
(3) Annualized.
               
                 
                 
(See accompanying notes to consolidated financial statements)
 
                 

 
 
 

 

NGP CAPITAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
 
Note 1:                      Organization

NGP Capital Resources Company (the “Company”) was organized as a Maryland corporation in July 2004. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).  In addition, for federal income tax purposes the Company has elected to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”).  The Company has several subsidiaries that are single member limited liability companies and wholly owned limited partnerships established to hold certain portfolio investments or provide services to the Company in accordance with specific rules prescribed for a company operating as a RIC.  These subsidiaries are: NGPC Funding GP, LLC, a Texas limited liability company; NGPC Nevada, LLC, a Nevada limited liability company; NGPC Funding, LP, a Texas limited partnership; NGPC Asset Holdings GP, LLC, a Texas limited liability company; NGPC Asset Holdings, LP, a Texas limited partnership; NGPC Asset Holdings II, LP, a Texas limited partnership; NGPC Asset Holdings III, LP, a Texas limited partnership and NGPC Asset Holdings IV, LP, a Texas limited partnership.  The Company consolidates the results of its subsidiaries for financial reporting purposes. The Company does not consolidate the financial results of its portfolio companies.

The Company was created to invest primarily in small and mid-size private energy companies, which are generally defined as companies that have net asset values or annual revenues of less than $500 million and are not issuers of publicly traded securities.  The Company’s investment objective is to generate both current income and capital appreciation through debt investments with certain equity components.
 
The Company is managed and advised, subject to the overall supervision of the Company’s Board of Directors, by NGP Investment Advisor, LP (the “Manager”), a Delaware limited partnership owned by NGP Energy Capital Management, LLC, and NGP Administration, LLC (the “Administrator”), the Company’s administrator.
 
Note 2:                      Significant Accounting Policies
 
The interim unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim consolidated financial statements have been prepared by management of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes the disclosures included herein are adequate to make the information presented not misleading.  In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for presentation of the information have been included.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Interim results are not necessarily indicative of results for a full year.

The following is a summary of the significant accounting policies consistently applied by the Company in the preparation of its consolidated financial statements:
 
Use of Estimates
 
The interim consolidated financial statements have been prepared in accordance with GAAP that require management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and the accompanying notes to the interim consolidated financial statements.  Actual results could differ from these estimates.

 
 

 

Cash and Cash Equivalents
 
Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at cost, which approximates fair value.

Prepaid Assets
 
Prepaid assets consist of premiums paid for directors’ and officers’ insurance and fidelity bonds with a policy term of one year, fees associated with the establishment of the policy or credit facility, and registration expenses related to the Company’s shelf filing. Such premiums and fees are amortized monthly on a straight-line basis over the term of the policy or credit facility.  Registration expenses are deferred and will be charged as a reduction of capital upon the sale of shares.
 
Concentration of Credit Risk
 
The Company places its cash and cash equivalents with financial institutions and, at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit.
 
Valuation of Investments
 
Investments are carried at fair value, as determined in good faith by the Company’s Board of Directors.  On a quarterly basis, the investment team of the Manager prepares valuations for all of the assets in our portfolio companies and presents the valuations to the Company’s Valuation Committee and Board of Directors.  The valuations are determined and recommended by the Valuation Committee to the Board of Directors, which reviews and ratifies the final portfolio valuations.

Investments in securities for which market quotations are readily available are recorded in the financial statements at such market quotations as of the valuation date adjusted for appropriate liquidity discounts, if applicable. For investments in securities for which market quotations are unavailable, or which have various degrees of trading restrictions, the investment team prepares valuation analyses, as generally described below.

Using the most recently available financial statements, forecasts and, when applicable, comparable transaction data, the investment team of the Manager prepares valuation analyses for the various securities in the Company’s investment portfolio. These valuation analyses are prepared using traditional valuation methodologies, which rely on estimates of the asset values and enterprise values of portfolio companies issuing securities.
 
The methodologies for determining asset valuations include estimates based on:  the liquidation or sale value of a portfolio company’s assets, the discounted value of expected future net cash flows from the assets and third party valuations of the portfolio company’s assets, such as engineering reserve reports of oil and gas properties.  The investment team of the Manager considers some or all of the above valuation methods to determine the estimated asset value of a portfolio company.

The methodologies for determining enterprise valuations include estimates based on:  valuations of comparable public companies, recent sales of comparable companies, the value of recent investments in the equity securities of a portfolio company and also on the methodologies used for asset valuations.  The investment team of the Manager considers one or all of the above valuation methods to determine the estimated enterprise value of a portfolio company.

Debt Securities: The Company records its investments in non-convertible debt securities at fair value which generally approximates cost  plus amortized original issue discount, or OID, to the extent that the estimated asset or enterprise value of the portfolio company exceeds the outstanding debt of the portfolio company. The Company records its investment in convertible debt securities at fair value which generally approximates the higher of: 1) cost plus amortized OID, to the extent that the estimated asset or enterprise value of the portfolio company equals or exceeds the outstanding debt of the portfolio company; and 2) the Company’s pro rata share, upon conversion, of the residual equity value of the portfolio company available after deducting all outstanding debt from its estimated enterprise value. If the estimated asset or enterprise value is less than the sum of the value of the Company’s debt investment and all other debt securities of the portfolio company pari passu or senior to the Company’s debt investment, the Company reduces the value of its debt investment beginning with its junior-most debt investment such that the asset or enterprise value less the value of the outstanding pari passu or senior debt is zero.

 
 

 

 
Equity Securities: The Company records its  investments in preferred and common equity securities (including warrants or options to acquire equity securities) at fair value based on its pro rata share of the residual equity value available after deducting all outstanding debt from the estimated enterprise value.

