Table of Contents

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

FORM 10-Q

 
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
For the Quarter Ended June 30, 2012
 
¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934	
Commission File Number: 814-00754

SOLAR CAPITAL LTD.
(Exact name of registrant as specified in its charter)

 
 	 	 	
Maryland	 	26-1381340	
(State or Incorporation)	 	(I.R.S. Employer
Identification No.)	
500 Park Avenue
New York, N.Y.	 	10022	
(Address of principal executive offices)	 	(Zip Code)	
(212) 993-1670
(Registrant’s telephone number, including area code)

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 and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	 	x	  	Accelerated filer	 	¨	
 	 	 	 	
Non-accelerated filer	 	¨	  	Smaller Reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares of the registrant’s Common Stock, $.01 par value, outstanding as of July 30, 2012 was 36,640,094.

 

Table of Contents
SOLAR CAPITAL LTD.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012
TABLE OF CONTENTS

 	  	 	  	PAGE	 	
PART I. FINANCIAL INFORMATION	  	 	 	 	
 	 	 	
Item 1.	  	Financial Statements	  	 	 	 	
 	  	Consolidated Statements of Assets and Liabilities as of June 30, 2012 (unaudited) and December 31, 2011	  	 	1	  	
 	 	 	
 	  	Consolidated Statements of Operations for the three and six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited)	  	 	2	  	
 	 	 	
 	  	Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2012 (unaudited) and the year ended December 31, 2011	  	 	3	  	
 	 	 	
 	  	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited)	  	 	4	  	
 	 	 	
 	  	Consolidated Schedule of Investments as of June 30, 2012 (unaudited)	  	 	5	  	
 	 	 	
 	  	Consolidated Schedule of Investments as of December 31, 2011	  	 	9	  	
 	 	 	
 	  	Notes to Consolidated Financial Statements (unaudited)	  	 	13	  	
 	 	 	
.	  	Report of Independent Registered Public Accounting Firm	  	 	31	  	
 	 	 	
Item 2.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	32	  	
Item 3.	  	Quantitative and Qualitative Disclosures About Market Risk	  	 	42	  	
Item 4.	  	Controls and Procedures	  	 	43	  	
 	 	
PART II. OTHER INFORMATION	  	 	 	 	
 	 	 	
Item 1.	  	Legal Proceedings	  	 	45	  	
Item 1A.	  	Risk Factors	  	 	45	  	
Item 2.	  	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	45	  	
Item 3.	  	Defaults upon Senior Securities	  	 	45	  	
Item 4.	  	Mine Safety Disclosures	  	 	45	  	
Item 5.	  	Other Information	  	 	45	  	
Item 6.	  	Exhibits	  	 	46	  	
 	  	Signatures	  	 	48	  	

Table of Contents
Item 1.	Financial Statements	
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except shares)

 	  	 

 	June 30,

2012
(unaudited)	  

  	 	 
 	December 31,
2011	  
  	
Assets	  	 	 	 	 	 	 	 	
Investments at value:	  	 	 	 	 	 	 	 	
Companies less than 5% owned (cost: $983,442 and $1,062,844 respectively)	  	$	920,580	  	 	$	955,769	  	
Companies 5% to 25% owned (cost: $220,411 and $41,819, respectively)	  	 	212,384	  	 	 	35,820	  	
Companies more than 25% owned (cost: $59,158 and $47,910, respectively)	  	 	60,638	  	 	 	53,454	  	
 	  	 	 	 	 	 	 	 	
Total investments (cost: $1,263,011 and $1,152,573, respectively)	  	 	1,193,602	  	 	 	1,045,043	  	
 	 	 	
Cash and cash equivalents	  	 	12,019	  	 	 	11,787	  	
Interest and dividends receivable	  	 	11,417	  	 	 	9,763	  	
Deferred credit facility costs	  	 	1,172	  	 	 	3,635	  	
Deferred offering costs	  	 	659	  	 	 	469	  	
Receivable for investments sold	  	 	630	  	 	 	3,225	  	
Fee revenue receivable	  	 	—  	  	 	 	4,379	  	
Unrealized appreciation on interest rate caps and foreign exchange contracts	  	 	94	  	 	 	649	  	
Prepaid expenses and other receivables	  	 	290	  	 	 	481	  	
 	  	 	 	 	 	 	 	 	
Total Assets	  	 	1,219,883	  	 	 	1,079,431	  	
 	  	 	 	 	 	 	 	 	
Liabilities	  	 	 	 	 	 	 	 	
Payable for investments purchased	  	 	124,653	  	 	 	22,443	  	
Revolving credit facilities	  	 	119,860	  	 	 	201,355	  	
Senior secured notes	  	 	75,000	  	 	 	—  	  	
Term loan	  	 	35,000	  	 	 	35,000	  	
Dividend payable	  	 	21,984	  	 	 	—  	  	
Investment advisory and management fee payable	  	 	5,673	  	 	 	5,277	  	
Performance-based incentive fee payable	  	 	3,591	  	 	 	5,203	  	
Interest payable	  	 	1,323	  	 	 	1,063	  	
Income taxes payable	  	 	1,035	  	 	 	720	  	
Administrative services fee payable	  	 	1,022	  	 	 	1,069	  	
Unrealized depreciation on foreign exchange contracts	  	 	721	  	 	 	—  	  	
Deferred fee revenue	  	 	—  	  	 	 	318	  	
Other accrued expenses and payables	  	 	5,098	  	 	 	1,042	  	
 	  	 	 	 	 	 	 	 	
Total Liabilities	  	 	394,960	  	 	 	273,490	  	
 	  	 	 	 	 	 	 	 	
Net Assets	  	 	 	 	 	 	 	 	
Common stock, par value $0.01 per share 36,640,094 and 36,608,038 shares issued and outstanding, 200,000,000 authorized	  	 	366	  	 	 	366	  	
Paid-in capital in excess of par	  	 	928,891	  	 	 	928,180	  	
Undistributed net investment income	  	 	—  	  	 	 	2,245	  	
Distributions in excess of net investment income	  	 	(6,236	) 	 	 	—  	  	
Accumulated net realized losses	  	 	(28,368	) 	 	 	(18,379	) 	
Net unrealized depreciation	  	 	(69,730	) 	 	 	(106,471	) 	
 	  	 	 	 	 	 	 	 	
Total Net Assets	  	$	824,923	  	 	$	805,941	  	
 	  	 	 	 	 	 	 	 	
Number of shares outstanding	  	 	36,640,094	  	 	 	36,608,038	  	
 	  	 	 	 	 	 	 	 	
Net Asset Value Per Share	  	$	22.51	  	 	$	22.02	  	
 	  	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
 
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Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except shares)

