Management’s Discussion
(Unaudited)
|
Management’s
Discussion
The information contained in this
section should be read in conjunction with our Financial Statements and the
Notes thereto. In addition, this report contains certain forward-looking
statements. These statements include the plans and objectives of management for
future operations and financial objectives and can be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “intend,”
“anticipate,” “estimate,” or “continue” or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are subject to the inherent uncertainties in predicting future results and
conditions. Certain factors that could cause actual results and conditions to
differ materially from those projected in these forward-looking statements are
set forth in the “Risk Factors” section of our public filings with the
SEC.
Overview
Tortoise Energy Capital Corp’s goal
is to provide a stable and growing distribution stream to our investors. We seek
to provide our stockholders with an efficient vehicle to invest in the energy
infrastructure sector. While we are a registered investment company under the
Investment Company Act of 1940, as amended (the “1940 Act”), we are not a
“regulated investment company” for federal tax purposes. Our distributions do
not generate unrelated business taxable income (UBTI) and our stock may
therefore be suitable for holding by pension funds, IRAs and mutual funds, as
well as taxable accounts. We invest primarily in MLPs through private and public
market purchases. MLPs are publicly traded partnerships whose equity interests
are traded in the form of units on public exchanges, such as the NYSE or
NASDAQ.
Company
Update
Market values of our MLP investments
increased during 3rd quarter 2009 from their levels at May 31, 2009 and February
28, 2009. This had a positive impact on our capital structure and increased the
existing cushion on our leverage coverage ratios, while also increasing
asset-based expenses.
On September 15, 2009, the Company
entered into a new Investment Advisory Agreement with the Adviser in connection
with the September 15, 2009 closing of the transaction previously announced by
the Adviser on June 3, 2009. Upon the closing of this transaction, which
resulted in a change in control of the Adviser, the previous Investment Advisory
Agreement with the Adviser automatically terminated. The terms of the new
Investment Advisory Agreement are substantially identical to the terms of the
previous Investment Advisory Agreement, except for the effective and termination
dates, and simply continue the relationship between the Company and the
Adviser.
On September 15, 2009, effective upon
consummation of the transaction resulting in the change of control of the
Adviser, Terry Matlack resigned from the Board of Directors of the Company in
order to comply with a safe harbor under Section 15(f) of the 1940 Act. Mr.
Matlack will remain a member of the Adviser’s Investment Committee and as Chief
Financial Officer of the Company.
Critical Accounting
Policies
The financial statements are based on
the selection and application of critical accounting policies, which require
management to make significant estimates and assumptions. Critical accounting
policies are those that are both important to the presentation of our financial
condition and results of operations and require management’s most difficult,
complex, or subjective judgments. Our critical accounting policies are those
applicable to the valuation of investments, tax matters and certain revenue
recognition matters as discussed in Note 2 in the Notes to Financial
Statements.
Determining Distributions to
Stockholders
Our portfolio generates cash flow
from which we pay distributions to stockholders. Our Board of Directors
considers our distributable cash flow (“DCF”) in determining distributions to
stockholders. Our Board of Directors reviews the distribution rate quarterly,
and may adjust the quarterly distribution throughout the year. Our goal is to
declare what we believe to be sustainable increases in our regular quarterly
distributions. We have targeted to pay at least 95 percent of DCF on an
annualized basis.
Determining
DCF
DCF is simply distributions received
from investments less expenses. The total distributions received from our
investments include the amount received by us as cash distributions from MLPs,
paid-in-kind distributions, and dividend and interest payments. The total
expenses include current or anticipated operating expenses, leverage costs and
current income taxes. Each are summarized for you in the table on page 2 and are
discussed in more detail below.
The Key Financial Data table
discloses the calculation of DCF and should be read in conjunction with this
discussion. The difference between distributions received from investments in
the DCF calculation and total investment income as reported in the Statement of
Operations, is reconciled as follows: GAAP recognizes that a significant portion
of the cash distributions received from MLPs are treated as a return of capital
and therefore excluded from investment income, whereas the DCF calculation
includes the return of capital; and, distributions received from investments in
the DCF calculation include the value of dividends paid-in-kind (additional
stock or MLP units), whereas such amounts are not included as income for GAAP
purposes. The treatment of expenses in the DCF calculation also differs from
what is reported in the Statement of Operations. In addition to the total
operating expenses as disclosed in the Statement of Operations, the DCF
calculation reflects interest expense, recurring agent fees, distributions to
preferred stockholders and realized and unrealized gains (losses) on interest
rate swap settlements as leverage costs, as well as current taxes
paid.
Distributions Received from
Investments
Our ability to generate cash is
dependent on the ability of our portfolio of investments to generate cash flow
from their operations. In order to maintain and grow distributions to our
stockholders, we evaluate each holding based upon its contribution to our
investment income, our expectation for its growth rate, and its risk relative to
other potential investments.
We concentrate on MLPs we believe can
expect an increasing demand for services from economic and population growth. We
seek well-managed businesses with hard assets and stable recurring revenue
streams. Our focus remains primarily on investing in fee-based service providers
that operate long-haul, interstate pipelines. We further diversify among
issuers, geographies and energy commodities to seek a distribution payment which
approximates an investment directly in energy infrastructure MLPs. In addition,
most energy infrastructure companies are regulated and utilize an inflation
escalator index that factors in inflation as a cost pass-through. So, over the
long-term, we believe MLPs’ distributions will outpace inflation and interest
rate increases, and produce positive returns.
Total distributions received from our
investments for the 3rd quarter 2009 was approximately $10.7 million,
representing a 29 percent decrease as compared to 3rd quarter 2008 and
relatively unchanged as compared to 2nd quarter 2009. These changes reflect the
result of net portfolio sales over the last 12 months to fund leverage
redemptions and net distribution increases from our MLP investments.
Expenses
We incur two types of expenses: (1)
operating expenses, consisting primarily of the advisory fee; and (2) leverage
costs. On a percentage basis, operating expenses before leverage costs and
current taxes were an annualized 1.13 percent of average total assets for the
3rd quarter 2009 as compared to 1.06 percent for the 3rd quarter 2008 and 1.11
percent for the 2nd quarter 2009. Advisory fees for the 3rd quarter 2009
increased 15 percent from 2nd quarter 2009 as a result of increased average
managed assets from increasing MLP asset values. If yields on our MLP
investments continue to revert more to their historical norm, all else being
equal, MLP asset values will increase as will our managed assets and advisory
fees. Other operating expenses were relatively unchanged as compared to 2nd
quarter 2009.
Leverage costs consist of four major
components: (1) the direct interest expense on our Tortoise Notes and short-term
credit facility; (2) the agent fees, which are the marketing and rating agency
costs for the leverage; (3) the realized and unrealized gain or loss on interest
rate swap settlements (if any); and (4) distributions to preferred
stockholders.
Total leverage costs for DCF purposes
were approximately $1.6 million for the 3rd quarter 2009 as compared to $4.9
million for the 3rd quarter 2008 and $1.6 million for the 2nd quarter 2009, as
detailed in the following table.
|
|
3
Q 08
|
|
2
Q 09
|
|
3
Q 09
|
|
Interest expense
|
$
|
2,961,101
|
|
$
|
1,377,090
|
|
$
|
1,443,730
|
|
Agent
fees
|
|
28,369
|
|
|
9,532
|
|
|
8,312
|
|
Net realized and unrealized loss
|
|
|
|
|
|
|
|
|
|
on interest rate swap
settlements
|
|
583,760
|
|
|
—
|
|
|
—
|
|
Distributions to
preferred stockholders
|
|
1,375,865
|
|
|
204,920
|
|
|
118,574
|
|
Total leverage costs
|
$
|
4,949,095
|
|
$
|
1,591,542
|
|
$
|
1,570,616
|
|
Average
outstanding leverage (in millions)
|
$
|
319.1
|
|
$
|
185.0
|
|
$
|
176.4
|
The decrease in total leverage costs
from 3rd quarter 2008 to 3rd quarter 2009 reflects the reduction in average
outstanding leverage of approximately $143 million during the period. The
average annualized total cost of leverage (total leverage costs divided by
average outstanding
|
2009 3rd
Quarter Report
|
|
3
|
Management’s Discussion
(Unaudited)
(Continued)
|
leverage) was 3.53 percent for the
3rd quarter 2009 as compared to 3.41 percent for the 2nd quarter 2009, and 6.17
percent for 3rd quarter 2008. The slight increase of 12 basis points from 2nd
quarter 2009 to 3rd quarter 2009 is the result of higher utilization of our bank
line of credit associated with our redemption of $30 million of auction rate
preferred shares.
Our effective cost of long-term
leverage as of August 31, 2009 was 3.71 percent including the $90 million
aggregate Series D, E and F Notes (weighted average maturity of approximately 4
years), $65 million notional amount of outstanding auction rate preferred
shares, and auction agent fees. The 18 basis point increase as compared to the
average for 3rd quarter 2009 is the result of the redemption of $30 million in
LIBOR-based auction rate preferred shares this quarter. This all-in rate will
continue to vary as, our auction rate securities are reset every 7 or 28 days,
auction rate preferred shares are redeemed or refinanced and Notes are redeemed
or mature.
At August 31, 2009, borrowing costs
on our 7 and 28 day auction rate preferred reflected LIBOR of 0.25 percent and
0.28 percent, respectively. In recent months, both the 1-week and 1-month rates
have been less than 0.50 percent. We expect these rates to return to higher
levels as economic conditions improve and LIBOR increases to more historical
levels.
Our auctions continue to reset at
their maximum rate, which in our case has been 200 percent of the applicable
LIBOR. Additional information on our leverage is included in the Liquidity and
Capital Resources section below.
At August 31, 2009, approximately 55
percent of our leverage costs are fixed. Additional information on our leverage
is disclosed below in Liquidity and Capital Resources and in our Notes to
Financial Statements.
Distributable Cash
Flow
For 3rd quarter 2009, our DCF was
approximately $7.7 million, a decrease of 3 percent as compared to 3rd quarter
2008 and a decrease of 1 percent as compared to 2nd quarter 2009. The decrease
from 3rd quarter 2008 is the net result of lower total distributions received
from investments exceeding reduced expenses, primarily advisory fees and
leverage costs. The decrease from 2nd quarter 2009 is the net result of an
increase in distributions received from investments offset by an increase in
asset-based advisory fees. We paid a distribution of $7.0 million, or 91.2
percent of DCF, during the quarter. On a per share basis, we declared a $0.40
distribution on August 10, 2009. This is a decrease of $0.03 or 7 percent as
compared to 3rd quarter 2008 and unchanged from 2nd quarter 2009.