Property-Based Equity Participation Rights: The Company records its investments in overriding royalty and net profits interests at fair value based on a multiple of cash flows generated by such investments, multiples from transactions involving the sale of comparable assets and/or the discounted value of expected future net cash flows from such investments. Appropriate cash flow multiples are derived from the review of comparable transactions involving similar assets. The discounted value of future net cash flows is derived, when appropriate, from third party valuations of a portfolio company’s assets, such as engineering reserve reports of oil and gas properties.

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations currently assigned.
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement on Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements.

As of January 1, 2008, the Company adopted SFAS No. 157. The Company has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination. Based on this assessment, the adoption of this standard did not have a material effect on the Company’s net asset value.
 
Securities Transactions, Interest and Dividend Income Recognition

All securities transactions are accounted for on a trade-date basis. Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected. Premiums and discounts are accreted into interest income using the effective interest method. Detachable warrants, other equity securities or property interests such as overriding royalty interests obtained in conjunction with the acquisition of debt securities are recorded separately from the debt securities at their initial fair value, with a corresponding amount recorded as a discount to the associated debt security. Income from overriding royalty interests is recognized as received and the recorded assets are charged depletion using the unit of production depletion method. The portion of the loan origination fees paid that represent additional yield or discount on a loan are deferred and accreted into interest income over the life of the loan using the effective interest method. Upon the prepayment of a loan or debt security, any unamortized loan origination fees are recorded as interest income and any unamortized premium or discount is recorded as a realized gain or loss. Market premiums or discounts on acquired loans or fixed income investments are accreted into interest income using the effective interest method. Dividend income is recognized on the ex-dividend date. Accruing interest or dividends on investments is deferred when it is determined that the interest or dividend is not collectible. Collectability of the interest and dividends is assessed, based on many factors including the portfolio company’s ability to service its loan based on current and projected cash flows as well as the current valuation of the portfolio company’s assets.

Payment-in-Kind Interest and Dividends

The Company may have investments in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK interest or dividends, computed at the contractual rate specified in each investment agreement, are added to the principal balance of the investment and recorded as interest or dividend income.  For investments with PIK interest or dividends, the Company bases income accruals on the principal balance including any PIK.  If the portfolio company’s asset valuation is not sufficient to cover the contractual interest, the Company will not accrue interest or dividend income on the investment.  To maintain the Company’s RIC status, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.  For the quarter ended March 31, 2008, PIK interest income totaled $1,728,817, and there was no PIK dividend income.  For the quarter ended March 31, 2007, PIK interest income totaled $1,115,048, and there was no PIK dividend income.

 
 

 
 
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
 
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, considering unamortized fees and prepayment premiums, and without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the year, net of recoveries. Net unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period including the reversal of previously recorded unrealized appreciation or depreciation, when capital gains or losses are realized.

Fee Income Recognition
 
Fees primarily include financial advisory, transaction structuring, loan administration, commitment and prepayment fees. Financial advisory fees represent amounts received for providing advice and analysis to companies and are recognized as earned when such services are performed, provided collection is probable. Transaction structuring fees represent amounts received for structuring, financing and executing transactions and are generally payable only if the transaction closes. Such fees are deferred and accreted into interest income over the life of the loan using the effective interest method. Commitment fees represent amounts received for committed funding and are generally payable whether or not the transaction closes. On transactions that close within the commitment period, commitment fees are deferred and accreted into interest income over the life of the loan using the effective interest method. Commitment fees on transactions that do not close are generally recognized over the period the commitment is outstanding. Prepayment and loan administration fees are recognized as they are received.  For the quarter ended March 31, 2008, the Company accreted approximately $0.3 million of fee income into interest income, compared to approximately $0.4 million of fee income for the quarter ended March 31, 2007.
 
Dividends
 
Dividends to stockholders are recorded on the ex-dividend date. The Company currently intends that its distributions each year will be sufficient to maintain the Company’s status as a RIC for federal income tax purposes and to eliminate excise tax liability.  The Company currently intends to make distributions to stockholders on a quarterly basis of substantially all of its net taxable income.    The Company also intends to make distributions of net realized capital gains, if any, at least annually.  However, the Company may in the future decide to retain such capital gains for investment and designate such retained amount as a deemed distribution.  The amount to be paid out as a dividend, if any, is determined by the Company’s Board of Directors each quarter and is based on the annual taxable earnings estimated by the Manager. Based on that estimate, a dividend is declared each quarter and paid shortly thereafter.

 
 
 

 

Prior to 2005, the Company was treated as a “C” corporation and had no taxable income and therefore did not declare a dividend for that period.  The following table summarizes the Company’s dividend history:
 

Dividend History
                                                
 
         
Declaration Date
 
Amount
 
Record Date
Payment Date
March 18, 2005
  $
0.120
 
March 31, 2005
April 15, 2005
June 17, 2005
  $
0.125
 
June 30, 2005
July 15, 2005
September 19, 2005
  $ 0.140  
September 30, 2005
October 14, 2005
December 15, 2005
  $ 0.275  
December 27, 2005
January 4, 2006
March 10, 2006
  $ 0.160  
March 31, 2006
April 17, 2006
June 14, 2006
  $ 0.180  
June 30, 2006
July 14, 2006
September 14, 2006
  $ 0.250  
September 29, 2006
October 13, 2006
December 7, 2006
  $ 0.330  
December 19, 2006
December 29, 2006
March 19, 2007
  $ 0.265  
March 30, 2007
April 13, 2007
June 13, 2007
  $ 0.310  
June 29, 2007
July 13, 2007
September 12, 2007
  $ 0.350  
September 28, 2007
October 12, 2007
December 12, 2007
  $ 0.515  
December 28, 2007
January 4, 2008
March 6, 2008
  $ 0.400  
March 31, 2008
April 11, 2008


 
 

 
The Company has established an “opt out” dividend reinvestment plan for its common stockholders. As a result, if the Company declares a dividend, then a stockholder’s cash dividend will be automatically reinvested in additional shares of the Company’s common stock unless the stockholder, or his or her broker, specifically “opts out” of the dividend reinvestment plan and elects to receive cash dividends. It is customary practice for many brokers to “opt out” of dividend reinvestment plans on behalf of their clients unless specifically instructed otherwise. As of April 11, 2008, holders of 1,693,284 shares, or approximately 9.7% of outstanding shares, were participants in the Company’s dividend reinvestment plan.