 	  	Three months
ended
June 30, 2012	 	 	Three months
ended
June 30, 2011	 	 	Six months
ended
June 30, 2012	 	 	Six months
ended
June 30, 2011	 	
INVESTMENT INCOME:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and dividends:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other interest and dividend income	  	$	27,819	  	 	$	34,530	  	 	$	63,046	  	 	$	66,129	  	
Companies 5% to 25% owned	  	 	5,652	  	 	 	—  	  	 	 	5,652	  	 	 	—  	  	
Companies more than 25% owned	  	 	1,362	  	 	 	753	  	 	 	2,444	  	 	 	1,448	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment income	  	 	34,833	  	 	 	35,283	  	 	 	71,142	  	 	 	67,577	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other credit facility expenses	  	 	9,051	  	 	 	1,895	  	 	 	11,746	  	 	 	3,932	  	
Investment advisory and management fees	  	 	5,673	  	 	 	5,096	  	 	 	10,951	  	 	 	10,083	  	
Performance-based incentive fees	  	 	3,591	  	 	 	5,269	  	 	 	8,866	  	 	 	10,057	  	
Other general and administrative expenses	  	 	995	  	 	 	1,376	  	 	 	2,004	  	 	 	2,270	  	
Administrative services fees	  	 	1,128	  	 	 	279	  	 	 	1,824	  	 	 	717	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	20,438	  	 	 	13,915	  	 	 	35,391	  	 	 	27,059	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net investment income before income
tax expense	  	 	14,395	  	 	 	21,368	  	 	 	35,751	  	 	 	40,518	  	
Income tax expense	  	 	26	  	 	 	—  	  	 	 	283	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net investment income	  	 	14,369	  	 	 	21,368	  	 	 	35,468	  	 	 	40,518	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, DERIVATIVES AND FOREIGN CURRENCIES:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized loss:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Companies more than 25% owned	  	 	(687	) 	 	 	—  	  	 	 	10,315	  	 	 	—  	  	
Companies less than 5% owned	  	 	(19,635	) 	 	 	2,304	  	 	 	(20,360	) 	 	 	5,106	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized gain (loss) on investments	  	 	(20,322	) 	 	 	2,304	  	 	 	(10,045	) 	 	 	5,106	  	
Derivatives	  	 	1,730	  	 	 	(4,872	) 	 	 	786	  	 	 	(9,235	) 	
Foreign currencies	  	 	(563	) 	 	 	(242	) 	 	 	55	  	 	 	(314	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized loss before income taxes	  	 	(19,155	) 	 	 	(2,810	) 	 	 	(9,204	) 	 	 	(4,443	) 	
Income tax expense	  	 	—  	  	 	 	—  	  	 	 	785	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized loss	  	 	(19,155	) 	 	 	(2,810	) 	 	 	(9,989	) 	 	 	(4,443	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized gain (loss):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Companies less than 5% owned	  	 	17,646	  	 	 	(8,478	) 	 	 	44,210	  	 	 	22,389	  	
Companies more than 25% owned	  	 	1,508	  	 	 	1,478	  	 	 	(4,063	) 	 	 	3,103	  	
Companies 5% to 25% owned	  	 	132	  	 	 	(430	) 	 	 	(2,027	) 	 	 	(690	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized gain (loss) on investments	  	 	19,286	  	 	 	(7,430	) 	 	 	38,120	  	 	 	24,802	  	
Derivatives	  	 	159	  	 	 	473	  	 	 	(1,276	) 	 	 	214	  	
Foreign currencies	  	 	1,403	  	 	 	783	  	 	 	(103	) 	 	 	311	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized gain (loss) on investments	  	 	20,848	  	 	 	(6,174	) 	 	 	36,741	  	 	 	25,327	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized and unrealized gain (loss) on investments, derivatives and foreign currencies	  	 	1,693	  	 	 	(8,984	) 	 	 	26,752	  	 	 	20,884	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Increase in Net Assets Resulting
From Operations	  	$	16,062	  	 	$	12,384	  	 	$	62,220	  	 	$	61,402	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per share	  	$	0.44	  	 	$	0.34	  	 	$	1.70	  	 	$	1.69	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
 
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Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except shares)

 	  	Six months ended
June 30, 2012
(unaudited)	 	 	Year ended
December 31, 2011	 	
Increase in net assets resulting from operations:	  	 	 	 	 	 	 	 	
Net investment income	  	$	35,468	  	 	$	81,904	  	
Net realized loss	  	 	(9,989	) 	 	 	(2,393	) 	
Net change in unrealized gain (loss)	  	 	36,741	  	 	 	(18,196	) 	
 	  	 	 	 	 	 	 	 	
Net increase in net assets resulting from operations	  	 	62,220	  	 	 	61,315	  	
 	  	 	 	 	 	 	 	 	
Dividends and distributions to shareholders:	  	 	(43,949	) 	 	 	(87,532	) 	
 	  	 	 	 	 	 	 	 	
Capital share transactions:	  	 	 	 	 	 	 	 	
Reinvestment of dividends	  	 	711	  	 	 	5,164	  	
 	  	 	 	 	 	 	 	 	
Net increase (decrease) in net assets	  	 	18,982	  	 	 	(21,053	) 	
 	  	 	 	 	 	 	 	 	
Net assets at beginning of period	  	 	805,941	  	 	 	826,994	  	
 	  	 	 	 	 	 	 	 	
Net assets at end of period	  	$	824,923	  	 	$	805,941	  	
 	  	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
 
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SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands except shares)

 	  	Six months ended
June 30, 2012	 	 	Six months ended
June 30, 2011	 	
Cash Flows from Operating Activities:	  	 	 	 	 	 	 	 	
Net increase in net assets from operations	  	$	62,220	  	 	$	61,402	  	
 	 	 	
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Net realized (gain) loss from investments	  	 	10,045	  	 	 	(5,106	) 	
Net realized (gain) loss from foreign currency exchange	  	 	(55	) 	 	 	314	  	
Net change in unrealized (gain) on investments	  	 	(38,120	) 	 	 	(24,802	) 	
Net change in (gain) loss on derivatives	  	 	1,276	  	 	 	(214	) 	
 	 	 	
(Increase) decrease in operating assets:	  	 	 	 	 	 	 	 	
Purchase of investment securities	  	 	(362,575	) 	 	 	(221,329	) 	
Proceeds from disposition of investment securities	  	 	251,877	  	 	 	232,757	  	
Capitalization of payment-in-kind interest	  	 	(16,776	) 	 	 	(13,710	) 	
Collections of payment-in-kind interest	  	 	7,141	  	 	 	3,602	  	
Interest and dividends receivable	  	 	(1,654	) 	 	 	(1,474	) 	
Purchase of interest rate cap	  	 	—  	  	 	 	(2,938	) 	
Fee revenue receivable	  	 	4,379	  	 	 	(126	) 	
Receivable for investments sold	  	 	2,595	  	 	 	8,119	  	
Prepaid expenses and other receivables	  	 	191	  	 	 	(94	) 	
 	 	 	
Increase (decrease) in operating liabilities:	  	 	 	 	 	 	 	 	
Payable for investments purchased	  	 	102,210	  	 	 	68,005	  	
Investment advisory and management fee payable	  	 	396	  	 	 	204	  	
Performance-based incentive fee payable	  	 	(1,612	) 	 	 	922	  	
Interest payable	  	 	260	  	 	 	421	  	
Administrative services fees	  	 	(47	) 	 	 	(323	) 	
Income taxes payable	  	 	315	  	 	 	142	  	
Deferred fee revenue	  	 	(318	) 	 	 	(504	) 	
Other accrued expenses and payables	  	 	4,057	  	 	 	(407	) 	
 	  	 	 	 	 	 	 	 	
Net Cash Provided by Operating Activities	  	 	25,805	  	 	 	104,861	  	
 	  	 	 	 	 	 	 	 	
Cash Flows from Financing Activities:	  	 	 	 	 	 	 	 	
Cash dividends paid	  	 	(21,965	) 	 	 	(20,268	) 	
Deferred offering costs	  	 	(190	) 	 	 	(367	) 	
Deferred credit facility costs	  	 	2,463	  	 	 	1,136	  	
Proceeds from borrowings on senior secured notes	  	 	75,000	  	 	 	—  	  	
Proceeds from borrowings on revolving/term credit facilities	  	 	292,590	  	 	 	767,611	  	
Repayments of borrowings on revolving/term credit facilities	  	 	(373,471	) 	 	 	(767,255	) 	
 	  	 	 	 	 	 	 	 	
Net Cash Used in Financing Activities	  	 	(25,573	) 	 	 	(19,143	) 	
 	  	 	 	 	 	 	 	 	
NET INCREASE IN CASH AND CASH EQUIVALENTS	  	 	232	  	 	 	85,718	  	
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	  	 	11,787	  	 	 	288,732	  	
 	  	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS AT END OF PERIOD	  	$	12,019	  	 	$	374,450	  	
 	  	 	 	 	 	 	 	 	
Supplemental disclosure of cash flow information:	  	 	 	 	 	 	 	 	
Cash paid for interest	  	$	4,150	  	 	$	1,681	  	
 	  	 	 	 	 	 	 	 	
Cash paid for income taxes	  	$	727	  	 	$	312	  	
 	  	 	 	 	 	 	 	 	
Non-cash financing activity:	  	 	 	 	 	 	 	 	
Dividends reinvestment	  	$	711	  	 	$	1,562	  	
 	  	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
 
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SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2012
(in thousands, except shares)