Market values of our assets and
asset-based expenses have increased more than the distributions from our MLPs
this year, eroding a portion of the cushion we built into our distribution
payout percentage in early 2009. Although our 3rd quarter payout percentage is
91.2 percent, we do not believe it is prudent to raise the per share
distribution until we have visibility on the refinancing of our remaining
auction rate leverage and that an increase is sustainable.
Liquidity and Capital
Resources
We had total assets of $502 million
at quarter-end. Our total assets reflect the value of our investments, which are
itemized in the Schedule of Investments. It also reflects cash, interest and
receivables and any expenses that may have been prepaid. During 3rd quarter
2009, total assets increased from $497 million to $502 million, an increase of
$5 million. This change was primarily the result of a net realized and
unrealized gain on investments of approximately $29 million during the quarter
(excluding return of capital on distributions during the quarter), a reduction
of approximately $20 million in short-term investments and the elimination of
our deferred tax asset of approximately $2.5 million. In addition, we issued
62,758 shares of common stock during the quarter under our at-the-market equity
program for net proceeds of approximately $1.1 million.
Total leverage outstanding at August
31, 2009 of $162.3 million is comprised of $90 million in senior notes, $65
million in preferred shares and $7.3 million under the credit facility. Total
leverage represented 32.4 percent of total assets, a decrease of 4.9 percent as
compared to May 31, 2009, and slightly less than our target ratio of 33 percent
of total assets. Our leverage ratio is impacted by increases or decreases in MLP
values, issuance of equity and/ or the sale of securities where proceeds are
used to reduce leverage.
During the quarter, we entered into
an amendment to our bank credit facility that extends the facility through June
20, 2010. Terms of the amendment provide for an unsecured facility of $50
million. During the extension, outstanding balances generally will accrue
interest at a variable rate equal to one-month LIBOR plus 2.00 percent with a
fee of 0.25 percent on any unused balance.
On July 14, 2009, and July 16, 2009,
we redeemed $20 million of Series I preferred shares and $10 million of Series
II preferred shares, respectively. We utilized existing cash and our bank credit
facility to complete the redemptions. Currently, we have $65 million in
preferred shares comprised of $40 million of Series I and $25 million of Series
II. We have announced our intention to refinance our Series I and Series II
preferred shares when market conditions allow.
We have used leverage to acquire MLPs
consistent with our investment philosophy. The terms of our leverage are
governed by regulatory and contractual asset coverage requirements that arise
from the use of leverage. Under the 1940 Act, we may not pay distributions to
our common stockholders if we do not meet a 300 percent asset coverage ratio for
debt and 200 percent asset coverage ratio for debt and preferred shares after
payment of the distribution, and we may not pay distributions on our preferred
shares if we fail to meet a 200 percent asset coverage ratio on our debt. Under
the agreement with our bank lenders, if portfolio values decline such that we no
longer meet the asset coverage ratios under the 1940 Act, we must repay a
portion of our bank line until we meet the coverage requirement. Further, under
the terms of our institutional senior notes and preferred shares, if we fail to
meet basic maintenance ratios as of any valuation date (generally Fridays) or
fail to satisfy the 1940 Act asset coverage as of the last business day of any
month, we could be subject to mandatory redemption of the senior notes or
preferred shares if such failure is not waived or cured. In some cases we may be
delayed in paying common stock or preferred share distributions until such
coverage ratios can be met.
As disclosed in Section 18 of the
1940 Act, the 300 percent asset coverage ratio for debt is equal to total assets
less all liabilities and indebtedness not represented by debt divided by debt.
The 200 percent asset coverage ratio for preferred shares is equal to the same
numerator as the 300 percent test divided by the sum of debt and preferred
shares. Deferred tax assets, if any, are a component of total assets in
calculation of these ratios. Our coverage ratios are currently updated each week
and available on our web site at www.tortoiseadvisors.com.
Taxation of our Distributions and
Deferred Taxes
We invest in partnerships which
generally have larger distributions of cash than the accounting income which
they generate. Accordingly, the distributions include a return of capital
component for accounting and tax purposes. Distributions declared and paid by us
in a year generally differ from taxable income for that year, as such
distributions may include the distribution of current year taxable income or
return of capital.
The taxability of the distribution
you receive depends on whether we have annual earnings and profits. If so, those
earnings and profits are first allocated to the preferred shares and then to the
common shares.
In the event we have earnings and
profits allocated to the common shares, all or a portion of our distribution
will be taxable at the 15 percent Qualified Dividend Income (“QDI”) rate,
assuming various holding requirements are met by the stockholder. The 15 percent
QDI rate is currently effective through 2010. The portion of our distribution
that is taxable may vary for either of two reasons: first, the characterization
of the distributions we receive from MLPs could change annually based upon the
K-1s we receive and become less return of capital and more in the form of
income. Second, we could sell an MLP investment and realize a gain or loss at
any time. It is for these reasons that we inform you of the tax treatment after
the close of each year as the ultimate result is undeterminable until the year
is over.
For book and tax purposes,
distributions to stockholders for the fiscal year ended 2008 were comprised of
100 percent return of capital. We currently expect that a substantial portion of
our 2009 distributions will consist of return of capital, although the ultimate
determination will not be made until January 2010, after determining our
earnings and profits.
The unrealized gain or loss we have
in the portfolio is reflected in the Statement of Assets and Liabilities. At
August 31, 2009, our investments are valued at $498 million, with an adjusted
cost of $397 million. The $101 million difference reflects unrealized
appreciation that would be realized for financial statement purposes if those
investments were sold at those values. The Statement of Assets and Liabilities
reflects either a deferred tax liability or deferred tax asset depending
primarily upon unrealized gains (losses) on investments, realized gains (losses)
on investments, capital loss carryforward and net operating losses. At August
31, 2009, the balance sheet reflects a net deferred tax liability of
approximately $10.2 million or $0.58 per share. Details of our deferred taxes
are disclosed in Note 5 in our Notes to Financial Statements.
|
4
|
|
Tortoise Energy Capital
Corp.
|
Schedule of Investments
August 31, 2009
|
|
|
|
Shares
|
|
Fair Value
|
|
Master Limited Partnerships and
|
|
|
|
|
|
|
|
Related Companies —
157.2%
(1)
|
|
|
|
|
|
|
|
|
|
|
Crude/Refined Products Pipelines —
84.1%
(1)
|
|
|
|
|
|
United States —
84.1%
(1)
|
|
|
|
|
|
|
|
Buckeye Partners, L.P.
|
|
168,900
|
|
$
|
7,934,922
|
|
|
Enbridge Energy
Partners, L.P.
|
|
1,037,901
|
|
|
44,474,048
|
|
|
Holly Energy Partners, L.P.
|
|
235,200
|
|
|
8,615,376
|
|
|
Kinder Morgan
Management, LLC
(2)
|
|
947,331
|
|
|
44,837,176
|
|
|
Magellan Midstream Holdings, L.P.
|
|
76,092
|
|
|
1,656,523
|
|
|
Magellan Midstream
Partners, L.P.
|
|
768,800
|
|
|
27,861,312
|
|
|
NuStar Energy L.P.
|
|
572,900
|
|
|
30,678,795
|
|
|
Plains All
American Pipeline, L.P.
|
|
862,684
|
|
|
40,925,729
|
|
|
SemGroup Energy Partners, L.P.
(3)
|
|
436,674
|
|
|
3,056,718
|
|
|
Sunoco Logistics
Partners L.P.
|
|
690,100
|
|
|
39,183,878
|
|
|
TEPPCO Partners, L.P.
|
|
525,800
|
|
|
17,351,400
|
|
|
|
|
|
|
|
266,575,877
|
|
|
Natural Gas/Natural Gas Liquids Pipelines —
50.1%
(1)
|
|
|
|
|
|
United States —
50.1%
(1)
|
|
|
|
|
|
|
|
Boardwalk Pipeline Partners, LP
|
|
658,700
|
|
|
15,420,167
|
|
|
El Paso Pipeline
Partners, L.P.
|
|
875,500
|
|
|
17,002,210
|
|
|
Energy Transfer Equity, L.P.
|
|
314,061
|
|
|
8,445,100
|
|
|
Energy Transfer
Partners, L.P.
|
|
720,900
|
|
|
29,225,286
|
|
|
Enterprise GP Holdings L.P.
|
|
101,990
|
|
|
2,855,720
|
|
|
Enterprise
Products Partners L.P.
|
|
1,118,300
|
|
|
30,194,100
|
|
|
ONEOK Partners, L.P.
|
|
204,900
|
|
|
10,257,294
|
|
|
Spectra Energy
Partners, LP
|
|
303,900
|
|
|
7,041,363
|
|
|
TC
PipeLines, LP
|
|
856,900
|
|
|
31,276,850
|
|
|
Williams Pipeline
Partners L.P.
|
|
372,200
|
|
|
6,878,256
|
|
|
|
|
|
|
|
158,596,346
|
|
|
Natural Gas Gathering/Processing — 18.0%
(1)
|
|
|
|
|
|
United States — 18.0%
(1)
|
|
|
|
|
|
|
|
Copano Energy,
L.L.C.
|
|
807,836
|
|
|
12,545,693
|
|
|
DCP Midstream Partners, LP
|
|
331,000
|
|
|
7,411,090
|
|
|
Duncan Energy
Partners L.P.
|
|
157,233
|
|
|
2,853,779
|
|
|
MarkWest Energy Partners, L.P.
|
|
788,500
|
|
|
16,290,410
|
|
|
Targa Resources
Partners LP
|
|
912,000
|
|
|
15,412,800
|
|
|
Western Gas Partners LP
|
|
141,430
|
|
|
2,383,096
|
|
|
|
|
|
|
|
56,896,868
|
|
|
Propane Distribution — 4.3%
(1)
|
|
|
|
|
|
|
|
United States —
4.3%
(1)
|
|
|
|
|
|
|
|
Inergy, L.P.