The Company’s plan provides for the plan agent to purchase shares in the open market for credit to the accounts of plan participants unless the average of the closing sales prices for the shares for the five days immediately preceding the payment date exceeds 110% of the most recently reported net asset value per share.

The table below summarizes participation in the Company’s dividend reinvestment plan:
 

 
 
         
Percentage of
               
Common Stock Dividends
       
   
Participating
   
Outstanding
   
Total
         
Purchased in
   
Newly Issued Shares
       
Dividend
 
Shares
   
Shares
   
Distribution
   
Cash Dividends
   
Open Market
   
Amount
   
Shares
       
March 2005
    -       0.0 %   $ 2,088,012     $ 2,088,012     $ -     $ -       -        
June 2005
    1,215,870       7.0 %   $ 2,175,013     $ 2,023,029     $ 151,984     $ -       -        
September 2005
    1,488,904       8.6 %   $ 2,436,014     $ 2,227,567     $ 208,447     $ -       -        
December 2005
    1,660,140       9.5 %   $ 4,785,028     $ 4,328,488     $ 456,540     $ -       -        
March 2006
    1,618,940       9.3 %   $ 2,784,016     $ 2,524,986     $ 259,030     $ -       -        
June 2006
    1,410,227       8.1 %   $ 3,132,018     $ 2,878,177     $ 253,841     $ -       -        
September 2006
    1,270,634       7.3 %   $ 4,350,025     $ 4,032,366     $ 317,659     $ -       -        
December 2006
    1,111,045       6.4 %   $ 5,742,033     $ 5,375,388     $ -     $ 366,645       22,168        
March 2007
    1,355,671       7.8 %   $ 4,616,901     $ 4,257,648     $ -     $ 359,253       22,692        
June 2007
    1,363,066       7.8 %   $ 5,407,938     $ 4,985,387     $ -     $ 422,550       24,694        
September 2007
    1,438,143       8.2 %   $ 6,114,379     $ 5,611,029     $ -     $ 503,350       30,678        
December 2007
    1,605,164       9.2 %   $ 9,012,670     $ 8,186,010     $ 826,659     $ -       -       (1 )
March 2008
    1,693,284       9.7 %   $ 7,000,133     $ 6,322,815     $ -     $ 677,318       41,482       (1 )
                                                                 
(1) Shares were issued on April 11, 2008 for the March 2008 dividend. See above and Note 4 for futher detail.
                                 

 
 
 

 
 
Note 3:                      Credit Facilities and Borrowings   
 
Under the terms of the Company’s Second Amendment to Treasury Secured Revolving Credit Agreement (the “Treasury Facility”), the lenders party thereto and SunTrust Bank, as administrative agent for the lenders, have extended credit available under the Treasury Facility to an amount not to exceed $175 million by obtaining additional commitments from existing lenders or new lenders.  The total amount committed and outstanding under the Treasury Agreement as of March 31, 2008 was $126.25 million, which was unchanged compared to the committed and outstanding amounts as of December 31, 2007.  Proceeds from the Treasury Facility are used to facilitate the growth of the Company’s investment portfolio and provide flexibility in the sizing of its portfolio investments. The Treasury Facility has a three-year term and bears interest, at the Company’s option, at either (i) LIBOR plus 25 basis points or (ii) the base rate. As of March 31, 2008, the interest rate on the Company’s outstanding borrowings under the Treasury Facility was 2.84875% (LIBOR rate of 2.59875% plus 25 basis points) on $126.25 million. The obligations under the Treasury Facility are collateralized by certain securities and are guaranteed by the Company’s existing and future subsidiaries, other than special purpose subsidiaries and certain other subsidiaries. The Treasury Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants, including: (a) maintaining a ratio of net asset value to consolidated total indebtedness (excluding net hedging liabilities) of the Company and its subsidiaries, of not less than 2.25:1.0, (b) maintaining a ratio of net asset value to consolidated total indebtedness (including net hedging liabilities) of the Company and its subsidiaries, of not less than 2.0:1.0, (c) maintaining a ratio of EBITDA (excluding revenue from cash collateral) to interest expense (excluding interest on loans under the Treasury Facility) of the Company and its subsidiaries of not less than 3.0:1.0, (d) maintaining a ratio of collateral to the aggregate principal amount of loans under the Treasury Facility of not less than 1.01:1.0, (e) limitations on additional indebtedness, (f) limitations on liens, (g) limitations on mergers and other fundamental changes, (h) limitations on dividends, (i) limitations on disposition of assets other than in the normal course of business, (j) limitations on transactions with affiliates, (k) limitations on agreements that prohibit liens on properties of the Company and its subsidiary guarantors, (l) limitations on sale and leaseback transactions, (m) limitations on speculative hedging transactions, and (n) limitations on the aggregate amount of unfunded commitments.