Description(1)	  	Industry	 	Interest(2)	 	 	Maturity	 	 	Par Amount/
Shares	 	 	Cost	 	 	Fair
Value	 	
Bank Debt/Senior Secured Loans-62.0%	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	
Asurion Corporation	  	Insurance	 	 	9.00	% 	 	 	5/24/2019	  	 	$	40,000	  	 	$	39,821	  	 	$	40,900	  	
Airvana Network Solutions Inc.	  	Telecommunications	 	 	10.00	% 	 	 	3/25/2015	  	 	 	4,071	  	 	 	4,033	  	 	 	3,990	  	
AREP Fifty-Seventh LLC(10)(26)	  	Buildings & Real Estate	 	 	14.00	% 	 	 	8/1/2013	  	 	 	19,768	  	 	 	19,373	  	 	 	19,373	  	
ARK Real Estate Partners II LP(10)(26)	  	Buildings & Real Estate	 	 	14.00	% 	 	 	8/1/2013	  	 	 	8,027	  	 	 	7,866	  	 	 	7,866	  	
AviatorCap SII, LLC I(9)	  	Aerospace & Defense	 	 	12.00	% 	 	 	12/31/2014	  	 	 	3,402	  	 	 	3,365	  	 	 	3,400	  	
AviatorCap SII, LLC II(9)	  	Aerospace & Defense	 	 	11.00	% 	 	 	12/31/2014	  	 	 	5,070	  	 	 	5,008	  	 	 	5,070	  	
AviatorCap SII, LLC III(9)	  	Aerospace & Defense	 	 	13.00	% 	 	 	12/31/2014	  	 	 	6,320	  	 	 	6,214	  	 	 	6,320	  	
Direct Buy Inc.(18)	  	Home, Office Furnishing & Durable Consumer Prds	 	 	12.00	% 	 	 	2/1/2017	  	 	 	25,000	  	 	 	24,332	  	 	 	5,875	  	
DS Waters of America, Inc.(10)(22)	  	Beverage, Food & Tobacco	 	 

 	15% (11% Cash &

4% PIK)	  

(7) 	 	 	2/28/2018	  	 	 	30,292	  	 	 	29,278	  	 	 	30,292	  	
Fulton Holding Corp(17)	  	Retail Stores	 	 	13.37	% 	 	 	5/28/2016	  	 	 	35,000	  	 	 	34,251	  	 	 	35,000	  	
Grakon, LLC(11)	  	Machinery	 	 	12.00	% 	 	 	12/31/2015	  	 	 	9,524	  	 	 	7,616	  	 	 	9,429	  	
Good Sam Enterprise, LLC	  	Insurance	 	 	11.50	% 	 	 	12/1/2016	  	 	 	7,000	  	 	 	6,570	  	 	 	7,289	  	
Grocery Outlet Inc.(16)	  	Grocery	 	 	10.50	% 	 	 	12/15/2017	  	 	 	33,264	  	 	 	32,329	  	 	 	33,264	  	
Isotoner Corporation	  	Personal & Nondurable Consumer Products	 	 	10.75	% 	 	 	1/8/2018	  	 	 	39,000	  	 	 	37,963	  	 	 	38,610	  	
Interactive Health Solutions, Inc.(16)(17)	  	Healthcare, Education & Childcare	 	 	11.50	% 	 	 	10/4/2016	  	 	 	19,894	  	 	 	19,488	  	 	 	20,013	  	
MYI Acquiror Corporation(4)(8)(19)	  	Insurance	 	 

 	13% (12% Cash &

1% PIK)	  

(7) 	 	 	3/13/2017	  	 	 	31,643	  	 	 	31,073	  	 	 	31,801	  	
SMG	  	Personal, Food & Misc. Services	 	 	10.75	% 	 	 	12/7/2018	  	 	 	25,000	  	 	 	24,503	  	 	 	24,875	  	
Southern Auto Finance Company(19)	  	Banking	 	 	13.50	% 	 	 	10/19/2017	  	 	 	25,000	  	 	 	24,485	  	 	 	24,750	  	
SOINT, LLC(9)(23)	  	Aerospace & Defense	 	 	15.00	% 	 	 	6/30/2016	  	 	 	16,667	  	 	 	16,333	  	 	 	16,333	  	
Spencer Spirit Holdings, Inc.	  	Retail Stores	 	 	11.00	% 	 	 	5/1/2017	  	 	 	10,000	  	 	 	10,000	  	 	 	10,300	  	
Transplace Texas, LP(16)	  	Cargo Transport	 	 	11.00	% 	 	 	4/12/2017	  	 	 	20,000	  	 	 	19,576	  	 	 	19,700	  	
Trident USA Health Services, LLC	  	Healthcare, Education & Childcare	 	 	11.75	% 	 	 	10/30/2017	  	 	 	38,000	  	 	 	37,253	  	 	 	37,240	  	
USAW 767(9)	  	Aerospace & Defense	 	 	14.50	% 	 	 	6/30/2014	  	 	 	3,986	  	 	 	3,961	  	 	 	3,986	  	
ViaWest Inc(16)	  	Personal, Food & Misc. Services	 	 

 	13.5% (12% Cash &

1.5% PIK)	  

(7) 	 	 	5/20/2018	  	 	 	40,538	  	 	 	39,492	  	 	 	40,132	  	
Vision Holding Corp.(16)	  	Healthcare, Education & Childcare	 	 	12.00	% 	 	 	11/23/2016	  	 	 	35,300	  	 	 	34,822	  	 	 	35,300	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Bank Debt/Senior Secured Loans	  	 	 	 	 	 	 	 	 	 	 	$	531,766	  	 	$	519,005	  	 	$	511,107	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subordinated Debt/Corporate Notes – 59.0%	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adams Outdoor Advertising	  	Diversified/Conglomerate Service	 	 	18.00	% 	 	 	12/8/2015	  	 	$	42,500	  	 	$	41,827	  	 	$	42,500	  	
Asurion Holdco(21)	  	Insurance	 	 	11.00	%(7) 	 	 	3/2/2019	  	 	 	12,000	  	 	 	11,652	  	 	 	12,480	  	
CIBT Solutions	  	Leisure, Amusement, Entertainment	 	 	13.50	% 	 	 	6/15/2018	  	 	 	36,200	  	 	 	35,429	  	 	 	36,200	  	
Crosman Corporation	  	Leisure, Amusement, Entertainment	 	 

 	13% (11% Cash &

2% PIK)	  

(7) 	 	 	10/15/2016	  	 	 	15,219	  	 	 	14,837	  	 	 	14,914	  	
Earthbound Farm(16)	  	Farming & Agriculture	 	 	14.25	% 	 	 	6/21/2017	  	 	 	58,947	  	 	 	57,874	  	 	 	57,474	  	
Grakon Holdings LLC Sr(11)	  	Machinery	 	 	14% PIK	(7) 	 	 	12/31/2015	  	 	 	1,701	  	 	 	1,701	  	 	 	1,684	  	
Grakon Holdings LLC Jr(11)	  	Machinery	 	 	12% PIK	(7) 	 	 	12/31/2015	  	 	 	16,039	  	 	 	13,273	  	 	 	11,227	  	
Granite Global Solutions Corp.(3)(18)(19)	  	Insurance	 	 	13.50	% 	 	 	5/31/2016	  	 	 	17,859	  	 	 	18,493	  	 	 	15,180	  	
Midcap Financial Intermediate
Holdings, LLC(16)(19)	  	Banking	 	 	13.00	% 	 	 	7/9/2015	  	 	 	85,000	  	 	 	83,676	  	 	 	85,000	  	
ProSieben Sat.1 Media AG(3)(6)(19)	  	Broadcasting & Entertainment	 	 

 	8.43% (4.93% Cash &

3.5% PIK)	  

(7) 	 	 	3/6/2017	  	 	 	21,029	  	 	 	20,657	  	 	 	13,368	  	
Richelieu Foods, Inc.(15)	  	Beverage, Food & Tobacco	 	 

 	14.25% (12% Cash &

2.25% PIK)	  

(7) 	 	 	5/18/2016	  	 	 	22,831	  	 	 	22,346	  	 	 	21,918	  	
Rug Doctor L.P.(20)	  	Personal, Food & Misc. Services	 	 

 	15.50% to 20.00%

(wtd. avg. 17.54%)	  

(7) 	 	 	10/31/2014	  	 	 	52,570	  	 	 	49,875	  	 	 	47,313	  	
Weetabix Group(3)(5)(19)	  	Beverage, Food & Tobacco	 	 	9.13% PIK	(7) 	 	 	9/14/2016	  	 	 	16,862	  	 	 	19,353	  	 	 	16,525	  	
Weetabix Group(3)(5)(19)	  	Beverage, Food & Tobacco	 	 	10.29% PIK	(7) 	 	 	5/3/2017	  	 	 	36,359	  	 	 	43,561	  	 	 	35,632	  	
WireCo. Worldgroup Inc.(24)	  	Building Products	 	 	11.75	% 	 	 	5/15/207	  	 	 	48,000	  	 	 	47,520	  	 	 	47,520	  	
FIS Healthcare Holdings, LLC(25)	  	Healthcare Technology	 	 	12.00	% 	 	 	2/28/2019	  	 	 	28,200	  	 	 	27,566	  	 	 	27,566	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Subordinated Debt/Corporate Notes	  	 	 	 	 	 	 	 	 	 	 	$	511,316	  	 	$	509,640	  	 	$	486,501	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
See notes to consolidated financial statements.
 