|
|
488,200
|
|
|
13,611,016
|
|
|
Shipping — 0.7%
(1)
|
|
|
|
|
|
|
|
Republic of the Marshall Islands — 0.7%
(1)
|
|
|
|
|
|
|
|
Teekay LNG Partners L.P.
|
|
98,200
|
|
|
2,254,672
|
|
|
Total Master Limited Partnerships and
|
|
|
|
|
|
|
|
Related
Companies (Cost $396,885,350)
|
|
|
|
|
497,934,779
|
|
|
Short-Term Investment — 0.0%
(1)
|
|
|
|
|
|
|
|
United States Investment Company — 0.0%
(1)
|
|
|
|
|
|
|
|
Fidelity Institutional Government Portfolio —
|
|
|
|
|
|
|
|
Class
I, 0.19%
(4)
(Cost
$263,380)
|
|
263,380
|
|
|
263,380
|
|
|
Total Investments — 157.2%
(1)
|
|
|
|
|
|
|
|
(Cost
$397,148,730)
|
|
|
|
|
498,198,159
|
|
|
Other Assets and Liabilities — (8.3%)
(1)
|
|
|
|
|
(26,357,449
|
)
|
|
Long-Term Debt Obligations — (28.4%)
(1)
|
|
|
|
|
(90,000,000
|
)
|
|
Preferred Shares at Redemption Value —
(20.5%)
(1)
|
|
|
|
|
(65,000,000
|
)
|
|
Total Net Assets Applicable to
|
|
|
|
|
|
|
|
Common Stockholders —
100.0%
(1)
|
|
|
|
$
|
316,840,710
|
|
|
(1)
|
|
Calculated as
a percentage of net assets applicable to common
stockholders.
|
|
(2)
|
|
Security
distributions are paid-in-kind.
|
|
(3)
|
|
Non-income
producing.
|
|
(4)
|
|
Rate indicated
is the current yield as of August 31, 2009.
|
See accompanying Notes to
Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
2009 3rd
Quarter Report
|
|
5
|
Statement
of Assets & Liabilities
August 31,
2009
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Investments at fair value (cost
$397,148,730)
|
|
$
|
498,198,159
|
|
|
Cash
|
|
|
38,731
|
|
|
Receivable for investments sold
|
|
|
2,646,556
|
|
|
Dividend
receivable
|
|
|
209
|
|
|
Prepaid expenses and other assets
|
|
|
723,353
|
|
|
Total assets
|
|
|
501,607,008
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Payable to Adviser
|
|
|
807,025
|
|
|
Distributions payable to
common stockholders
|
|
|
7,021,905
|
|
|
Distributions payable to preferred
stockholders
|
|
|
14,585
|
|
|
Payable for investments
purchased
|
|
|
1,247,253
|
|
|
Accrued expenses and other liabilities
|
|
|
3,209,856
|
|
|
Short-term
borrowings
|
|
|
7,300,000
|
|
|
Deferred tax liability
|
|
|
10,165,674
|
|
|
Long-term debt
obligations
|
|
|
90,000,000
|
|
|
Total liabilities
|
|
|
119,766,298
|
|
|
Preferred Stock
|
|
|
|
|
|
$25,000 liquidation value per share applicable to
|
|
|
|
|
|
2,600 outstanding shares (4,400 shares authorized)
|
|
|
65,000,000
|
|
|
Net assets applicable to common stockholders
|
|
$
|
316,840,710
|
|
|
Net Assets
Applicable to Common Stockholders Consist of:
|
|
|
|
|
|
Capital stock, $0.001 par
value; 17,595,214 shares issued
|
|
|
|
|
|
and outstanding (100,000,000 shares
authorized)
|
|
$
|
17,595
|
|
|
Additional paid-in capital
|
|
|
299,560,123
|
|
|
Accumulated net
investment loss, net of income taxes
|
|
|
(36,233,444
|
)
|
|
Accumulated realized loss, net of income
taxes
|
|
|
(15,638,591
|
)
|
|
Net unrealized
appreciation of investments, net of income taxes
|
|
|
69,135,027
|
|
|
Net assets applicable to common stockholders
|
|
$
|
316,840,710
|
|
|
Net Asset Value per
common share outstanding
|
|
|
|
|
|
(net assets applicable to common stock,
|
|
|
|
|
|
divided by common shares outstanding)
|
|
$
|
18.01
|
|
Statement of
Operations
Period from December
1, 2008 through May 31, 2009
|
|
Investment Income
|
|
|
|
Distributions
from master limited partnerships
|
|
$
|
28,067,310
|
|
|
Less return
of capital on distributions
|
|
|
(24,845,185
|
)
|
|
Net
distributions from master limited partnerships
|
|
|
3,222,125
|
|
|
Dividends
from money market mutual funds
|
|
|
67,349
|
|
|
Total Investment Income
|
|
|
3,289,474
|
|
|
Operating Expenses
|
|
|
|
|
|
Advisory
fees
|
|
|
3,122,051
|
|
|
Professional
fees
|
|
|
252,993
|
|
|
Administrator
fees
|
|
|
144,478
|
|
|
Directors’
fees
|
|
|
88,280
|
|
|
Reports to
stockholders
|
|
|
67,953
|
|
|
Registration
fees
|
|
|
50,576
|
|
|
Fund
accounting fees
|
|
|
45,044
|
|
|
Custodian
fees and expenses
|
|
|
43,189
|
|
|
Stock
transfer agent fees
|
|
|
7,989
|
|
|
Other
expenses
|
|
|
66,941
|
|
|
Total Operating Expenses
|
|
|
3,889,494
|
|
|
Interest
expense
|
|
|
4,204,816
|
|
|
Agent
fees
|
|
|
42,002
|
|
|
Amortization
of debt issuance costs
|
|
|
47,673
|
|
|
Total Interest, Agent and Debt Issuance
Costs
|
|
|
4,294,491
|
|
|
Total Expenses
|
|
|
8,183,985
|
|
|
Net Investment
Loss, before Income Taxes
|
|
|
(4,894,511
|
)
|
|
Current tax
benefit
|
|
|
1,110,529
|
|
|
Deferred tax
benefit
|
|
|
505,804
|
|
|
Income tax benefit
|
|
|
1,616,333
|
|
|
Net Investment
Loss
|
|
|
(3,278,178
|
)
|
|
Realized and Unrealized Gain (Loss) on Investments
|
|
|
|
|
|
Net realized
loss on investments, before income taxes
|
|
|
(32,198,415
|
)
|
|
Current tax benefit
|
|
|
2,077,745
|
|
|
Deferred tax benefit
|
|
|
6,723,597
|
|
|
Income tax benefit
|
|
|
8,801,342
|
|
|
Net realized loss on investments
|
|
|
(23,397,073
|
)
|
|
Net
unrealized appreciation of investments, before income
taxes
|
|
|
190,657,319
|
|
|
Current tax expense
|
|
|
(4,706,142
|
)
|
|
Deferred tax expense
|
|
|
(47,409,475
|
)
|
|
Income tax expense
|
|
|
(52,115,617
|
)
|
|
Net unrealized appreciation of investments
|
|
|
138,541,702
|
|
|
Net Realized
and Unrealized Gain on Investments
|
|
|
115,144,629
|
|
|
Distributions to Preferred Stockholders
|
|
|
(684,862
|
)
|
|
Net Increase in
Net Assets Applicable to Common
|
|
|
|
|
|
Stockholders Resulting from Operations
|
|
$
|
111,181,589
|
|
See accompanying Notes to
Financial Statements.
|
|
|
|
|
|
|
|
6
|
|
Tortoise Energy Capital
Corp.
|
Statement
of Changes in Net Assets
|
|
|
|
Period from
|
|
|
|
|
|
December 1, 2008
|
|
|
|
|
|
|
|
through
|
|
Year
Ended
|
|
|
|
August 31, 2009
|
|
November 30,
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
Net investment loss
|
|
$
|
(3,278,178
|
)
|
|
$
|
(14,757,582
|
)
|
|
Net realized loss on
investments and interest rate swaps
|
|
|
(23,397,073
|
)
|
|
|
(13,878,321
|
)
|
|
Net unrealized
appreciation (depreciation) of investments and interest rate swap
contracts
|
|
|
138,541,702
|
|
|
|
(196,524,707
|
)
|
|
Distributions to
preferred stockholders
|
|
|
(684,862
|
)
|
|
|
(6,161,055
|
)
|
|
Net increase (decrease) in net assets applicable to common
stockholders resulting from operations
|
|
|
111,181,589
|
|
|
|
(231,321,665
|
)
|
|
Distributions to Common Stockholders
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
—
|
|
|
|
—
|
|
|
Return of
capital
|
|
|
(20,998,443
|
)
|
|
|
(29,574,603
|
)
|
|
Total distributions to common stockholders
|
|
|
(20,998,443
|
)
|
|
|
(29,574,603
|
)
|
|
Capital Stock Transactions
|
|
|
|
|
|
|
|
|
|
Proceeds from shelf offering of 62,758 common
shares
|
|
|
1,265,173
|
|
|
|
—
|
|
|
Underwriting discounts
and offering expenses associated with the issuance of common
stock
|
|
|
(158,986
|
)
|
|
|
—
|
|
|
Underwriting discounts and offering expenses associated with the
issuance of preferred stock
|
|
|
—
|
|
|
|
(14,000
|
)
|
|
Issuance of 61,783 and
64,587 common shares from reinvestment of distributions to stockholders,
respectively
|
|
|
1,068,228
|
|
|
|
1,525,365
|
|
|
Net increase in net assets, applicable to common stockholders, from
capital stock transactions
|
|
|
2,174,415
|
|
|
|
1,511,365
|
|
|
Cumulative effect of
adopting Financial Accounting Standards Board Interpretation No.