Under the terms of the Company’s Amended and Restated Revolving Credit Agreement (the “Investment Facility”), the lenders have agreed to extend revolving credit to the Company in an amount not to exceed $100 million, with  the ability to increase the credit available to an amount not to exceed $175 million by obtaining additional commitments from existing lenders or new lenders.  The total amount committed was $100 million and $65 million was outstanding under the Investment Facility as of March 31, 2008.  By comparison, the total amount committed as of December 31, 2007 was $100 million and $89.75 million was outstanding under the Investment Facility.  The Investment Facility has a three-year term and bears interest, at the Company’s option, at either (i) LIBOR plus 125 to 225 basis points, based on the degree of leverage of the Company or (ii) the base rate plus 0 to 75 basis points, based on the degree of leverage of the Company.  Proceeds from the Investment Facility will be used to supplement the Company’s equity capital to make portfolio investments.  As of March 31, 2008, the interest rates were 5.75% (Prime rate of 5.25% plus 50 basis points) on $10 million, and 4.6775% (LIBOR rate of 2.6775% plus 200 basis points) on $55 million.

The obligations under the Investment Credit Agreement are collateralized by substantially all of the Company’s assets, except certain assets that collateralize the Treasury Facility and are guaranteed by the Company’s existing and future subsidiaries, other than special purpose subsidiaries and certain other subsidiaries.  The Investment Facility contains affirmative and reporting covenants and certain financial ratio and restrictive covenants, including: (a) maintaining a ratio of net asset value to consolidated total indebtedness (excluding net hedging liabilities) of the Company and its subsidiaries, of not less than 2.25:1.0, (b) maintaining a ratio of net asset value to consolidated total indebtedness (including net hedging liabilities) of the Company and its subsidiaries, of not less than 2.0:1.0, (c) maintaining a ratio of net income (excluding revenue from collateral under the Treasury Facility) plus interest, taxes, depreciation and amortization expenses (“EBITDA”) to interest expense (excluding interest on loans under the Treasury Facility) of the Company and its subsidiaries of not less than 3.0:1.0, (d) limitations on additional indebtedness, (e) limitations on liens, (f) limitations on mergers and other fundamental changes, (g) limitations on dividends, (h) limitations on disposition of assets other than in the normal course of business, (i) limitations on transactions with affiliates, (j) limitations on agreements that prohibit liens on properties of the Company and its subsidiary guarantors, (k) limitations on sale and leaseback transactions, (l) limitations on speculative hedging transactions and (m) limitations on the aggregate amount of unfunded commitments.

From time to time, certain of the lenders may provide customary commercial and investment banking services to the Company.

 
 

 

The Manager has agreed to waive permanently, subsequent to September 30, 2007, that portion of the management fee attributable to U.S. Treasury securities acquired with borrowings under the Company’s credit facilities to the extent the amount of such securities exceeds $100 million.
 
In addition to the Company’s credit facility, the Company may also fund a portion of its investments with issuances of equity or senior debt securities. The Company may also securitize a portion of its investments in mezzanine or senior secured loans or other assets. The Company expects its primary use of funds to be investments in portfolio companies, cash distributions to holders of its common stock and payment of fees and other operating expenses.
 
Note 4:                      Issuance of Common Stock
 
On August 6, 2004, the Company, in its initial capitalization transaction, sold 100 shares of common stock to Natural Gas Partners, LLC for $15.00 per share. On November 9, 2004, the Company’s Registration Statement (Registration No. 333-118279) was declared effective by the SEC in connection with the public offering of 16,000,000 shares of common stock (plus up to 2,400,000 additional shares of common stock upon the exercise of the underwriters’ over-allotment option), which commenced on November 10, 2004. The number of securities registered, including the shares of common stock subject to the underwriters’ over-allotment option, was 18,400,000, of which 17,400,000 were sold to the public at a price of $15.00 per share.

The net proceeds from the initial public offering of the shares of common stock, after deducting expenses of approximately $2,308,000 and underwriting discounts and commissions of $0.825 per share, were approximately $244,337,000.

The Company has established a dividend reinvestment plan for the Company’s common stockholders, which provides for reinvestment of distributions paid by the Company, on behalf of each plan participant, by the Company’s transfer agent, in accordance with the plan terms. The purpose of the plan is to provide stockholdersf record of the Company’s common stock, par value $.001 per share, with a method of investing cash dividends and distributions in additional shares at the current market price without charges for record-keeping, custodial, and reporting services. However, the plan is an “opt-out” plan. This means, if the Company declares a cash dividend, a stockholder’s cash dividend will be automatically reinvested in additional shares of its common stock unless the stockholder specifically “opts out” of the dividend reinvestment plan in writing, and elects to receive cash dividends. Any stockholder of record may elect to partially participate in the plan, or begin or resume participation at any time, by providing the plan agent with written notice. It is customary practice for many brokers to “opt out” of dividend reinvestment plans on behalf of their clients unless specifically instructed otherwise.

The Company issued 22,168 and 78,064 shares of common stock, respectively, in 2006 and 2007 to participants in the dividend reinvestment plan. The Company issued 41,482 shares of common stock on April 11, 2008 to participants in the dividend reinvestment plan with respect to the $0.40 per share dividend declared on March 6, 2008.  See Dividends in Note 2 .

Note 5:                      Investment Management
 
Investment Advisory Agreement

The Company has entered into an investment advisory agreement with the Manager under which the Manager, subject to the overall supervision of the Company’s Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, the Company.

For providing these services, the Manager receives a fee from the Company, consisting of two components — a base management fee and an incentive fee.
 