5

Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)

Description(1)	  	Industry	  	Interest(2)	 	 	Maturity	 	  	Par Amount/
Shares	 	  	Cost	 	  	Fair
Value	 	
Preferred Equity – 17.6%	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Senior Preferred 15% Units of DSW Group
Holdings LLC(10)	  	Beverage, Food & Tobacco	  	 	15% PIK	(7) 	 	 	—  	  	  	 	1,395,230	  	  	$	119,196	  	  	$	119,990	  	
SODO Corp.(9)(12)	  	Aerospace & Defense	  	 	8.43% PIK	(7) 	 	 	6/30/2018	  	  	 	2,084	  	  	 	2,084	  	  	 	2,251	  	
SOCAY Limited(9)(12)(19)	  	Aerospace & Defense	  	 	8.59% PIK	(7) 	 	 	6/30/2018	  	  	 	13,526	  	  	 	13,526	  	  	 	14,611	  	
SOINT, LLC(9)(1)(19)(23)	  	Aerospace & Defense	  	 	15.00	%(7) 	 	 	6/30/2018	  	  	 	86,667	  	  	 	8,667	  	  	 	8,667	  	
Wyle Laboratories	  	Aerospace & Defense	  	 	8.00	% 	 	 	7/17/2015	  	  	 	387	  	  	 	39	  	  	 	49	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Preferred Equity	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	$	143,512	  	  	$	145,568	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Common Equity / Partnership Interests /
Warrants – 6.1%	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Ark Real Estate Partners LP(10)(11)	  	Buildings & Real Estate	  	 	 	 	 	 	 	 	  	 	44,697,684	  	  	$	44,698	  	  	$	34,864	  	
Participating Preferred Units of DSW Group
Holdings LLC(10)	  	Beverage, Food & Tobacco	  	 	 	 	 	 	 	 	  	 	1,296,078	  	  	 	—  	  	  	 	—  	  	
Grakon, LLC(11)	  	Machinery	  	 	 	 	 	 	 	 	  	 	1,714,286	  	  	 	1,714	  	  	 	—  	  	
Grakon, LLC Warrants(11)	  	Machinery	  	 	 	 	 	 	 	 	  	 	3,518,001	  	  	 	—  	  	  	 	—  	  	
Great American Group Inc.(13)(19)	  	Personal, Food & Misc. Services	  	 	 	 	 	 	 	 	  	 	572,800	  	  	 	2,681	  	  	 	189	  	
Great American Group Inc.(14)(19)	  	Personal, Food & Misc. Services	  	 	 	 	 	 	 	 	  	 	187,500	  	  	 	3	  	  	 	62	  	
Nuveen Investments, Inc.	  	Finance	  	 	 	 	 	 	 	 	  	 	3,486,444	  	  	 	30,876	  	  	 	7,322	  	
NXP Semiconductors Netherlands B.V.(3)(19)	  	Electronics	  	 	 	 	 	 	 	 	  	 	310,271	  	  	 	8,458	  	  	 	7,208	  	
Seven West Media Limited(3)(19)	  	Broadcasting & Entertainment	  	 	 	 	 	 	 	 	  	 	437,687	  	  	 	2,424	  	  	 	781	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Common Equity/Partnerships
Interests / Warrants	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	$	90,854	  	  	$	50,426	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Investments – (144.7%)	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	$	1,263,011	  	  	$	1,193,602	  	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Liabilities in Excess of Other Assets – (44.7%)	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	(368,679	) 	
 	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net Assets – 100.0%	  	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	  	$	824,923	  	

(1)	We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Our investments are therefore generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.	
(2)	A majority of the variable rate debt investments bear interest at a rate that may be determined by reference to LIBOR or EURIBOR, and which reset daily, quarterly or semi-annually. For each debt investment we have provided the current interest rate in effect as of June 30, 2012.	
(3)	The following entities are domiciled outside the United States and the investments are denominated in either Euro, British Pounds, Canadian Dollars or Australian Dollars: Weetabix Group in the United Kingdom; ProSieben Sat.1 Media AG in Germany; Granite Global Solutions Corp. in Canada; and Seven Media Group Limited in Australia. NXP Semiconductors Netherlands B.V. is domiciled in the Netherlands and is denominated in U.S. dollars. All other investments are domiciled in the United States.	
(4)	Solar Capital Ltd.’s foreign domiciled portion of MYI Aquiror Corporation is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.ar.l.	
(5)	Solar Capital Ltd.’s investments in Weetabix Group are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.	
(6)	Solar Capital Ltd.’s investment in ProSieben Sat. 1 Media AG is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.	
(7)	Coupon is payable in cash and/or in kind (PIK).	
(8)	Includes an unfunded commitment of $6,000.	
(9)	Denotes a Control Investment. “Control Investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “Control.” Generally, under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company is deemed to “Control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board.	
(10)	Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, which are not “Control Investments.” The Company is deemed to be an “Affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company.	
(11)	Investments are held in taxable subsidiaries through Solar Capital Ltd. Investment in Ark Real Estate Partners LP is held through SLRC ADI Corp and equity investment in Grakon LLC are held through Grakon TL Holding, Inc.	
(12)	Solar Capital Ltd.’s investments in SODO Corp. and SOCAY Corp. each include a one dollar investment in common shares.	
(13)	Founders Shares.	
(14)	Contingent Founders Shares.	
(15)	Indicates an investment held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC (“SC Funding”). Such investments are pledged as collateral under the Senior Secured Loan Facility (see Note 6 to the consolidated financial statements) and are not generally available to the creditors of Solar Capital Ltd. Unless otherwise noted, as of June 30, 2012, all other investments were pledged as collateral for the Senior Secured Credit Facility, Term Loan and Senior Secured Notes (see Note 6 to the consolidated financial statements).	
(16)	Indicates an investment partially held by Solar Capital Ltd. through its wholly-owned subsidiary SC Funding. (See note 15 above for further explanation.) Par amounts held through SC Funding include: Asurion Corp $20,224; Earthbound Farm $23,500; Fulton Holding Corp. $19,800; Grocery Outlet Inc. $19,900; Interactive Health Solutions, Inc. $14,569; Midcap Financial Intermediate Holdings, LLC $23,500; Rug Doctor L.P. $9,669; Transplace Texas, LP $18,800; ViaWest Inc. $15,354; and Vision Holding Corp $20,569. Remaining par balances are held directly by Solar Capital Ltd.	
 
6

Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
(17)	Includes an unfunded commitment of $1,250.	
(18)	Investments on non-accrual status.	
(19)	Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.	
(20)	Includes PIK payable on $12,732 of par at 4.50% PIK, $14,769 of par at 5.25% PIK, $15,400 of par at 8.00% PIK, and $9,669 of par at 3.50% PIK.	
(21)	Asurion Holdco has the option to pay interest in kind at L+10.25% if certain specified conditions are met.	
(22)	In March 2012, Solar Capital Ltd. purchased $36,991 and participated $7,000 to a third party with no recourse to the Company.	
(23)	Includes an unfunded commitment of secured debt $14,979 and equity $7,789.	
(24)	Includes an unfunded commitment of $48,000	
(25)	Includes an unfunded commitment of $28,200	
(26)	Includes an unfunded commitment of $20,177	
See notes to consolidated financial statements.
 
7

Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012

Industry Classification	  	Pecentage of Total
Investments (at fair value) as
of June 30, 2012	 	
Beverage, Food & Tobacco	  	 	19	% 	
Insurance	  	 	9	% 	
Banking	  	 	9	% 	
Personal, Food & Misc. Services	  	 	9	% 	
Healthcare, Education & Childcare	  	 	8	% 	
Buildings & Real Estate	  	 	5	% 	
Farming & Agriculture	  	 	5	% 	
Aerospace & Defense	  	 	5	% 	
Building Products	  	 	4	% 	
Leisure, Amusement, Entertainment	  	 	4	% 	
Retail Stores	  	 	4	% 	
Diversified/Conglomerate Service	  	 	4	% 	
Personal & Nondurable Consumer Products	  	 	3	% 	
Grocery	  	 	3	% 	
Healthcare Technology	  	 	2	% 	
Machinery	  	 	2	% 	
Cargo Transport	  	 	2	% 	
Broadcasting & Entertainment	  	 	1	% 	
Finance	  	 	1	% 	
Electronics	  	 	1	% 	
Telecommunications	  	 	> 1	% 	
Home, Office Furnishing & Durable Consumer Prds	  	 	> 1	% 	
 	  	 	 	 	
 	  	 	100	% 	
 	  	 	 	 	
See notes to consolidated financial statements.
 