48
|
|
|
—
|
|
|
|
(776,852
|
)
|
|
Total increase (decrease) in net assets applicable to common
stockholders
|
|
|
92,357,561
|
|
|
|
(260,161,755
|
)
|
|
Net Assets
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
224,483,149
|
|
|
|
484,644,904
|
|
|
End of
period
|
|
$
|
316,840,710
|
|
|
$
|
224,483,149
|
|
|
Accumulated net
investment loss, net of income taxes, at the end of
period
|
|
$
|
(36,233,444
|
)
|
|
$
|
(32,955,266
|
)
|
See accompanying Notes to
Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
2009 3rd
Quarter Report
|
|
7
|
Statement
of Cash Flows
Period from
December 1, 2008 through August 31,
2009
|
|
Cash Flows From Operating Activities
|
|
|
|
|
Distributions received from
master
|
|
|
|
|
limited
partnerships
|
$
|
28,067,310
|
|
|
Dividend income
received
|
|
72,685
|
|
|
Purchases of
long-term investments
|
|
(47,575,219
|
)
|
|
Proceeds from sales
of long-term investments
|
|
62,324,616
|
|
|
Purchases of
short-term investments, net
|
|
2,290,630
|
|
|
Interest expense
paid
|
|
(4,504,535
|
)
|
|
Income taxes
paid
|
|
(263,372
|
)
|
|
Operating expenses
paid
|
|
(4,043,403
|
)
|
|
Net cash provided by operating activities
|
|
36,368,712
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
Advances from revolving line of credit
|
|
18,000,000
|
|
|
Repayments on
revolving line of credit
|
|
(10,700,000
|
)
|
|
Issuance of common
stock
|
|
1,265,173
|
|
|
Redemption of
preferred stock
|
|
(30,000,000
|
)
|
|
Common stock
issuance costs
|
|
(74,157
|
)
|
|
Distributions paid
to common stockholders
|
|
(14,062,513
|
)
|
|
Distributions paid
to preferred stockholders
|
|
(889,290
|
)
|
|
Net cash
used in financing activities
|
|
(36,460,787
|
)
|
|
Net decrease in cash
|
|
(92,075
|
)
|
|
Cash — beginning of
period
|
|
130,806
|
|
|
Cash — end of period
|
$
|
38,731
|
|
|
Reconciliation of net increase in net assets applicable
to
|
|
|
|
|
common stockholders resulting
from operations to net cash
|
|
|
|
provided by
operating activities
|
|
|
|
|
Net increase in net assets applicable to common
|
|
|
|
|
stockholders resulting from operations
|
$
|
111,181,589
|
|
|
Adjustments to reconcile
net increase in net assets
|
|
|
|
|
applicable to common stockholders resulting from
|
|
|
|
|
operations to net cash provided by operating
activities:
|
|
|
|
|
Purchases of long-term investments
|
|
(48,822,472
|
)
|
|
Return of capital on distributions received
|
|
24,845,185
|
|
|
Proceeds from sales of long-term investments
|
|
54,060,574
|
|
|
Purchases of short-term investments, net
|
|
2,290,630
|
|
|
Deferred tax expense
|
|
40,180,074
|
|
|
Net unrealized appreciation of investments
|
|
(190,657,319
|
)
|
|
Net realized loss on investments
|
|
32,198,415
|
|
|
Amortization of debt issuance costs
|
|
47,673
|
|
|
Distributions to preferred stockholders
|
|
684,862
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Decrease in interest and dividend receivable
|
|
5,336
|
|
|
Decrease in receivable for investments sold
|
|
8,264,042
|
|
|
Increase in prepaid expenses and other
assets
|
|
(276,688
|
)
|
|
Decrease in current tax liability
|
|
(559,136
|
)
|
|
Decrease in payable to Adviser
|
|
(7,316
|
)
|
|
Increase in payable for investments
purchased
|
|
1,247,253
|
|
|
Increase in accrued expenses and other liabilities
|
|
1,686,010
|
|
|
Total adjustments
|
|
(74,812,877
|
)
|
|
Net cash provided by operating activities
|
$
|
36,368,712
|
|
|
Non-Cash Financing Activities
|
|
|
|
|
Reinvestment of distributions by common
stockholders
|
|
|
|
|
in additional common shares
|
$
|
1,068,228
|
|
See accompanying Notes to
Financial Statements.
|
|
|
|
|
|
|
|
8
|
|
Tortoise Energy Capital
Corp.
|
|
|
|
Period from
|
|
|
|
|
|
|
|
Period from
|
|
|
|
December 1, 2008
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
May 31, 2005
(1)
|
|
|
|
through
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
through
|
|
|
|
August 31, 2009
|
|
2008
|
|
2007
|
|
2006
|
|
November 30,
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Common Share Data
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value, beginning of period
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
$
|
26.79
|
|
|
$
|
23.23
|
|
|
$
|
—
|
|
|
Public offering
price
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25.00
|
|
|
Underwriting discounts and
offering costs on issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
common and preferred stock
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(1.18
|
)
|
|
Premiums less underwriting
discounts and offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
offering of common stock
(4)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.12
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Income
(loss) from Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income (loss)
(5)(6)
|
|
|
(0.17
|
)
|
|
|
(0.89
|
)
|
|
|
(0.64
|
)
|
|
|
(0.36
|
)
|
|
|
0.04
|
|
|
Net
realized and unrealized gains (losses) on investments and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
rate swap contracts
(5)(6)
|
|
|
6.57
|
|
|
|
(12.05
|
)
|
|
|
3.80
|
|
|
|
5.68
|
|
|
|
(0.05
|
)
|
|
Total
increase (decrease) from investment operations
|
|
|
6.40
|
|
|
|
(12.94
|
)
|
|
|
3.16
|
|
|
|
5.32
|
|
|
|
(0.01
|
)
|
|
Less
Distributions to Preferred Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Return
of capital
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
|
|
(0.19
|
)
|
|
|
—
|
|
|
Total
distributions to preferred stockholders
|
|
|
(0.04
|
)
|
|
|
(0.35
|
)
|
|
|
(0.33
|
)
|
|
|
(0.19
|
)
|
|
|
—
|
|
|
Less
Distributions to Common Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
Return
of capital
|
|
|
(1.20
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
|
|
(1.51
|
)
|
|
|
(0.55
|
)
|
|
Total
distributions to common stockholders
|
|
|
(1.20
|
)
|
|
|
(1.70
|
)
|
|
|
(1.63
|
)
|
|
|
(1.51
|
)
|
|
|
(0.58
|
)
|
|
Net Asset Value, end of
period
|
|
$
|
18.01
|
|
|
$
|
12.85
|
|
|
$
|
27.84
|
|
|
$
|
26.79
|
|
|
$
|
23.23
|
|
|
Per common share market value,
end of period
|
|
$
|
18.23
|
|
|
$
|
11.11
|
|
|
$
|
25.47
|
|
|
$
|
26.50
|
|
|
$
|
22.09
|
|
|
Total
Investment Return Based on Market Value
(7)
|
|
|
93.95
|
%
|
|
|
(52.44
|
)%
|
|
|
1.73
|
%
|
|
|
27.67
|
%
|
|
|
(8.33
|
)%
|
See accompanying Notes to
Financial Statements.
2009 3rd Quarter
Report
9
F
INANCIAL
H
IGHLIGHTS
(Continued)
|
|
|
|
Period from
|
|
|
|
|
|
|
|
Period from
|
|
|
|
December 1, 2008
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
May 31, 2005
(1)
|
|
|
|
through
|
|
November 30,
|
|
November 30,
|
|
November 30,
|
|
through
|
|
|
|
August 31, 2009
|
|
2008
|
|
2007
|
|
2006
|
|
November 30,
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data and Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets applicable to common stockholders, end of period (000’s)
|
|
$
|
316,841
|
|
|
$
|
224,483
|
|
|
$
|
484,645
|
|
|
$
|
429,010
|
|
|
$
|
370,455
|
|
|
Ratio of expenses (including
net current and deferred income tax (benefit) expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average net assets
(8)(9)(10)
|
|
|
20.56
|
%
|
|
|
(21.81
|
)%
|
|
|
10.51
|
%
|
|
|
17.38
|
%
|
|
|
1.29
|
%
|
|
Ratio
of expenses (excluding net current and deferred income tax (benefit)
expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average net assets
(8)(10)(11)
|
|
|
3.37
|
%
|
|
|
6.51
|
%
|
|
|
4.46
|
%
|
|
|
3.47
|
%
|
|
|
1.39
|
%
|
|
Ratio of net investment income
(loss) to average net assets (including net current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
deferred income tax (benefit) expense)
(8)(9)(10)
|
|
|
(19.21
|
)%
|
|
|
23.33
|
%
|
|
|
(9.84
|
)%
|
|
|
(16.31
|
)%
|
|
|
0.60
|
%
|
|
Ratio
of net investment income (loss) to average net assets (excluding net
current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
deferred income tax (benefit) expense)
(8)(10)(11)
|
|
|
(2.02
|
)%
|
|
|
(4.99
|
)%
|
|
|
(3.79
|
)%
|
|
|
(2.40
|
)%
|
|
|
0.50
|
%
|
|
Portfolio turnover
rate
(8)
|
|
|
15.08
|
%
|
|
|
6.44
|
%
|
|
|
9.90
|
%
|
|
|
5.56
|
%
|
|
|
0.08
|
%
|
|
Short-term borrowings, end of
period (000’s)
|
|
$
|
7,300
|
|
|
|
—
|
|
|
$
|
24,700
|
|
|
$
|
28,000
|
|
|
|
—
|
|
|
Long-term debt obligations,
end of period (000’s)
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
190,000
|
|
|
$
|
120,000
|
|
|
$
|
120,000
|
|
|
Preferred stock, end of period
(000’s)
|
|
$
|
65,000
|
|
|
$
|
95,000
|
|
|
$
|
110,000
|
|
|
$
|
70,000
|
|
|
|
—
|
|
|
Per common share amount of
long-term debt obligations outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
end of period
|
|
$
|
5.11
|
|
|
$
|
5.15
|
|
|
$
|
10.92
|
|
|
$
|
7.49
|
|
|
$
|
7.52
|
|
|
Per
common share amount of net assets, excluding long-term debt
obligations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
end of period
|
|
$
|
23.12
|
|
|
$
|
18.00
|
|
|
$
|
38.76
|
|
|
$
|
34.28
|
|
|
$
|
30.75
|
|
|
Asset coverage, per $1,000 of
principal amount of long-term debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
short-term borrowings
(12)
|
|
$
|
4,924
|
|
|
$
|
4,550
|
|
|
$
|
3,770
|
|
|
$
|
4,372
|
|
|
$
|
4,087
|
|
|
Asset
coverage ratio of long-term debt obligations and short-term
borrowings
(12)
|
|
|
492
|
%
|
|
|
455
|
%
|
|
|
377
|
%
|
|
|
437
|
%
|
|
|
409
|
%
|
|
Asset coverage, per $25,000
liquidation value per share of preferred stock
(13)
|
|
$
|
146,862
|
|
|
$
|
84,075
|
|
|
$
|
135,147
|
|
|
$
|
178,218
|
|
|
|
—
|
|
|
Asset
coverage, per $25,000 liquidation value per share of preferred
stock
(14)
|
|
$
|
73,805
|
|
|
$
|
55,336
|
|
|
$
|
62,315
|
|
|
$
|
74,198
|
|
|
|
—
|
|
|
Asset coverage ratio of
preferred stock
(14)
|
|
|
295
|
%
|
|
|
221
|
%
|
|
|
249
|
%
|
|
|
297
|
%
|
|
|
—
|
|
|
(1)
|
|
Commencement
of Operations.