Under the investment advisory agreement, the base management fee is calculated quarterly as 0.45% of the average of total assets of the Company as of the end of the two previous quarters, and is payable quarterly in arrears.  The Manager has agreed to waive permanently, subsequent to September 30, 2007, that portion of the management fee attributable to U.S. Treasury securities acquired with borrowings under the Company’s credit facilities to the extent the amount of such securities exceeds $100 million.

 
 

 

Of the $2,148,721 management and incentive fees payable to the Manager as of March 31, 2008, $1,800,206 is the base management fee for the quarter ended March 31, 2008.  The base management fee for the quarter ended December 31, 2007 was $1,683,592.
 
The incentive fee under the investment advisory agreement consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals 20% of the excess, if any, of the Company’s net investment income for the quarter that exceeds a quarterly hurdle rate equal to 2% (8% annualized) of the Company’s net assets.
 
For this purpose, net investment income means interest income, dividend income, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence, managerial assistance, monitoring, and consulting fees or other fees that the Company receives from portfolio companies) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement, any interest expense and dividends paid on issued and outstanding preferred stock, if any, but excluding the incentive fee).   Accordingly, the Company may pay an incentive fee based partly on accrued interest, the collection of which is uncertain or deferred.  Net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that the Company has not yet received in cash. Net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation.
 
The incentive fees due in any fiscal quarter will be calculated as follows:

 
·
No incentive fee in any fiscal quarter in which the Company’s net investment income does not exceed the hurdle rate.
 
·
20% of the amount of the Company’s net investment income, if any, that exceeds the hurdle rate in any fiscal quarter.

There were no investment income incentive fees earned for the first quarters of 2008 and 2007.
 
The second part of the incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each fiscal year (or upon termination of the investment advisory agreement, as of the termination date), and equals (1) 20% of (a) the Company’s net realized capital gain (realized capital gains less realized capital losses) on a cumulative basis from the closing date of the Company’s initial public offering to the end of such fiscal year, less (b) any unrealized capital depreciation at the end of such fiscal year, less (2) the aggregate amount of all Capital Gains Fees paid to the Manager in prior fiscal years.  There were no Capital Gains Fees earned for the first quarters of 2008 and 2007.
  
Realized capital gains on a security are calculated as the excess of the net amount realized from the sale or other disposition of such security over the amortized cost for the security. Realized capital losses on a security are calculated as the amount by which the net amount realized from the sale or other disposition of such security is less than the amortized cost of such security. Unrealized capital depreciation on a security is calculated as the amount by which the original cost of such security exceeds the fair value of such security at the end of a fiscal year. All period-end valuations are determined by the Company in accordance with GAAP and the 1940 Act.
 
The Manager has agreed that, to the extent permissible under federal securities laws and regulations, including Regulation M, it will utilize 30% of the fees it receives from the capital gains portion of the incentive fee (up to a maximum of $5 million of fees received in the aggregate) to purchase shares of the Company’s common stock in open market purchases through an independent trustee or agent. Any sales of such stock will comply with any applicable six-month holding period under Section 16(b) of the Securities Act of 1933 and all other restrictions contained in any law or regulation, to the fullest extent applicable to any such sale. Any change in this voluntary agreement will not be implemented without at least 90 days prior notice to stockholders and compliance with all applicable laws and regulations.
 
The investment advisory agreement was originally approved by the Company’s Board of Directors on November 9, 2004. The investment advisory agreement provides that unless terminated earlier as described below, the agreement shall remain in effect from year-to-year after November 9, 2006, provided continuation is approved at least annually by the Company’s Board of Directors or by the affirmative vote of the holders of a majority of the Company’s outstanding voting securities, including, in either case, approval by a majority of the members of the Company’s Board of Directors who are not interested persons. On November 1, 2007, the Company’s Board of Directors, including all of the independent directors, approved an extension of the investment advisory agreement through November 9, 2008.

 
 

 
 
The agreement may be terminated at any time, without the payment of any penalty, by a vote of the Company’s Board of Directors or the holders of a majority of the Company’s shares on 60 days’ written notice to the Manager, and would automatically terminate in the event of its “assignment” (as defined in the 1940 Act).  The agreement may be terminated by either party without penalty upon not more than 60 days’ written notice to the other.

The investment advisory agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or the reckless disregard of its duties and obligations, the Manager and its officers, manager, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Manager’s services under the investment advisory agreement or otherwise as the Company’s Manager.

Pursuant to the investment advisory agreement, the compensation and routine overhead expenses of the investment professionals of the Company’s management team and their respective staffs, when and to the extent engaged in providing management and investment advisory services to the Company, will be paid for by the Manager. The Company will bear all other costs and expenses of its operations and transactions.

The Manager, NGP Investment Advisor, LP, was formed in 2004 and maintains an office at 1221 McKinney Street, Suite 2975, Houston, Texas 77010. The Manager’s sole activity is to perform management and investment advisory services for the Company. The Manager is a registered investment adviser under the Investment Advisers Act of 1940.

The foregoing description of the investment advisory agreement is qualified in its entirety by reference to the full text of the document, a copy of which was filed as Exhibit 10.1 to the Company’s Form 10-K for the year ended December 31, 2004, and is incorporated herein by reference.

Administration  Agreement

The Company has entered into an administration agreement with the Administrator, under which the Administrator furnishes the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities.  Under the administration agreement, the Administrator also performs, or oversees the performance by third parties of, the Company’s required administrative services, which include being responsible for the financial records that the Company is required to maintain and preparing reports to the Company’s stockholders and reports filed with the SEC.  In addition, the Administrator assists in determining and publishing the Company’s net asset value, oversees the preparation and filing of the Company’s tax returns and the printing and dissemination of reports to the Company’s stockholders and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.   To the extent permitted under the 1940 Act, the Administrator may also provide on the Company’s behalf, significant managerial assistance to the Company’s portfolio companies.  Payments under the agreement are equal to amounts based upon the allocable portion of the Administrator’s costs and expenses incurred in connection with administering the Company’s business.  The Administrator bills the Company for charges under the administration agreement monthly in arrears.  The agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party and will automatically terminate in the event of its “assignment” (as defined in the 1940 Act).
 