8

Table of Contents
SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2011
(in thousands, except shares)

Description(1)	 	Industry	 	Interest(2)	 	 	Maturity	 	 	Par Amount/
Shares	 	 	Cost	 	 	Fair
Value	 	
Bank Debt/Senior Secured
Loans – 39.46%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Asurion Corporation(18)	 	Insurance	 	 	9.00	% 	 	 	5/24/2019	  	 	$	40,000	  	 	$	39,811	  	 	$	39,517	  	
Airvana Network
Solutions Inc.	 	Telecommunications	 	 	10.00	% 	 	 	3/25/2015	  	 	 	8,324	  	 	 	8,186	  	 	 	8,324	  	
AviatorCap SII, LLC I(10)	 	Aerospace & Defense	 	 	12.00	% 	 	 	12/31/2014	  	 	 	3,728	  	 	 	3,678	  	 	 	3,671	  	
AviatorCap SII, LLC II(10)	 	Aerospace & Defense	 	 	11.00	% 	 	 	12/31/2014	  	 	 	5,697	  	 	 	5,618	  	 	 	5,611	  	
AviatorCap SII, LLC III(10)	 	Aerospace & Defense	 	 	13.00	% 	 	 	12/31/2014	  	 	 	8,856	  	 	 	8,696	  	 	 	8,724	  	
Direct Buy Inc.(20)	 	Home, Office Furnishing & Durable Consumer Prds	 	 	12.00	% 	 	 	2/1/2017	  	 	 	25,000	  	 	 	24,332	  	 	 	5,875	  	
Fulton Holding Corp(18)	 	Retail Stores	 	 	13.74	% 	 	 	5/28/2016	  	 	 	35,000	  	 	 	34,155	  	 	 	35,000	  	
Grakon, LLC	 	Machinery	 	 	12.00	% 	 	 	12/31/2015	  	 	 	9,524	  	 	 	7,610	  	 	 	9,286	  	
Good Sam Enterprise, LLC	 	Insurance	 	 	11.50	% 	 	 	12/1/2016	  	 	 	7,000	  	 	 	6,523	  	 	 	6,860	  	
Grocery Outlet Inc.	 	Grocery	 	 	10.50	% 	 	 	12/15/2017	  	 	 	33,600	  	 	 	32,599	  	 	 	32,592	  	
Isotoner Corporation	 	Personal & Nondurable Consumer Products	 	 	10.75	% 	 	 	1/8/2018	  	 	 	39,000	  	 	 	37,895	  	 	 	37,830	  	
Interactive Health
Solutions, Inc.(18)(19)	 	Healthcare, Education & Childcare	 	 	11.50	% 	 	 	10/4/2016	  	 	 	20,131	  	 	 	19,691	  	 	 	19,930	  	
MYI Acquiror
Corporation(3)(4)(8)(21)	 	Insurance	 	 
 	13% (12% Cash &
1% PIK)	  
( 7) 	 	 	3/13/2017	  	 	 	31,500	  	 	 	30,899	  	 	 	31,500	  	
Roundy’s Supermarkets,
Inc. – 2nd Lien(18)	 	Grocery	 	 	10.00	% 	 	 	4/16/2016	  	 	 	22,000	  	 	 	21,685	  	 	 	22,069	  	
Southern Auto Finance
Company(21)	 	Banking	 	 	13.50	% 	 	 	10/19/2017	  	 	 	25,000	  	 	 	24,453	  	 	 	24,437	  	
Spencer Spirit Holdings, Inc.	 	Retail Stores	 	 	11.00	% 	 	 	5/1/2017	  	 	 	10,000	  	 	 	10,000	  	 	 	10,000	  	
Transplace Texas, LP(18)	 	Cargo Transport	 	 	11.00	% 	 	 	4/12/2017	  	 	 	20,000	  	 	 	19,533	  	 	 	19,500	  	
USAW 767(10)	 	Aerospace & Defense	 	 	14.50	% 	 	 	12/31/2012	  	 	 	4,904	  	 	 	4,850	  	 	 	4,831	  	
ViaWest Inc(18)	 	Personal, Food & Misc. Services	 	 
 	13.5% (12% Cash
& 1.5% PIK)	  
(7) 	 	 	5/20/2016	  	 	 	33,255	  	 	 	32,520	  	 	 	32,756	  	
Vision Holding Corp.(18)	 	Healthcare, Education & Childcare	 	 	12.00	% 	 	 	11/23/2016	  	 	 	37,500	  	 	 	36,869	  	 	 	37,125	  	
VPSI, Inc.(17)	 	Personal Transportation	 	 	12.00	% 	 	 	12/23/2015	  	 	 	16,958	  	 	 	16,598	  	 	 	16,958	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Bank Debt/Senior Secured Loans	 	 	 	 	 	 	 	 	 	 	 	$	436,977	  	 	$	426,201	  	 	$	412,396	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subordinated Debt/Corporate Notes – 52.33%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adams Outdoor Advertising	 	Diversified/Conglomerate Service	 	 	18.00	% 	 	 	12/8/2015	  	 	$	42,500	  	 	$	41,878	  	 	$	42,075	  	
AMC Entertainment
Holdings, Inc.	 	Leisure, Amusement, Entertainment	 	 	5.55%PIK	  	 	 	6/13/2012	  	 	 	27,141	  	 	 	27,086	  	 	 	26,462	  	
CIBT Solutions	 	Leisure, Amusement, Entertainment	 	 	13.50	% 	 	 	6/15/2018	  	 	 	36,200	  	 	 	35,389	  	 	 	35,386	  	
Crosman Corporation	 	Leisure, Amusement, Entertainment	 	 

 	13% (11% Cash &

2% PIK)	  

(7) 	 	 	10/15/2016	  	 	 	15,219	  	 	 	14,808	  	 	 	14,762	  	
DSW Group, Inc.	 	Beverage, Food & Tobacco	 	 	15% PIK	  	 	 	4/24/2012	  	 	 	125,106	  	 	 	124,972	  	 	 	106,340	  	
Earthbound Farm(18)	 	Farming & Agriculture	 	 	14.25	% 	 	 	6/21/2017	  	 	 	58,947	  	 	 	57,739	  	 	 	56,590	  	
Grakon Holdings LLC Sr	 	Machinery	 	 	14% PIK	  	 	 	12/31/2015	  	 	 	1,588	  	 	 	1,588	  	 	 	1,469	  	
Grakon Holdings LLC Jr	 	Machinery	 	 	12% PIK	  	 	 	12/31/2015	  	 	 	15,118	  	 	 	12,344	  	 	 	7,710	  	
Granite Global Solutions
Corp.(3)(16)(21)	 	Insurance	 	 	13.50	% 	 	 	5/31/2016	  	 	 	29,983	  	 	 	30,234	  	 	 	29,121	  	
Magnolia River, LLC	 	Hotels, Motels, Inns and Gaming	 	 	14.00	% 	 	 	4/28/2014	  	 	 	19,064	  	 	 	18,664	  	 	 	19,064	  	
Midcap Financial Intermediate
Holdings, LLC(18)	 	Banking	 	 	14.25	% 	 	 	7/9/2015	  	 	 	75,000	  	 	 	73,542	  	 	 	75,000	  	
ProSieben Sat.1
Media AG(3)(6)(21)	 	Broadcasting & Entertainment	 	 
 	8.83%(5.3% Cash
& 3.5% PIK)	  
(7) 	 	 	3/6/2017	  	 	 	21,125	  	 	 	20,261	  	 	 	10,508	  	
Richelieu Foods, Inc.(17)	 	Beverage, Food & Tobacco	 	 	13.75	% 	 	 	5/18/2016	  	 	 	22,500	  	 	 	21,972	  	 	 	21,150	  	
 	 	 	 	 	15.50% to 20.00%	(7) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rug Doctor L.P.(18)(22)	 	Personal, Food & Misc. Services	 	 	(wtd. avg. 17.54	%) 	 	 	10/31/2014	  	 	 	51,225	  	 	 	48,034	  	 	 	47,383	  	
Shoes For Crews, LLC (17)	 	Textiles & Leather	 	 	13.75%	(7) 	 	 	7/23/2016	  	 	 	15,650	  	 	 	15,318	  	 	 	15,650	  	
Weetabix Group(3)(5)(21)	 	Beverage, Food & Tobacco	 	 	9.22% PIK	  	 	 	9/14/2016	  	 	 	15,986	  	 	 	18,589	  	 	 	12,469	  	
Weetabix Group(3)(5)(21)	 	Beverage, Food & Tobacco	 	 	10.03%PIK	  	 	 	5/3/2017	  	 	 	34,294	  	 	 	41,739	  	 	 	25,720	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Subordinated Debt/Corporate Notes	 	 	 	 	 	 	 	 	 	 	 	$	606,646	  	 	$	604,157	  	 	$	546,859	  	