|
|
(2)
|
|
Information
presented relates to a share of common stock outstanding for the entire
period.
|
|
(3)
|
|
Represents the
issuance of common stock for the period ended August 31, 2009. Represents
the issuance of preferred stock for the years ended November 30, 2007 and
2006. Represents the issuance of common stock for the period from May 31,
2005 through November 30, 2005.
|
|
(4)
|
|
Represents the
premium on the shelf offering of less than $0.01 per share, less the
underwriting and offering costs of $0.13 per share for the period ended
November 30, 2007.
|
|
(5)
|
|
The per common
share data for the periods ended November 30, 2008, 2007, 2006 and 2005 do
not reflect the change in estimate of investment income and return of
capital, for the respective period. See Note 2C to the financial
statements for further disclosure.
|
|
(6)
|
|
The per common
share data for the year ended November 30, 2008 reflects the cumulative
effect of adopting FIN 48, which was a $776,852 increase to the beginning
balance of accumulated net investment loss, or $(0.04) per
share.
|
|
(7)
|
|
Not
annualized. Total investment return is calculated assuming a purchase of
common stock at the beginning of period (or initial public offering price)
and a sale at the closing price on the last day of the period reported
(excluding brokerage commissions). The calculation also assumes
reinvestment of distributions at actual prices pursuant to the Company’s
dividend reinvestment plan.
|
|
(8)
|
|
Annualized for
periods less than one full year.
|
|
(9)
|
|
For the period
from December 1, 2008 through August 31, 2009, the Company accrued
$1,517,868 and $40,180,074 for current and deferred income tax expense,
respectively. For the year ended November 30, 2008, the Company accrued
$427,891 for current tax expense and $114,309,765 for net deferred income
tax benefit. The Company accrued $30,376,674 and $54,292,114 for the years
ended November 30, 2007 and 2006, respectively, for current and deferred
income tax expense. For the period from May 31, 2005 through November 30,
2005, the Company accrued $192,462 in net deferred income tax
benefit.
|
|
(10)
|
|
The expense
ratios and net investment income (loss) ratios do not reflect the effect
of distributions to preferred stockholders.
|
|
(11)
|
|
This ratio
excludes the impact of current and deferred income taxes.
|
|
(12)
|
|
Represents
value of total assets less all liabilities and indebtedness not
represented by long-term debt obligations, short-term borrowings and
preferred stock at the end of the period divided by long-term debt
obligations and short-term borrowings outstanding at the end of the
period.
|
|
(13)
|
|
Represents
value of total assets less all liabilities and indebtedness not
represented by preferred stock at the end of the period divided by
preferred stock outstanding at the end of the period, assuming the
retirement of all long-term debt obligations and short-term
borrowings.
|
|
(14)
|
|
Represents
value of total assets less all liabilities and indebtedness not
represented by long-term debt obligations, short-term borrowings and
preferred stock at the end of the period divided by the sum of long-term
debt obligations, short-term borrowings and preferred stock outstanding at
the end of the period.
|
See accompanying Notes to
Financial Statements.
10
Tortoise Energy Capital Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
August 31,
2009
|
1. Organization
Tortoise Energy Capital Corporation
(the “Company”) was organized as a Maryland corporation on March 4, 2005, and is
a non-diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended (the “1940 Act”). The Company’s investment
objective is to seek a high level of total return with an emphasis on current
distributions to stockholders. The Company seeks to provide its stockholders
with an efficient vehicle to invest in the energy infrastructure sector. The
Company received the proceeds of its initial public offering and commenced
operations on May 31, 2005. The Company’s stock is listed on the New York Stock
Exchange under the symbol “TYY.”
2. Significant Accounting Policies
A. Use of Estimates
The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, recognition of distribution income, and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
B. Investment Valuation
The Company primarily owns securities
that are listed on a securities exchange or over-the-counter market. The Company
values those securities at their last sale price on that exchange or
over-the-counter market on the valuation date. If the security is listed on more
than one exchange, the Company uses the price from the exchange that it
considers to be the principal exchange on which the stock is traded. Securities
listed on the NASDAQ will be valued at the NASDAQ Official Closing Price, which
may not necessarily represent the last sale price. If there has been no sale on
such exchange or over-the-counter market on such day, the security will be
valued at the mean between the bid and ask price on such day.
The Company may invest up to 50
percent of its total assets in restricted securities. Restricted securities are
subject to statutory or contractual restrictions on their public resale, which
may make it more difficult to obtain a valuation and may limit the Company’s
ability to dispose of them. Investments in restricted securities and other
securities for which market quotations are not readily available will be valued
in good faith by using fair value procedures approved by the Board of Directors.
Such fair value procedures consider factors such as discounts to publicly traded
issues, time until conversion date, securities with similar yields, quality,
type of issue, coupon, duration and rating. If events occur that affect the
value of the Company’s portfolio securities before the net asset value has been
calculated (a “significant event”), the portfolio securities so affected will
generally be priced using fair value procedures.
An equity security of a publicly
traded company acquired in a direct placement transaction may be subject to
restrictions on resale that can affect the security’s liquidity and fair value.
Such securities that are convertible into or otherwise will become freely
tradable will be valued based on the market value of the freely tradable
security less an applicable discount. Generally, the discount will initially be
equal to the discount at which the Company purchased the securities. To the
extent that such securities are convertible or otherwise become freely tradable
within a time frame that may be reasonably determined, an amortization schedule
may be used to determine the discount.
The Company determines fair value in
accordance with Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with U.S. generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 is applicable in conjunction with other accounting pronouncements that
require or permit fair value measurements, but does not expand
the use of fair value to any new circumstances. More
specifically, SFAS 157 emphasizes that fair value is a market based measurement,
not an entity-specific measurement, and sets out a fair value hierarchy with the
highest priority given to quoted prices in active markets and the lowest
priority to unobservable inputs. See Note 6 — Fair Value of Financial
Instruments for further disclosure.
On April 9, 2009, the Financial
Accounting Standards Board (“FASB”) issued Staff Position No. 157-4,
Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly
(“FSP 157-4”). FSP 157-4 provides additional guidance
for estimating fair value in accordance with SFAS 157 when the volume and level
of activity for the asset or liability have significantly decreased. FSP 157-4
also provides guidance on identifying circumstances that indicate a transaction
is not orderly. FSP 157-4 is effective for interim and annual reporting periods
ending after June 15, 2009. The adoption of FSP 157-4 did not have a significant
impact on the Company’s financial statements.
The Company generally values
short-term debt securities at prices based on market quotations for such
securities, except those securities purchased with 60 days or less to maturity
are valued on the basis of amortized cost, which approximates market value.
C. Security Transactions and
Investment Income
Security transactions are accounted
for on the date the securities are purchased or sold (trade date). Realized
gains and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis, including amortization of premiums and
accretion of discounts. Dividend and distribution income is recorded on the
ex-dividend date. Distributions received from the Company’s investments in
master limited partnerships (“MLPs”) generally are comprised of ordinary income,
capital gains and return of capital from the MLPs. The Company allocates
distributions between investment income and return of capital based on estimates
made at the time such distributions are received. Such estimates are based on
historical information available from each MLP and other industry sources. These
estimates may subsequently be revised based on actual allocations received from
MLPs after their tax reporting periods are concluded, as the actual character of
these distributions is not known until after the fiscal year end of the Company.
For the period from December 1, 2007 through November 30, 2008, the Company
estimated the allocation of investment income and return of capital for the
distributions received from MLPs within the Statement of Operations. For this
period, the Company had estimated approximately 13 percent of total
distributions as investment income and approximately 87 percent as return of
capital.
Subsequent to November 30, 2008, the
Company reallocated the amount of investment income and return of capital it
recognized based on the 2008 tax reporting information received from the
individual MLPs. This reclassification amounted to a decrease in pre-tax net
investment income of approximately $576,000 or $0.033 per share ($364,000 or
$0.021 per share, net of deferred tax benefit); an increase in unrealized
appreciation of investments of approximately $116,000 or $0.007 per share
($74,000 or $0.004 per share, net of deferred tax expense) and an increase in
realized gains of approximately $460,000 or $0.026 per share ($290,000 or $0.017
per share, net of deferred tax expense) for the period from December 1, 2008
through August 31, 2009.
Subsequent to the period ended
February 28, 2009, the Company reallocated the amount of investment income and
return of capital reported in the current fiscal year based on its revised 2009
estimates. This reclassification amounted to a decrease in pre-tax net
investment income of approximately $57,000 or $0.003 per share ($36,000 or
$0.002 per share, net of deferred tax benefit); an increase in unrealized
appreciation of investments of approximately $320,000 or $0.018 per share
($202,000 or $0.011 per share, net of deferred tax expense) and a decrease in
realized gains of approximately $263,000 or $0.015 per share ($166,000 or $0.009
per share, net of deferred tax benefit).
2009 3rd Quarter
Report
11
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
|
D. Distributions to Stockholders
Distributions to common stockholders
are recorded on the ex-dividend date. The Company may not declare or pay
distributions to its common stockholders if it does not meet asset coverage
ratios required under the 1940 Act or the rating agency guidelines for its debt
and preferred stock following such distribution. The character of distributions
to common stockholders made during the year may differ from their ultimate
characterization for federal income tax purposes. For the year ended November
30, 2008 and the period ended August 31, 2009, the Company’s distributions to
common stockholders for book purposes were comprised of 100 percent return of
capital. For the year ended November 30, 2008, the Company’s distributions to
common stockholders for tax purposes were comprised of 100 percent return of
capital. The tax character of distributions paid for the current year will be
determined subsequent to November 30, 2009.