Of the $510,915 in accounts payable as of March 31, 2008, $206,265 was due to the Administrator for expenses incurred on the Company’s behalf for the month of March 2008.  By comparison, $225,148 was due to the Administrator for expenses incurred on the Company’s behalf for the month of December 2007.

The administration agreement was originally approved by the Company’s Board of Directors on November 9, 2004. The administration agreement provides that unless terminated earlier the agreement will continue in effect until November 9, 2006, and from year-to-year thereafter provided such continuance is approved at least annually by (i) the Company’s Board of Directors and (ii) a majority of the members of the Company’s Board of Directors who are not parties to the administration agreement or “interested persons” of any such party. On November 1, 2007, the Company’s Board of Directors, including all of the independent directors, approved the continuation of the administration agreement through November 9, 2008.
 
The foregoing description of the administration agreement is qualified in its entirety by reference to the full text of the document, a copy of which was filed as Exhibit 10.2 to the Company’s Form 10-K for the year ended December 31, 2004, and is incorporated herein by reference.
 
 
 
 

 
Note 6:                      Federal Income Taxes
 
The Company intends to qualify for tax purposes as a RIC under Subchapter M of Chapter 1 of the Code.  As a RIC, the Company generally will not be subject to federal income tax on the portion of its investment company taxable income and net capital gain (i.e., realized net long term capital gains in excess of realized net short term capital losses) distributed to stockholders. To qualify as a RIC, the Company is required, among other things, to distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, and to meet certain asset diversification requirements.  At December 31, 2004, the Company’s temporary investments included commercial paper of certain issuers that exceeded 5% of the value of its total assets. These investments were classified as cash equivalents for financial statement purposes. The Company was advised, however, that for purposes of the federal income tax rules governing RIC status, these commercial paper investments could not be classified as cash items, in which case the Company did not meet the RIC asset diversification requirements at December 31, 2004 and was instead treated as a “C” corporation for tax purposes for 2004.
 
For the years ended December 31, 2005, 2006 and 2007, the Company met all RIC requirements. The Company distributed substantially all of its investment company taxable income for 2005, 2006 and 2007. Thus, the Company did not incur any federal income tax liability for any of these periods.
  
Differences between the effective income tax rate and the statutory federal tax rate for the periods ended March 31, 2008 and March 31, 2007 were as follows:
             
   
For the Three Months
   
For the Three Months
 
   
ended March 31, 2008
   
ended March 31, 2007
 
   
(unaudited)
   
(unaudited)
 
             
Statutory federal rate on loss from continuing operations
    34 %     34 %
Effect of net deferred tax assets
    (34 %)     (34 %)
                 
Effective tax rate on earnings from  continuing operations
    0 %     0 %
                 

The tax effects of temporary differences that give rise to the deferred tax assets and liabilities are as follows:
   
For the Three Months
   
For the Three Months
 
   
ended March 31, 2008
   
ended March 31, 2007
 
   
(unaudited)
   
(unaudited)
 
             
Deferred tax assets
           
      Net operating loss carry forwards
  $ 33,866     $ 156,674  
      Net organization costs
    63,902       111,830  
         Total gross deferred tax assets
    97,768       268,504  
      Less valuation allowance
    (97,768 )     (268,504 )
         Net deferred tax assets
    -       -  
                 
Deferred tax liabilities
               
      Unrealized gains, net
    -       -  
      Prepaid expenses
    -       -  
         Total gross deferred tax liabilities
    -       -  
                 
         Net deferred tax assets
  $ -     $ -  
                 

 
 
 

 
When a “C” corporation qualifies to be taxed as a RIC, it is subject to corporate-level tax on appreciation inherent in its assets on the date it becomes a RIC (i.e., built-in gain) that it recognizes within the first 10 years of its RIC status. A RIC generally may use loss carryforwards arising in taxable years while it was a “C” corporation to reduce its net recognized built-in gain, although a RIC is not otherwise allowed to utilize such loss carryforwards. Because the Company intends to qualify as a RIC under Subchapter M of the Code for 2005 and later years, it is uncertain whether the Company will fully utilize the tax benefit of its loss carryforward of approximately $142,000 at December 31, 2004. The valuation allowance for deferred tax assets for the period August 6, 2004 (commencement of operations) through December 31, 2004 was primarily included to reflect this uncertainty. After reducing the deferred tax asset by this allowance, the amount of the remaining deferred tax asset of $266,013 would entirely offset the deferred tax liability of $266,013 estimated as of December 31, 2004 should the Company recognize its built-in gain in future years. Because the loss carryforward is expected to offset the built-in gain, no provision for federal income taxes has been recorded for the period August 6, 2004 (commencement of operations) through December 31, 2004. The loss carryforward will expire in the year 2024.