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SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2011
(in thousands, except shares)

Description(1)	 	Industry	 	Interest(2)	 	 	Maturity	 	 	Par Amount/
Shares	 	 	Cost	 	 	Fair
Value	 	
Preferred Equity – 1.40%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SODO Corp.(10)(13)	 	Aerospace & Defense	 	 	8.43% PIK	  	 	 	—  	  	 	 	1,912	  	 	$	2,009	  	 	$	1,949	  	
SOCAY Limited(10)(13)	 	Aerospace & Defense	 	 	8.59% PIK	  	 	 	—  	  	 	 	12,357	  	 	 	13,059	  	 	 	12,668	  	
Wyle Laboratories	 	Aerospace & Defense	 	 	8.00%       	  	 	 	7/17/2015	  	 	 	387	  	 	 	39	  	 	 	47	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Preferred Equity	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	15,107	  	 	$	14,664	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common Equity / Partnership Interests / Warrants – 6.81%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ark Real Estate Partners LP(9)(11)(12)	 	Buildings & Real Estate	 	 	 	 	 	 	 	 	 	 	41,818,834	  	 	$	41,819	  	 	$	35,820	  	
Grakon, LLC	 	Machinery	 	 	 	 	 	 	 	 	 	 	1,714,286	  	 	 	1,714	  	 	 	—  	  	
Grakon, LLC Warrants	 	Machinery	 	 	 	 	 	 	 	 	 	 	3,518,001	  	 	 	—  	  	 	 	—  	  	
Great American Group Inc.(14)	 	Personal, Food & Misc. Services	 	 	 	 	 	 	 	 	 	 	572,800	  	 	 	2,681	  	 	 	69	  	
Great American Group Inc.(15)	 	Personal, Food & Misc. Services	 	 	 	 	 	 	 	 	 	 	187,500	  	 	 	3	  	 	 	23	  	
National Specialty Alloys, LLC(10)	 	Mining, Steel, Iron & Nonprecious Metals	 	 	 	 	 	 	 	 	 	 	1,000,000	  	 	 	10,000	  	 	 	16,000	  	
Nuveen Investments, Inc.	 	Finance	 	 	 	 	 	 	 	 	 	 	3,486,444	  	 	 	30,875	  	 	 	7,844	  	
NXP Semiconductors Netherlands B.V.(3)	 	Electronics	 	 	 	 	 	 	 	 	 	 	645,292	  	 	 	17,592	  	 	 	9,918	  	
Seven West Media Limited	 	Broadcasting & Entertainment	 	 	 	 	 	 	 	 	 	 	437,687	  	 	 	2,424	  	 	 	1,450	  	
Total Common Equity/Partnerships Interests / Warrants	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	107,108	  	 	$	71,124	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1,152,573	  	 	$	1,045,043	  	

(1)	We generally acquire our investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). Our investments are therefore generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act.	
(2)	For each debt investment we have provided the current interest rate in effect as of December 31, 2011. Variable rate debt investments generally bear interest at a rate that may be determined by reference to LIBOR or EURIBOR, and which may reset daily, quarterly or semi-annually.	
(3)	The following entities are domiciled outside the United States and the investments are denominated in British Pounds, Euro, Canadian Dollars or Australian Dollars: Weetabix Group in the United Kingdom; ProSieben Sat.1 Media AG in Germany; Granite Global Solutions Corp. in Canada; and Seven West Media Group Pty Limited in Australia. NXP Semiconductors Netherlands B.V. is domiciled in the Netherlands and $14,750 of MYI Aquiror Corporation is domiciled in the United Kingdom, but these assets are denominated in US Dollars. All other investments are domiciled in the United States.	
(4)	Solar Capital Ltd.’s foreign domiciled portion of MYI Aquiror Corporation is held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.	
(5)	Solar Capital Ltd.’s investments in Weetabix Group are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.	
(6)	Solar Capital Ltd.’s investments in ProSieben Sat. 1 Media AG are held through its wholly-owned subsidiary Solar Capital Luxembourg I S.a.r.l.	
(7)	Coupon is payable in cash and/or in kind (PIK).	
(8)	Includes an unfunded commitment of $6,000.	
(9)	Solar Capital Ltd. has an unfunded commitment of $2,879.	
(10)	Denotes a Control Investment. “Control Investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “Control.” Generally, under the Investment Company Act of 1940, as amended (the “1940 Act”), the Company is deemed to “Control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board.	
(11)	Denotes an Affiliate Investment. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, which are not “Control Investments.” The Company is deemed to be an “Affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company.	
(12)	Solar Capital Ltd.’s investment in Ark Real Estate Partners LP is held through its taxable subsidiary SLRC ADI Corp.	
(13)	SODO Corp. and SOCAY Corp. own equity interests that represent a majority of the equity ownership in Aviator Cap SII, LLC and USAW 767. Solar Capital Ltd.’s investments in SODO Corp. and SOCAY Corp. each include a one dollar investment in common shares.	
(14)	Founders Shares.	
(15)	Contingent Founders Shares.	
(16)	Includes an unfunded commitment of $15,600 Canadian Dollars or $15,313 U.S Dollars as of December 31, 2011.	
(17)	Indicates an investment held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC. Such investments are pledged as collateral under the Senior Secured Loan Facility (see Note 6 to the consolidated financial statements) and are not generally available to the creditors of Solar Capital Ltd. Unless otherwise noted, as of December 31, 2011, all other investments were pledged as collateral for the Senior Secured Revolving Credit Facility and the Term Loan (see Note 6 to the consolidated financial statements).	
(18)	Indicates an investment partially held by Solar Capital Ltd. through its wholly-owned subsidiary Solar Capital Funding II LLC. (See note 17 above for further explanation.) Par amounts held through Solar Capital Funding II LLC include: Asurion $14,224; Fulton Holding Corp. $18,000; Interactive Health Solutions, Inc. $10,236; Roundy’s Supermarkets Inc. $10,000; Transplace Texas, LP $18,800; ViaWest Inc. $15,239; Vision Holding Corp $13,883; Earthbound $23,500; Midcap Financial Intermediate Holdings, LLC $23,500; and Rug Doctor L.P. $9,515. Remaining par balances are held directly by Solar Capital Ltd.	
(19)	Includes an unfunded commitment of $1,250.	
 
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SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued)
December 31, 2011
(in thousands, except shares)
 
(20)	Investment is on non-accrual status.	
(21)	Indicates assets that the Company believes do not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940, as amended. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.	
(22)	Includes PIK payable on $12,466 of par at 4.50% PIK, $14,405 of par at 5.25% PIK, $14,839 of par at 8.00% PIK, and $9,515 of par at 3.50% PIK.	
See notes to consolidated financial statements.
 