Distributions to preferred
stockholders are based on variable rates set at auctions, normally held every 7
or 28 days unless a special rate period is designated. The Company may not
declare or pay distributions to its preferred stockholders if it does not meet a
200 percent asset coverage ratio for its debt or the rating agency basic
maintenance amount for the debt following such distribution. Distributions to
preferred stockholders are accrued on a daily basis for the subsequent rate
period at a rate determined on the auction date. Distributions to preferred
stockholders are payable on the first day following the end of the rate period
or the first day of month if the rate period is longer than one month. For the
year ended November 30, 2008 and the period ended August 31, 2009, the Company’s
distributions to preferred stockholders for book purposes were comprised of 100
percent return of capital. The tax character of distributions paid for the
current year will be determined subsequent to November 30, 2009.
E. Federal Income
Taxation
The Company, as a corporation, is
obligated to pay federal and state income tax on its taxable income. Currently,
the highest regular marginal federal income tax rate for a corporation is 35
percent; however, the Company anticipates a marginal effective rate of 34.5
percent due to expectations of the level of taxable income relative to the
federal graduated tax rates, including the tax rate anticipated when temporary
differences reverse. The Company may be subject to a 20 percent federal
alternative minimum tax on its federal alternative minimum taxable income to the
extent that its alternative minimum tax exceeds its regular federal income
tax.
The Company invests its assets
primarily in MLPs, which generally are treated as partnerships for federal
income tax purposes. As a limited partner in the MLPs, the Company reports its
allocable share of the MLP’s taxable income in computing its own taxable income.
The Company’s tax expense or benefit is included in the Statement of Operations
based on the component of income or gains (losses) to which such expense or
benefit relates. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A valuation
allowance is recognized if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred income tax asset
will not be realized.
F. Organization Expenses, Offering
and Debt Issuance Costs
The Company is responsible for paying
all organizational expenses, which were expensed as incurred. Offering costs
related to the issuance of common and preferred stock is charged to additional
paid-in capital when the stock is issued. Debt issuance costs related to
long-term debt obligations are capitalized and amortized over the period the
debt is outstanding. Offering costs of $120,999 related to the issuance of
common stock in August 2009 were recorded to additional paid-in capital during
the period ended August 31, 2009.
G. Derivative Financial
Instruments
The Company may use derivative
financial instruments (principally interest rate swap contracts) in an attempt
to manage interest rate risk. The Company has established policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not hold or issue
derivative financial instruments for speculative purposes. All derivative
financial instruments are recorded at fair value with changes in fair value
during the reporting period and amounts accrued under the derivative instruments
included as unrealized gains or losses in the accompanying Statement of
Operations. Monthly cash settlements under the terms of the derivative
instruments and termination of such contracts are recorded as realized gains or
losses in the accompanying Statement of Operations.
H. Indemnifications
Under the Company’s organizational
documents, its officers and directors are indemnified against certain
liabilities arising out of the performance of their duties to the Company. In
addition, in the normal course of business, the Company may enter into contracts
that provide general indemnifications to other parties. The Company’s maximum
exposure under these arrangements is unknown, as this would involve future
claims that may be made against the Company that have not yet occurred, and may
not occur. However, the Company has not had prior claims or losses pursuant to
these contracts and expects the risk of loss to be remote.
I. Recent Accounting
Pronouncement
In June 2009, the FASB issued
Statement of Financial Accounting Standards No. 168, “The FASB Accounting
Standards Codification TM and the Hierarchy of Generally Accepted Accounting
Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168
replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” and establishes the “FASB Accounting Standards Codification TM”
(“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. All guidance contained in the
Codification carries an equal level of authority. On the effective date of SFAS
168, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification will become non-authoritative. SFAS 168 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The adoption of SFAS 168 will not have a significant
impact on the Company’s financial statements.
3. Concentration of Risk
The Company’s investment objective is
to seek a high level of total return with an emphasis on current distributions
paid to its stockholders. Under normal circumstances, the Company will have at
least 80 percent of its net assets, plus any borrowings for investment purposes,
invested in equity securities of entities in the energy sector and at least 80
percent of its total assets in equity securities of MLPs and their affiliates in
the energy infrastructure sector. The Company will not invest more than 15
percent of its total assets in any single issuer as of the time of purchase. The
Company may invest up to 50 percent of its total assets in restricted
securities, all of which may be illiquid securities. The Company may invest up
to 20 percent of its total assets in debt securities, including securities rated
below investment grade. In determining application of these policies, the term
“total assets” includes assets obtained through leverage. Companies that
primarily invest in a particular sector may experience greater volatility than
companies investing in a broad range of industry sectors. The Company may, for
defensive purposes, temporarily invest all or a significant portion of its
assets in investment grade securities, short-term debt securities and cash or
cash equivalents. To the extent the Company uses this strategy, it may not
achieve its investment objective.
12
Tortoise Energy Capital Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
|
4. Agreements
The Company has entered into an
Investment Advisory Agreement with Tortoise Capital Advisors, L.L.C. (the
“Adviser”). Under the terms of the agreement, the Company pays the Adviser a fee
equal to an annual rate of 0.95 percent of the Company’s average monthly total
assets (including any assets attributable to leverage and excluding any net
deferred tax asset) minus accrued liabilities (other than net deferred tax
liability, debt entered into for purposes of leverage and the aggregate
liquidation preference of outstanding preferred stock) (“Managed Assets”), in
exchange for the investment advisory services provided.
The Company has engaged U.S. Bancorp
Fund Services, LLC to serve as the Company’s administrator. The Company pays the
administrator a monthly fee computed at an annual rate of 0.04 percent of the
first $1,000,000,000 of the Company’s Managed Assets, 0.03 percent on the next
$1,000,000,000 of Managed Assets and 0.02 percent on the balance of the
Company’s Managed Assets.
Computershare Trust Company, N.A.
serves as the Company’s transfer agent, dividend paying agent, and agent for the
automatic dividend reinvestment plan.
U.S. Bank, N.A. serves as the
Company’s custodian. The Company pays the custodian a monthly fee computed at an
annual rate of 0.015 percent on the first $100,000,000 of the Company’s
portfolio assets and 0.01 percent on the balance of the Company’s portfolio
assets.
5. Income Taxes
Deferred income taxes reflect the net
tax effect of temporary differences between the carrying amount of assets and
liabilities for financial reporting and tax purposes. Components of the
Company’s deferred tax assets and liabilities as of August 31, 2009, are as
follows:
|
Deferred tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
19,838,273
|
|
Capital loss carryforwards
|
|
|
25,173,653
|
|
Deferred expense associated with interest rate swap
terminations
|
|
|
1,064,596
|
|
Accrued expenses
|
|
|
638,534
|
|
Alternative minimum tax credit
carryforward
|
|
|
122,000
|
|
Organization costs
|
|
|
16,205
|
|
|
|
|
46,853,261
|
|
Deferred tax liabilities:
|
|
|
|
|
Basis reduction of investment in MLPs
|
|
|
19,822,640
|
|
Net unrealized gains on investment securities
|
|
|
37,196,295
|
|
|
|
|
57,018,935
|
|
Total net deferred tax
liability
|
|
$
|
10,165,674
|
At August 31, 2009, a valuation
allowance on deferred tax assets was not deemed necessary because the Company
believes that it is more likely than not that there is an ability to realize its
deferred tax assets based upon existence of sufficient evidence, primarily
regarding the amount and timing of distributions to be received from portfolio
companies. Any adjustments to such estimates will be made in the period such
determination is made The Company’s policy is to record interest and penalties
on uncertain tax positions as part of tax expense. No interest or penalties were
accrued at August 31, 2009. All tax years since inception remain open to
examination by federal and state tax authorities.
Total income tax expense differs from
the amount computed by applying the federal statutory income tax rate of 34.5
percent to net investment loss, realized loss and unrealized gains on
investments before taxes for the period ended August 31, 2009, as
follows:
|
Application of statutory income tax rate
|
|
$
|
52,979,715
|
|
|
State
income taxes, net of federal tax benefit
|
|
|
6,603,269
|
|
|
Foreign tax benefit, net of federal tax effect
|
|
|
(278,432
|
)
|
|
Change in
state income taxes, including reserve for
|
|
|
|
|
|
unrecognized tax benefits for state income
taxes
|
|
|
(1,721,641
|
)
|
|
Change in valuation allowance
|
|
|
(15,884,969
|
)
|
|
Total income tax
expense
|
|
$
|
41,697,942
|
|
Total income taxes are computed by
applying the federal statutory rate plus a blended state income tax rate. During
the period, the Company re-evaluated its overall federal and state income tax
rate, increasing it from 36.81 percent to 38.80 percent, primarily due to the
reserve for unrecognized tax benefits.
For the period from December 1, 2008
to August 31, 2009, the components of income tax expense include current foreign
tax benefit (for which the federal tax effect is reflected in deferred tax
expense) of $454,955, alternative minimum tax for U.S. tax purposes of $122,000,
current federal and state income tax expense (net of federal tax benefit) of
$1,645,706 and $205,117, respectively, and deferred federal and state income tax
expense (net of federal tax benefit) of $35,727,128 and $4,452,946,
respectively. The deferred income tax expense of $40,180,074 for the period
ended August 31, 2009 is net of the reduction in valuation allowance of
$15,884,969.
As of November 30, 2008, the Company
had a net operating loss for federal income tax purposes of approximately
$30,825,000. The net operating loss may be carried forward for 20 years. If not
utilized, this net operating loss will expire as follows: $12,450,000 and
$18,375,000 in the years ending November 30, 2026, and 2027 respectively. As of
November 30, 2008, the Company had a capital loss carryforward of approximately
$48,000,000, which may be carried forward for 5 years and if not utilized
expires in the year ending November 30, 2013. The amount of the deferred tax
asset for these items at August 31, 2009 also includes amounts for the period
from December 1, 2008 through August 31, 2009. For corporations, capital losses
can only be used to offset capital gains and cannot be used to offset ordinary
income. As of November 30, 2008, an alternative minimum tax credit of $120,201
was available, which may be credited in the future against regular income tax.
This credit may be carried forward indefinitely.
As of August 31, 2009, the aggregate
cost of securities for federal income tax purposes was $343,297,494. At August
31, 2009, the aggregate gross unrealized appreciation for all securities in
which there was an excess of fair value over tax cost was $163,035,001, the
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over fair value was $8,134,336 and the net unrealized
appreciation was $154,900,665.