The Company’s consolidated subsidiaries, NGPC Asset Holdings, LP, NGPC Asset Holdings II, LP, NGPC Asset Holdings III, LP, and NGPC Asset Holdings IV, LP, collectively (“NGPCAH”), are subject to federal income taxes. For the year ended December 31, 2005 (its first year of operations), NGPCAH operated at a loss and thus, at December 31, 2005, NGPCAH had a deferred tax asset of approximately $15,000, composed of net operating loss carryforwards. For the year ended December 31, 2006, NGPCAH operated at a small profit, resulting in a reduction of the deferred tax asset composed of net operating loss carryforwards of approximately $1,000. For the year ended December 31, 2007, NGPCAH had net operating income of approximately $315,000 resulting in a reduction of the deferred tax asset composed of net operating loss carryforwards of approximately $122,808.  Management believes that the realization of the net deferred tax asset is not likely based on expectations as to future taxable income and, accordingly, NGPCAH recorded a valuation allowance of approximately $15,000 at December 31, 2005, approximately $14,000 at December 31, 2006, and of approximately $109,000 at December 31, 2007.  For the period ended March 31, 2008, NGPCAH operated at a small loss and, accordingly, NGPCAH recorded no provision for income taxes for the period ended March 31, 2008.

Note 7:                      Reclassifications
 
GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on total net assets or net asset value per share. For the years ended December 31, 2007, 2006 and 2005, $64,170, $15,710 and $586,225, respectively, were reclassified to undistributed net investment income (loss) from paid-in capital in excess of par.  These reclassifications were primarily due to non-deductible meal expenses, non-deductible excise taxes and income and expenses from a wholly-owned subsidiary.

Note 8:                      Commitments and Contingencies
 
As of March 31, 2008, the Company had investments in or commitments to fund loan facilities to 15 portfolio companies totaling $306 million, on which $279 million was drawn. In addition, the Company has continuing obligations under the investment advisory agreement with the Manager and the administration agreement with the Administrator. The agreements provide that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Manager, the Administrator and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with them will be entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Manager’s or Administrator’s services under the agreements or otherwise as the Company’s investment adviser or administrator. The agreements also provide that the Manager, the Administrator and their affiliates will not be liable to the Company or any stockholder for any error of judgment, mistake of law, any loss or damage with respect to any of the Company’s investments or any action taken or omitted to be taken by the Manager or the Administrator in connection with the performance of any of their duties or obligations under the agreements or otherwise as investment adviser or administrator to the Company, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. In the normal course of business, the Company enters into a variety of undertakings containing a variety of representations that may expose the Company to some risk of loss. The amount of future loss, if any, arising from such undertakings, while not quantifiable, is not expected to be significant.

 
 

 
Note 9:                      Fair Value

In September 2006, FASB issued SFAS No. 157, which establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

As of January 1, 2008, the Company adopted SFAS No. 157. The Company has performed an analysis of all existing investments and derivative instruments to determine the significance and character of all inputs to their fair value determination. Based on this assessment, the adoption of this standard did not have a material effect on the Company’s net asset value. However, the adoption of the standard does require the Company to provide additional disclosures about the inputs used to develop the measurements and the effect of certain measurements on changes in net assets for the reportable periods as contained in the Company’s periodic filings.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories:

·
Level 1 — Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement.

·
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.

·
Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Company’s own assumptions that market participants would use to price the asset or liability based on the best available information.
 
 
The following table presents the Company’s assets measured at fair value on a recurring basis at March 31, 2008:
 
               
Prices with
       
         
Quoted Prices
   
Observable
       
         
in Active
   
Market
   
Unobservable
 
         
Markets
   
Inputs
   
Inputs
 
Assets at Fair Value
 
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Long Term Investments
  $ 291,220,223     $ -     $ 19,551,000     $ 271,669,223  
Short Term Investments
    143,978,220       143,978,220       -       -  
Total Assets at Fair Value
  $ 435,198,443     $ 143,978,220     $ 19,551,000     $ 271,669,223  
 
 
 
                               
 
 
The Company did not have any liabilities that were measured at fair value on a recurring basis at March 31, 2008
 
The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at December 31, 2007 and at March 31, 2008.
       
   
Long Term
 
Assets at Fair Value Using Unobservable Inputs (Level 3)
 
Investments
 
       
Balance as of December 31, 2007
  $ 272,348,573  
Transfers in (out) of Level 3
    -  
Net investment income (loss)
    307,688  
Net realized gains (losses)
    -  
Net unrealized gains (losses)
    (467,996 )
Purchases, sales and  redemptions
    (519,042 )
Balance as of March 31, 2008
  $ 271,669,223  
 
The $467,996 of net unrealized losses presented in the table above relates to investments that are still held at March 31, 2008, and the Company presents these unrealized losses on the Consolidated Statement of Operations as net increase (decrease) in unrealized appreciation (depreciation) on portfolio securities and corporate notes.

 
 

 
Note 10:                      Subsequent Events

On April 15, 2008 the Company completed an underwritten public offering of 3,700,000 shares of the Company’s common stock at a price per share of $16.00, raising approximately $55.8 million in net proceeds after deducting underwriting discounts and commissions and estimated offering expenses.  A shelf registration statement relating to the sale of shares in this offering has been filed with the SEC and has become effective.  The underwriters for the offering were Raymond James & Associates, Inc., Stifel, Nicolaus & Company, Incorporated and BB&T Capital Markets, a division of Scott & Stringfellow, Inc.  The Company has granted the underwriters a 30-day option to purchase up to an additional 555,000 shares of common stock to cover over-allotments, if any.  On April 16, 2008, the Company used the $56.2 million net proceeds of this offering plus an additional $8.8 million of cash on hand to repay the outstanding balance on its $65 million investment credit facility.

On April 25, 2008, the Company announced that the underwriters had exercised a portion of the over-allotment granted in connection with the Company’s recent public offering of common stock and had purchased an additional 386,388 shares of common stock at a price per share of $16.00, bringing total net proceeds of the offering to approximately $61.7 million after deducting underwriting discounts and commissions and estimated offering expenses. A total of 168,612 shares remain available for purchase under the underwriters’ over-allotment option during the remainder of its 30-day term.  The Company will use proceeds from the exercise of the over-allotment to fund additional investments.