6. Fair Value of Financial
Instruments
Various inputs are used in
determining the value of the Company’s investments. These inputs are summarized
in the three broad levels listed below:
|
|
Level
1 —
|
|
quoted
prices in active markets for identical investments
|
|
|
|
|
|
|
|
Level 2 —
|
|
other
significant observable inputs (including quoted prices for similar
investments, market corroborated inputs, etc.)
|
|
|
|
|
|
|
|
Level
3 —
|
|
significant unobservable inputs (including the Company’s own
assumptions in determining the fair value of
investments)
|
The inputs or methodology used for
valuing securities are not necessarily an indication of the risk associated with
investing in those securities.
2009 3rd Quarter
Report
13
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
|
On April 9, 2009, the FASB issued
FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1,
Interim Disclosures About Fair Value of Financial
Instruments,
which amends FASB Statement
No. 107,
Disclosures About Fair Value of
Financial Instruments
(“FSP 107-1”), to
require disclosures about fair value of financial instruments for interim
financial statements of publicly traded companies as well as in annual financial
statements. FSP 107-1 also amends APB Opinion No. 28,
Interim Financial Reporting,
to require those disclosures in summarized financial
information at interim reporting periods. FSP 107-1 is effective for interim
reporting periods ending after June 15, 2009. The adoption of FSP 107-1 did not
have a significant impact on the Company’s financial statements.
The following table provides the fair
value measurements of applicable Company assets by level within the fair value
hierarchy as of August 31, 2009. These assets are measured on a recurring
basis.
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
Significant
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Unobservable
|
|
|
|
Fair Value at
|
|
Identical Assets
|
|
Observable Inputs
|
|
Inputs
|
|
Description
|
|
August 31, 2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Limited
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Related Companies
(a)
|
|
|
$
|
497,934,779
|
|
|
|
$
|
497,934,779
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Equity Securities
|
|
|
|
497,934,779
|
|
|
|
|
497,934,779
|
|
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
Investment
(b)
|
|
|
|
263,380
|
|
|
|
|
263,380
|
|
|
|
|
—
|
|
|
|
—
|
|
Total
Other
|
|
|
|
263,380
|
|
|
|
|
263,380
|
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
$
|
498,198,159
|
|
|
|
$
|
498,198,159
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(a)
|
|
All other
industry classifications are identified in the Schedule of
Investments.
|
|
(b)
|
|
Short-term
investment is a sweep investment for cash balances in the Company at
August 31, 2009.
|
|
|
|
Fair Value Measurements Using Significant Unobservable
Inputs
|
|
|
|
(Level 3) for
Investments
|
|
|
|
For the period ended
|
|
|
|
August 31, 2009
|
|
Fair value beginning balance
|
|
$
|
3,313,416
|
|
|
Total
unrealized losses included in net increase in net assets
|
|
|
|
|
|
applicable to common stockholders
|
|
|
—
|
|
|
Net purchases, issuances and settlements
|
|
|
—
|
|
|
Return of
capital adjustments impacting cost basis of security
|
|
|
—
|
|
|
Transfers out of Level 3
|
|
|
(3,313,416
|
)
|
|
Fair value
ending balance
|
|
$
|
—
|
|
The Company utilizes the beginning of
reporting period method for determining transfers into or out of Level 3.
Accordingly, this method is the basis for presenting the rollforward in the
preceding table. Under this method, the fair value of the asset at the beginning
of the period will be disclosed as a transfer into or out of Level 3, gains or
losses for an asset that transfers into Level 3 during the period will be
included in the reconciliation, and gains or losses for an asset that transfers
out of Level 3 will be excluded from the reconciliation.
7. Investment
Transactions
For the period ended August 31, 2009,
the Company purchased (at cost) and sold securities (proceeds received) in the
amount of $48,822,472 and $54,060,574 (excluding short-term debt securities),
respectively.
8. Long-Term Debt
Obligations
The Company has $90,000,000 aggregate
principal amount of private senior notes, Series D, Series E and Series F
(collectively, the “Notes”) outstanding.
The Notes are unsecured obligations
of the Company and, upon liquidation, dissolution or winding up of the Company,
will rank: (1) senior to all of the Company’s outstanding preferred stock; (2)
senior to all of the Company’s outstanding common stock; (3) on parity with any
unsecured creditors of the Company and any unsecured senior securities
representing indebtedness of the Company and (4) junior to any secured creditors
of the Company.
The Notes are redeemable in certain
circumstances at the option of the Company. The Notes are also subject to a
mandatory redemption if the Company fails to meet asset coverage ratios required
under the 1940 Act or the rating agency guidelines if such failure is not waived
or cured. At August 31, 2009, the Company was in compliance with asset coverage
covenants and basic maintenance covenants for its senior notes. Estimated fair
values of the Notes were calculated using the spread between the AAA corporate
finance debt rate and the U.S. Treasury rate with an equivalent maturity date
plus the average spread between the fixed rates of the Notes and the AAA
corporate finance debt rate. At August 31, 2009, the total spread was applied to
the equivalent U.S. Treasury rate for the series and future cash flows were
discounted to determine the estimated fair value. The following table shows the
issue date, maturity date, notional/ carrying amount, estimated fair value and
fixed rate for each series of Notes outstanding at August 31, 2009.
|
|
|
|
|
|
|
Notional/
|
|
|
|
|
|
|
|
Issue
|
|
Maturity
|
|
Carrying
|
|
Estimated
|
|
Fixed
|
|
Series
|
|
Date
|
|
Date
|
|
Amount
|
|
Fair Value
|
|
Rate
|
|
Series D
|
|
December 21, 2007
|
|
December 21, 2014
|
|
$
|
39,400,000
|
|
$
|
41,947,850
|
|
6.07%
|
|
Series
E
|
|
June 17,
2008
|
|
June 17,
2011
|
|
|
15,900,000
|
|
|
16,753,779
|
|
5.56%
|
|
Series F
|
|
June 17, 2008
|
|
June 17, 2013
|
|
|
34,700,000
|
|
|
37,079,704
|
|
6.02%
|
|
|
|
|
|
|
|
$
|
90,000,000
|
|
$
|
95,781,333
|
|
|
9. Preferred Stock
The Company has 4,400 authorized
shares of Money Market Preferred (“MMP”) Stock, of which 2,600 shares are
currently outstanding. The MMP Stock has rights determined by the Board of
Directors. The holders of MMP Stock have voting rights equal to the holders of
common stock (one vote per MMP share) and will vote together with the holders of
shares of common stock as a single class except on matters affecting only the
holders of preferred stock or the holders of common stock.
The MMP Stock has a liquidation value
of $25,000 per share plus any accumulated but unpaid distributions, whether or
not declared. Holders of the MMP Stock are entitled to receive cash distribution
payments at an annual rate that may vary for each rate period as determined by
the auction. In the event that there are not enough bidders in the auction at
rates below the maximum rate as prescribed by the terms of the preferred stock,
the auction fails. When an auction fails, the rate paid to continuing or new
bidders is set at the maximum rate. A failed auction does not cause a mandatory
redemption or affect the security’s liquidation preference. In the event of a
failed auction, distributions continue to be paid at the maximum rates and times
determined in the articles supplementary. The maximum rate on preferred stock
based on current ratings is 200 percent of the greater of: (i) the applicable AA
Composite Commercial Paper Rate or the applicable Treasury Index Rate or (ii)
the applicable LIBOR as of the date of the auction. The distribution rates for
the MMP I and MMP II Stock as of August 31, 2009 are 200 percent of the
applicable LIBOR as of the respective auction dates.
14
Tortoise Energy Capital Corp.
N
OTES
TO
F
INANCIAL
S
TATEMENTS
(Unaudited)
(Continued)
|
The MMP stock is redeemable in
certain circumstances at the option of the Company. Under the Investment Company
Act of 1940, the Company may not declare dividends or make other distributions
on shares of common stock or purchases of such shares if, at the time of the
declaration, distribution or purchase, asset coverage with respect to the
outstanding MMP Stock would be less than 200 percent. The preferred stock is
also subject to a mandatory redemption if the Company fails to meet asset
coverage ratios required under the 1940 Act or the rating agency guidelines if
such failure is not waived or cured. At August 31, 2009, the Company was in
compliance with asset coverage covenants and basic maintenance covenants for its
preferred stock.
On July 14, 2009, the Company
redeemed MMP I Stock at liquidation value in the amount of $20,000,000. On July
16, 2009, the Company redeemed MMP II Stock at liquidation value in the amount
of $10,000,000.
At August 31, 2009, fair value of the
MMP Stock approximates the carrying amount because the distribution rate
fluctuates with changes in interest rates available in the current market. The
table below shows the number of shares outstanding, aggregate liquidation
preference, current rate as of August 31, 2009, the weighted-average rate for
period ended August 31, 2009 and the typical rate period for each series of MMP
Stock outstanding at August 31, 2009. The Company may designate a rate period
that is different than the rate period indicated in the table below.
|
|
|
|
|
Aggregate
|
|
|
|
Weighted-
|
|
|
|
|
|
Shares
|
|
Liquidation
|
|
Current
|
|
Average
|
|
|
|
Series
|
|
Outstanding
|
|
Preference
|
|
Rate
|
|
Rate
|
|
Rate Period
|
|
MMP I Stock
|
|
|
1,600
|
|
|
$
|
40,000,000
|
|
0.55
|
%
|
|
1.13
|
%
|
|
28 days
|
|
MMP II
Stock
|
|
|
1,000
|
|
|
|
25,000,000
|
|
0.51
|
%
|
|
0.71
|
%
|
|
7
days
|
|
|
|
|
2,600
|
|
|
$
|
65,000,000
|
|
|
|
|
|
|
|
|
The rates in the preceding table do
not include commissions paid to the auction agent, which are included in agent
fees in the accompanying Statement of Operations.
10. Common Stock
The Company has 100,000,000 shares of
capital stock authorized and 17,595,214 shares outstanding at August 31, 2009.
Transactions in common stock for the period ended August 31, 2009, were as
follows:
|
Shares at November 30, 2008
|
|
17,470,673
|
|
Shares sold
through shelf offerings
|
|
62,758
|
|
Shares issued through reinvestment of distributions
|
|
61,783
|
|
Shares at August 31,
2009
|
|
17,595,214
|
11. Credit Facility
On March 20, 2008, the Company
entered into an agreement establishing an unsecured credit facility maturing on
March 20, 2009. The credit agreement provided for a revolving credit facility of
up to $92,500,000 that could be increased to $160,000,000 if certain conditions
were met. Under the terms of the credit facility, U.S. Bank, N.A. served as a
lender and the lending syndicate agent on behalf of other lenders participating
in the credit facility. Outstanding balances generally accrued interest at a
variable annual rate equal to one-month LIBOR plus 0.75 percent and unused
portions of the credit facility accrued a non-usage fee equal to an annual rate
of 0.15 percent.
On March 20, 2009, the Company
entered into an extension of its credit facility through June 20, 2009. The
terms of the extension provide for an unsecured revolving credit facility of up
to $40,000,000. During the extension, outstanding balances accrued interest at a
variable rate equal to one-month LIBOR plus 2.00 percent and unused portions of
the credit facility accrued a non-usage fee equal to an annual rate of 0.25
percent.
On June 19, 2009, the Company entered
into an amendment to its credit facility that extends the credit facility
through June 20, 2010. The terms of the amendment provide for an unsecured
revolving credit facility of $50,000,000. During the extension, outstanding
balances will accrue interest at a variable rate equal to one-month LIBOR plus
2.00 percent and unused portions of the credit facility will accrue a non-usage
fee equal to an annual rate of 0.25 percent.
The average principal balance and
interest rate for the period during which the credit facility was utilized
during the period ended August 31, 2009 was approximately $13,100,000 and 2.23
percent, respectively. At August 31, 2009, the principal balance outstanding was
$7,300,000 at an interest rate of 2.26 percent.
Under the terms of the credit
facility, the Company must maintain asset coverage required under the 1940 Act.
If the Company fails to maintain the required coverage, it may be required to
repay a portion of an outstanding balance until the coverage requirement has
been met.
12. Subsequent
Events
On September 1, 2009, the Company
paid a distribution in the amount of $0.40 per common share, for a total of
$7,021,905. Of this total, the dividend reinvestment amounted to
$1,119,381.
On September 15, 2009, the Company
entered into a new Investment Advisory Agreement with the Adviser in connection
with the September 15, 2009 closing of the transaction previously announced by
the Adviser on June 3, 2009. Upon the closing of this transaction, which
resulted in a change in control of the Adviser, the previous Investment Advisory
Agreement with the Adviser automatically terminated. The terms of the new
Investment Advisory Agreement are substantially identical to the terms of the
previous Investment Advisory Agreement, except for the effective and termination
dates, and simply continue the relationship between the Company and the
Adviser.
On September 15, 2009, effective upon
consummation of the transaction resulting in the change in control of the
Adviser, Terry Matlack resigned from the Board of Directors of the Company in
order to comply with a safe harbor under Section 15(f) of the 1940 Act. Mr.
Matlack will remain a member of the Adviser’s Investment Committee and as Chief
Financial Officer of the Company.
During the period from September 1,
2009 through October 20, 2009, the Company issued 232,161 shares of common stock
under its at-the-market equity offering program for gross proceeds of
approximately $4.6 million.
Effective August 31, 2009, the
Company adopted Statement of Financial Accounting Standards No. 165 (“SFAS No.
165”),
Subsequent Events.
SFAS No. 165 requires an entity to
recognize in the financial statements the effects of all subsequent events that
provide additional evidence about conditions that existed at the date of the
balance sheet. SFAS No. 165 is intended to establish general standards of
accounting and for disclosure of events that occur after the balance sheet date,
but before the financial statements are issued or are available to be issued.
The Company has performed an evaluation of subsequent events through October 20,
2009, which is the date the financial statements were issued.
2009 3rd Quarter
Report
15
A
DDITIONAL
I
NFORMATION
(Unaudited)
|
Director and Officer
Compensation
The Company does not compensate any
of its directors who are “interested persons,” as defined in Section 2(a)(19) of
the 1940 Act, nor any of its officers. For the period ended August 31, 2009, the
aggregate compensation paid by the Company to the independent directors was
$98,250. The Company did not pay any special compensation to any of its
directors or officers.
Forward-Looking
Statements
This report contains “forward-looking
statements” within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934. By their nature, all forward-looking statements involve
risks and uncertainties, and actual results could differ materially from those
contemplated by the forward-looking statements. Several factors that could
materially affect the Company’s actual results are the performance of the
portfolio of investments held by it, the conditions in the U.S. and
international financial, petroleum and other markets, the price at which shares
of the Company will trade in the public markets and other factors discussed in
filings with the SEC.
Proxy Voting
Policies
A description of the policies and
procedures that the Company uses to determine how to vote proxies relating to
portfolio securities owned by the Company and information regarding how the
Company voted proxies relating to the portfolio of securities during the
12-month period ended June 30, 2009 are available to stockholders (i) without
charge, upon request by calling the Company at (913) 981-1020 or toll-free at
(866) 362-9331 and on the Company’s Web site at www.tortoiseadvisors.com; and
(ii) on the SEC’s Web site at www.sec.gov.
Form N-Q
The Company files its complete
schedule of portfolio holdings for the first and third quarters of each fiscal
year with the SEC on Form N-Q. The Company’s Form N-Q is available without
charge upon request by calling the Company at (866) 362-9331 or by visiting the
SEC’s Web site at www.sec.gov. In addition, you may review and copy the
Company’s Form N-Q at the SEC’s Public Reference Room in Washington D.C. You may
obtain information on the operation of the Public Reference Room by calling
(800) SEC-0330.
The Company’s Form N-Qs are also
available on the Company’s Web site at www.tortoiseadvisors.com.
Statement of Additional
Information
The Statement of Additional
Information (“SAI”) includes additional information about the Company’s
directors and is available upon request without charge by calling the Company at
(866) 362-9331 or by visiting the SEC’s Web site at www.sec.gov.
Certifications
The Company’s Chief Executive Officer
has submitted to the New York Stock Exchange in 2009 the annual CEO
certification as required by Section 303A.12(a) of the NYSE Listed Company
Manual.
The Company has filed with the SEC,
as an exhibit to its most recently filed N-CSR, the certification of its Chief
Executive Officer and Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act.
Privacy Policy
In order to conduct its business, the
Company collects and maintains certain nonpublic personal information about its
stockholders of record with respect to their transactions in shares of the
Company’s securities. This information includes the stockholder’s address, tax
identification or Social Security number, share balances, and distribution
elections. We do not collect or maintain personal information about stockholders
whose share balances of our securities are held in “street name” by a financial
institution such as a bank or broker.
We do not disclose any nonpublic
personal information about you, the Company’s other stockholders or the
Company’s former stockholders to third parties unless necessary to process a
transaction, service an account, or as otherwise permitted by law.
To protect your personal information
internally, we restrict access to nonpublic personal information about the
Company’s stockholders to those employees who need to know that information to
provide services to our stockholders. We also maintain certain other safeguards
to protect your nonpublic personal information.
16
Tortoise Energy Capital Corp.
|
Office of the Company
and
of the Investment Adviser
Tortoise Capital Advisors, L.L.C.
11550 Ash Street, Suite
300
Leawood, Kan. 66211
(913) 981-1020
(913) 981-1021
(fax)
www.tortoiseadvisors.com
Managing Directors
of
Tortoise Capital
Advisors, L.L.C.
H. Kevin
Birzer
Zachary A. Hamel
Kenneth P. Malvey
Terry Matlack
David
J. Schulte
Board of Directors
of
Tortoise Energy Capital Corp.
H. Kevin Birzer,
Chairman
Tortoise Capital
Advisors, L.L.C.
Conrad S.
Ciccotello
Independent
John R.
Graham
Independent
Charles E.
Heath
Independent
|
ADMINISTRATOR
U.S. Bancorp Fund Services, LLC
615 East Michigan St.
Milwaukee, Wis. 53202
CUSTODIAN
U.S. Bank,
N.A.
1555 North Rivercenter Drive,
Suite 302
Milwaukee, Wis. 53212
TRANSFER, DIVIDEND
DISBURSING
AND REINVESTMENT AGENT
Computershare Trust Company, N.A.
P.O. Box 43078
Providence,
R.I. 02940-3078
(312) 588-4990
www.computershare.com
Legal
Counsel
Husch Blackwell Sanders
LLP
4801 Main St.
Kansas City,
Mo. 64112
INVESTOR
RELATIONS
(866)
362-9331
info@tortoiseadvisors.com
STOCK
SYMBOL
Listed NYSE Symbol:
TYY
This report is for stockholder
information. This is not a prospectus intended for use in the purchase or
sale of fund shares.
Past
performance is no guarantee of future results and your investment may be
worth more or less at the time you
sell.
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Tortoise Capital Advisors’ Public Investment
Companies
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|
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|
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Total Assets
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|
|
Ticker/
|
Primary
Target
|
Investor
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as of 9/30/09
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Name
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Inception
Date
|
Investments
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Suitability
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($ in millions)
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Tortoise Energy Capital
Corp.
|
TYY
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U.S. Energy Infrastructure
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Retirement Accounts
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$521
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|
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May 2005
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Pension Plans
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Taxable Accounts
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|
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Tortoise Energy Infrastructure
Corp.
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TYG
|
U.S.
Energy Infrastructure
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Retirement Accounts
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$934
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|
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Feb.
2004
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Pension
Plans
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|
|
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Taxable
Accounts
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|
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Tortoise North American
Energy Corp.
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TYN
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U.S. Energy Infrastructure
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Retirement Accounts
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$139
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Oct. 2005
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Pension Plans
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|
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Taxable Accounts
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Tortoise Capital Resources
Corp.
|
TTO
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U.S. Energy
Infrastructure
|
Retirement
Accounts
|
$86
|
|
|
Dec.
2005
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Private and
Micro Cap
|
Pension
Plans
|
(as of 8/31/09)
|
|
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(Feb. 2007 –
IPO)
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Public
Companies
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Taxable
Accounts
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Tortoise Power and
Energy.
|
TPZ
|
U.S. Power and Energy Investment
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Retirement Accounts
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$155
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Infrastructure Fund,
Inc.
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July 2009
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Grade Debt and Dividend-Paying
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Pension Plans
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Equity Securities
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Taxable Accounts
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Tortoise (NYSE:TYY)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
Tortoise (NYSE:TYY)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024