On April 30, 2008, the Company closed a $30 million Senior Secured Credit Facility (the “Facility”) with Greenleaf Investments LLC, a private company based in Victoria, Texas (“Greenleaf”).  The Company acted as agent and sole lender for the Facility.  Initial availability under the Facility is $12.5 million with approximately $10.5 million funded at closing.  The Facility is secured by first liens on substantially all of Greenleaf’s assets.  As partial consideration for providing the Facility, the Company received an overriding royalty interest in Greenleaf’s properties.  Proceeds from the Facility will be used by Greenleaf to acquire certain properties in Victoria County, Texas, to develop additional oil and gas properties and to fund capital expenditures.  Greenleaf is an oil and gas producer with interests in production located along the Texas Gulf Coast.

Also on April 30, 2008, the Company made a follow-on investment in Tammany Oil & Gas, LLC, an existing portfolio company.  Availability under this facility was increased from $30.0 million to $34.0 million.  The Company funded an additional $6.2 million, which was used to acquire certain producing properties in the federal waters of the Gulf of Mexico.  Following the investment, there is approximately $29.5 million outstanding under this facility.  

 
 

 

Item 2.                      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto contained elsewhere in this report.
 
Forward-Looking Statements
 
The safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995 does not apply to business development companies and statements made in this report.  Nonetheless, certain statements in this report that relate to estimates or expectations of our future performance or financial condition may be forward-looking. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections in our industry, our beliefs and our assumptions.  These statements are not guarantees of future performance and are subject to various risks and uncertainties, which could cause actual results and conditions to differ materially from those projected, including, but not limited to,

 
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uncertainties associated with the timing of transaction closings;
 
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changes in the prospects of our portfolio companies;
 
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changes in interest rates;
 
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changes in regional, national or international economic conditions and their impact on the industries in which we invest;
 
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the future operating results of our portfolio companies and their ability to achieve their objectives;
 
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changes in the conditions of the industries in which we invest;
 
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the adequacy of our cash resources and working capital;
 
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the timing of cash flows, if any, from the operations of our portfolio companies;
 
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the ability of our external manager, NGP Investment Advisor, LP, which we refer to as our Manager, to locate suitable investments for us and to monitor and administer the investments; and
 
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other factors enumerated in our filings with the Securities and Exchange Commission, or the SEC.

We may use words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and present expectations. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate.  Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made. Additional information regarding these and other risks and uncertainties is contained in our periodic filings with the SEC.
 
Overview
 
We are a financial services company created to invest primarily in debt securities of small and mid-size private energy companies, which we generally define as companies that have net asset values or annual revenues of less than $500 million and are not issuers of publicly traded securities. We have elected to be regulated as a business development company, or a BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act, and, as such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which are securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes we operate so as to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended, or the Code. Pursuant to these elections, we generally will not have to pay corporate-level taxes on any income and capital gains we distribute to our stockholders.

Our investment objective is to generate both current income and capital appreciation primarily through debt and equity investments with certain equity components.  A key focus area for our targeted investments in the energy industry is domestic exploration and production businesses and midstream businesses that gather, process and transport oil and natural gas. We also evaluate investment opportunities in such businesses as coal, power, electricity,
 
 

 
energy services and alternative energy. Our investments will generally range in size from $10 million to $50 million; however, we may invest more or less depending on market conditions and our Manager’s view of a particular investment opportunity.  Our targeted investments primarily consist of debt instruments, including senior and subordinated loans combined in one facility, sometimes with an equity component, and subordinated loans with equity components.  We may also invest in preferred stock and other equity securities on a stand-alone basis.

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to energy companies, the level of acquisition and divestiture activity for such companies, the level and volatility of energy commodity prices, the general economic environment and the competitive environment for the types of investments we make. We believe that, for energy companies, the availability of debt capital from banks, mezzanine providers and alternative investment vehicles such as hedge funds has remained strong over the last 12 months and has continued to put downward pressure on spreads. However, we do not expect this availability of capital to impair our ability to make attractive long-term investment decisions with our capital.   We remain committed to our underwriting and investment disciplines in selectively investing in appropriate risk-reward opportunities within the energy sector.
 
We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own and capital gains or losses on any debt or equity securities that we acquire in portfolio companies and subsequently sell. Our investments, if in the form of debt securities, typically have a term of three to seven years and bear interest at a fixed or floating rate. To the extent achievable, we seek to collateralize our investments by obtaining security interests in our portfolio companies' assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including commitment, origination, structuring, administration or due diligence fees; fees for providing managerial assistance; and possibly consultation fees.  Any such fees generated in connection with our investments are recognized as earned.

Portfolio and Investment Activity
 
During the quarter ended March 31, 2008, we added one new company to our portfolio and one company repaid its facility. In January 2008, BSR Alto’s Term Loan was fully repaid at par from proceeds from the sale of its assets to a third party. As of September 30, 2007, we had written down the value of our investment in the BSR Alto Term Loan by $0.5 million. Upon repayment, this impairment was recovered in full.

In March 2008, we closed a $15 million investment in BioEnergy International, LLC, or BioEnergy, a private, alternative fuels and specialty chemicals company based in Quincy, Massachusetts. The investment consists of a $5 million participation in a $30 million Senior Secured Tranche Construction Loan and a $10 million participation in a $62 million Senior Secured Notes issue. As partial consideration for providing the investment, we received limited liability company units in a subsidiary of BioEnergy and warrants in BioEnergy. Proceeds from the investment will be used by BioEnergy to construct a fully contracted 108 million gallons per year ethanol plant in Clearfield County, Pennsylvania and to fund development of bio-refinery technologies .