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SOLAR CAPITAL LTD.
CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)
December 31, 2011

Industry Classification	  	Percentage of Total
Investments (at fair value) as
of December 31, 2011	 	
Beverage, Food & Tobacco	  	 	16	% 	
Insurance	  	 	10	% 	
Banking	  	 	10	% 	
Personal, Food & Misc. Services	  	 	8	% 	
Leisure, Amusement, Entertainment	  	 	7	% 	
Healthcare, Education & Childcare	  	 	5	% 	
Farming & Agriculture	  	 	5	% 	
Grocery	  	 	5	% 	
Retail Stores	  	 	4	% 	
Diversified/Conglomerate Service	  	 	4	% 	
Personal & Nondurable Consumer Products	  	 	4	% 	
Aerospace & Defense	  	 	4	% 	
Buildings & Real Estate	  	 	3	% 	
Cargo Transport	  	 	2	% 	
Hotels, Motels, Inns and Gaming	  	 	2	% 	
Machinery	  	 	2	% 	
Personal Transportation	  	 	2	% 	
Mining, Steel, Iron & Nonprecious Metals	  	 	1	% 	
Textiles & Leather	  	 	1	% 	
Broadcasting & Entertainment	  	 	1	% 	
Electronics	  	 	1	% 	
Telecommunications	  	 	1	% 	
Finance	  	 	1	% 	
Home, Office Furnishing & Durable Consumer Prds	  	 	1	% 	
 	  	 	 	 	
 	  	 	100	% 	
 	  	 	 	 	
See notes to consolidated financial statements.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 2012
(in thousands, except shares)
Note 1. Organization
Solar Capital Ltd. (“Solar Capital”, “we”, or the “Company”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). In February 2010, Solar Capital Ltd. completed its initial public offering.
The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies. Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $20 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base.
Note 2. Significant Accounting Policies
Basis of Presentation – The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and include the accounts of the Company and its wholly-owned subsidiaries, Solar Capital Luxembourg I S.a.r.l., which was incorporated under the laws of the Grand Duchy of Luxembourg on April 26, 2007, and Solar Capital Funding II LLC (“SC Funding”), a Delaware limited liability company formed on December 8, 2010. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current year presentation.
Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2012.
Investments – The Company applies fair value accounting in accordance with GAAP. Securities transactions are accounted for on trade date. Securities for which market quotations are readily available on an exchange are valued at such price as of the closing price on the valuation date. The Company may also obtain quotes with respect to certain of its investments from pricing services or brokers or dealers in order to value assets. When doing so, the Company determines whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, the Company uses the quote obtained.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Company’s Investment Adviser or Board of Directors (the “Board”), does not represent fair value, shall each be valued as follows:
 
 	1)	The quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals responsible for the portfolio investment;	
 
 	2)	Preliminary valuation conclusions are then documented and discussed with senior management;	
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
 	3)	Third-party valuation firms are engaged by, or on behalf of, the Board to conduct independent appraisals and review management’s preliminary valuations and make their own independent assessment, for all material assets; and	
 
 	4)	The Board discusses valuations and determines the fair value of each investment in the portfolio in good faith based on the input of our Investment Adviser (Note 4) and, where appropriate, the respective independent valuation firms.	
Valuation methods, among other measures and as applicable, may include comparisons of financial ratios of the portfolio companies that issued such securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, and other relevant factors.
When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will consider the pricing indicated by the external event to corroborate the valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Investments of sufficient credit quality purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.
Credit Facilities – The Company has made an irrevocable election to apply the fair value option of accounting to the certain credit facilities and senior secured notes (see Note 6), in accordance with Accounting Standards Codification (“ASC”) 825-10. The Company uses an independent third-party valuation firm to measure their fair values.
Cash and Cash Equivalents – Cash and cash equivalents include investments in money market accounts or investments with original maturities of three months or less.
Revenue Recognition – The Company’s revenue recognition policies are as follows:
Sales: Gains or losses on the sale of investments are calculated by using the specific identification method.
Interest Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income. The Company has loans in its portfolio that contain a payment-in-kind (“PIK”) provision. PIK interest is accrued at the contractual rates and added to the loan principal on the reset dates.
Dividend Income: Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Non-accrual: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Fee Revenue Receivable – Fee revenue receivable consists of premium payments owed to the Company at the maturity of certain loans. The premium payments are recorded as a receivable at the inception of the loan and are accreted into interest income over the respective terms of the applicable loans.
Deferred Fee Revenue – Deferred fee revenue represents the unearned portion of premium payments owed to the Company at the maturity of certain loans.
U.S. Federal Income Taxes – The Company has elected to be treated as a RIC under subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the six months ended June 30, 2012, $985 was recorded for U.S. Federal excise tax. No Federal excise tax was recorded for the three months ended June 30, 2011.
Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s inception-to-date federal tax years remain subject to examination by the Internal Revenue Service. The Company is also subject to taxes in Luxembourg, through Solar Capital Luxembourg I S.a.r.l., a wholly-owned subsidiary. Under the laws of Luxembourg, the Company pays a corporate income tax and a municipal business tax on its subsidiary’s taxable income.
The Company has formed and used certain taxable subsidiaries to be taxed as a corporation for federal income tax purposes. These taxable subsidiaries allow the Company to hold portfolio companies organized as pass-through entities and still satisfy certain RIC income requirements. The Company does not consolidate the taxable subsidiaries for income tax purposes but recognizes the results of these subsidiaries for financial reporting purposes.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25 nor did it have any unrecognized tax benefits as of the periods presented herein.
Capital Accounts – Certain capital accounts including under (over) distributed net investment income, accumulated net realized gain or loss, net unrealized depreciation, and paid-in capital in excess of par, are
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
adjusted, at least annually, for permanent differences between book and tax. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.
During 2011, as a result of permanent book-to-tax differences, the Company decreased under (over) distributed net investment income by $4,582, decreased accumulated net realized loss by $8,555, and decreased paid-in capital in excess of par value by $3,973. Aggregate stockholders’ equity was not affected by this reclassification.
Dividends – Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly dividend payments are determined by the Board and are generally based upon taxable earnings estimated by management. Net realized capital gains, if any, are typically distributed at least annually, although we may decide to retain such capital gains for investment. We have adopted a dividend reinvestment plan that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividend. While we generally use newly issued shares to implement the plan (especially if our shares are trading at a premium to net asset value), we may purchase shares in the open market in connection with our obligations under the plan. In particular, if our shares are trading at a significant enough discount to net asset value and we are otherwise permitted under applicable law to purchase such shares, we intend to purchase shares in the open market in connection with our obligations under our dividend reinvestment plan.
Foreign Currency Translation – The accounting records of the Company are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
 
 	(i)	Market value of investment securities, other assets and liabilities – at the current rates of exchange.	
 
 	(ii)	Purchase and sales of investment securities, income and expenses – at the rates of exchange prevailing on the respective date of such transactions.	
The Company does not isolate that portion of realized and unrealized gains or losses on investments that result from changes in market prices of investments from those that result from fluctuations in foreign exchange rates. Net realized foreign currency gains or losses arise from sales or repayments of foreign denominated investments (recorded in realized gain/loss on investments), maturities or terminations of foreign currency derivatives (recorded in realized gain/loss on derivatives), repayments of foreign denominated liabilities and other transactional gain or loss resulting from fluctuations in foreign exchange rates on amounts received or paid (recorded in realized gain/loss on foreign exchange). Net unrealized foreign exchange gains and losses arise from valuation changes in foreign denominated assets and liabilities, resulting from changes in exchange rates, including unrealized foreign exchange gains and losses on investments (recorded in unrealized gain/loss on investments), foreign currency derivatives (recorded in unrealized gain/loss on derivatives), and all other assets and liabilities (recorded in unrealized gain/loss on foreign exchange).
The Company’s investments in foreign securities may involve certain risks such as foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Derivative Instruments and Hedging Activity – The Company recognizes derivatives as either assets or liabilities at fair value on its Consolidated Statements of Assets and Liabilities with valuation changes recorded as realized or unrealized gains and losses. The Company currently does not have any formally documented hedges that qualify for hedge accounting treatment.
The Company generally uses foreign exchange forward contracts and/or borrowings on its multicurrency revolving credit facility to minimize foreign currency exchange risks. Changes in the values of the Company’s foreign denominated assets are recorded in current earnings as realized and unrealized gains and losses (see above); likewise, realized and unrealized gains and losses from derivatives and foreign denominated debt are also recorded in current earnings. The fair value of foreign exchange forward contracts is determined by recognizing the difference between the contract exchange rate and the current market exchange rate. Fluctuations in market values of assets and liabilities denominated in the same foreign currency offset in earnings, providing a “natural” foreign currency hedge.
The Company generally uses interest rate caps to create a synthetic “ceiling” on its borrowing rates. An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds an agreed cap rate. Interest payments on the Company’s credit facilities are primarily LIBOR based. By purchasing caps on LIBOR, if LIBOR exceeds the cap rate, the Company will pay a higher interest rate on its credit facilities but receive an offsetting payment from the cap counterparty on the notional amount above the cap rate. Caps have an initial cost. The fair value of interest rate caps is determined using option pricing models that use readily available market inputs.
Deferred Offering Costs – The Company records expenses related to shelf registration statement filings and other applicable offering costs as prepaid assets. These expenses are charged to capital upon utilization, in accordance with the ASC 946-20-25.
Receivable for Investments Sold – Receivable for investments sold represents a receivable for investments that have been sold but the proceeds have not been received.
Payable for Investments Purchased – Payable for investments purchased represents a liability for investments that have been purchased but the proceeds have not been paid and any unfunded loan commitments.
Deferred Credit Facility Costs – Deferred credit facility costs are amortized over the life of the related credit facility unless the fair value option was elected in accordance with ASC 825-10.
Use of Estimates in the Preparation of Financial Statements – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.
Subsequent Events Evaluation – The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued and determined that none are required.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Note 3. Investments
Investments consisted of the following as of June 30, 2012 and December 31, 2011:

 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	Cost	 	  	Fair Value	 	  	Cost	 	  	Fair Value	 	
Bank Debt/Senior Secured Loans	  	$	519,005	  	  	$	511,107	  	  	$	426,201	  	  	$	412,396	  	
Subordinated Debt/Corporate Notes	  	 	509,640	  	  	 	486,501	  	  	 	604,157	  	  	 	546,859	  	
Preferred Equity	  	 	143,512	  	  	 	145,568	  	  	 	15,107	  	  	 	14,664	  	
Common Equity/Partnership Interests/Warrants	  	 	90,854	  	  	 	50,426	  	  	 	107,108	  	  	 	71,124	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,263,011	  	  	$	1,193,602	  	  	$	1,152,573	  	  	$	1,045,043	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As of June 30, 2012, the Company had two non-accrual assets with a total market value of $21,055. As of December 31, 2011, there was one non-accrual asset with a market value of $5,875.
Note 4. Agreements
Solar Capital has an Investment Advisory and Management Agreement with Solar Capital Partners, LLC (the “Investment Adviser”), under which the Investment Adviser will manage the day-to-day operations of, and provide investment advisory services to, Solar Capital. For providing these services, the Investment Adviser receives a fee from Solar Capital, consisting of two components – a base management fee and an incentive fee. The base management fee is determined by taking the average value of Solar Capital’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Solar Capital’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus Solar Capital’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Solar Capital’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee. Solar Capital pays the Investment Adviser an incentive fee with respect to Solar Capital’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Solar Capital’s pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Solar Capital’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Solar Capital’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date), commencing on February 12, 2007, and will equal 20% of
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Solar Capital’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the adviser. For financial statement presentation purposes, a fee is accrued to include unrealized capital appreciation. No accrual was required for the capital gains based incentive fee for the six months ended June 30, 2012 or for the year ended December 31, 2011.
Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services for Solar Capital. For providing these services, facilities and personnel, Solar Capital reimburses the Administrator for Solar Capital’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Capital’s behalf, managerial assistance to those portfolio companies to which Solar Capital is required to provide such assistance.
Note 5. Derivatives
The Company is exposed to interest rate risk both as a lender and a borrower. The Company’s borrowing facilities and term loan bear interest at a floating rate, which means that rising interest rates would increase our cost of borrowing. To partially mitigate this risk, in 2011, the Company purchased two interest rate cap contracts, which effectively limit the interest rate payable on $150 million of LIBOR based borrowings. The following table highlights the outstanding interest rate caps:

Index Rate	 	Cap Rate	 	 	Notional
Amount	 	 	Expiration	 	 	Cost	 	 	June 30, 2012	 	 	December 31, 2011	 	 	Counterparty	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Fair Value	 	 	Unrealized
Depreciation	 	 	Fair Value	 	 	Unrealized
Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3 Month Libor	 	 	1.0	% 	 	$	100,000	  	 	 	1/13/2014	  	 	$	1,950	  	 	$	52	  	 	$	(1,898	) 	 	$	279	  	 	$	(1,671	) 	 	 	Wells Fargo	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
3 Month Libor	 	 	1.0	% 	 	 	50,000	  	 	 	5/4/2014	  	 	 	988	  	 	 	42	  	 	 	(946	) 	 	 	190	  	 	 	(798	) 	 	 	Wells Fargo	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	$	150,000	  	 	 	 	 	 	$	2,938	  	 	$	94	  	 	$	(2,844	) 	 	$	469	  	 	$	(2,469	) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company is also exposed to foreign exchange risk through its investments denominated in foreign currencies. The Company attempts to mitigates this risk through the use of foreign currency forward contracts. As an investment company, all changes in the fair value of assets, including changes caused by foreign currency fluctuation, flow through current earnings. The forward contracts may serve as an economic hedge with their realized and unrealized gains and losses also recorded in current earnings. During the quarter ended June 30, 2012, we entered into foreign currency forward contracts with durations of 1 month with average U.S. dollar notional amounts of $19,305. During the year ended December 31, 2011, we entered into foreign currency forward contracts with durations of 1 month with average U.S. dollar notional amounts of $30,697.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
As of June 30, 2012, there were three open forward foreign currency contracts denominated in Euro, British Pounds and Canadian Dollar, all of which terminated on July 13, 2012. As of December 31, 2011, there were two open forward foreign currency contracts denominated in Euro and British Pounds, both of which terminated on January 10, 2012. At June 30, 2012 and December 31, 2011, there was no fixed collateral held by counterparties for the open contracts and no credit-related contingent features associated with any of the open forward contracts. The contract details are as follows:

 	 	June 30, 2012	 	 	December 31, 2011	 	
SOLD	 	Foreign
Currency	 	 	USD Value	 	 	Unrealized
appreciation
(depreciation)	 	 	Counterparty	 	 	Foreign
Currency	 	 	USD Value	 	 	Unrealized
appreciation
(depreciation)	 	 	Counterparty	 	
EUR	 	 	17,250	  	 	$	21,830	  	 	$	(191	) 	 	 	SunTrust Bank	  	 	 	966	  	 	$	1,295	  	 	$	44	  	 	 	SunTrust Bank	  	
GBP	 	 	21,700	  	 	 	33,985	  	 	 	(347	) 	 	 	SunTrust Bank	  	 	 	12,989	  	 	 	20,308	  	 	 	136	  	 	 	SunTrust Bank	  	
CAD	 	 	18,900	  	 	 	18,564	  	 	 	(183	) 	 	 	SunTrust Bank	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Sold	 	 	 	 	 	$	74,379	  	 	$	(721	) 	 	 	 	 	 	 	 	 	 	$	21,602	  	 	$	180	  	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Company had no derivatives designated as hedging instruments at June 30, 2012 and December 31, 2011.
The following tables show the fair value and effect of the derivative instruments on the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Operations:
Fair Value of Derivative Instruments

 	  	Derivative Assets	 	
 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	Balance Sheet Location	 	  	Fair Value	 	  	Balance Sheet Location	 	  	Fair Value	 	
Derivatives not designated as hedging instruments(a)	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Foreign exchange contracts	  	 	Derivative assets	  	  	$	—  	  	  	 	Derivative assets	  	  	$	180	  	
Interest rate caps	  	 	Derivative assets	  	  	 	94	  	  	 	Derivative assets	  	  	 	469	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivatives not designated as hedging instruments(a)	  	 	 	 	  	$	94	  	  	 	 	 	  	$	649	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivative assets	  	 	 	 	  	$	94	  	  	 	 	 	  	$	649	  	

 	  	Derivative Liabilities	 	
 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	Balance Sheet Location	 	  	Fair Value	 	  	Balance Sheet Location	 	  	Fair Value	 	
Derivatives not designated as hedging instruments(a)	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Foreign exchange contracts	  	 	Derivative liabilities	  	  	$	721	  	  	 	Derivative liabilities	  	  	$	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivatives not designated as hedging instruments(a)	  	 	 	 	  	$	721	  	  	 	 	 	  	$	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total derivative liabilities	  	 	 	 	  	$	721	  	  	 	 	 	  	$	—  	  	

(a)	See Note 2 for additional information on the Company’s purpose for entering into derivatives not designated as hedging instruments and its overall risk management strategy.	
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Effect of Derivative Instruments on the Consolidated Statements of Operations

Derivatives not designated
as hedging instruments(a)	 	Location of Gain or
(Loss)
Recognized in Income
on
Derivatives	 	                 Amount of Gain or (Loss) Recognized in Income on Derivatives                	 	
 	 	 	 	Three months ended
June 30, 2012	 	 	Three months ended
June 30, 2011	 	 	Six months ended
June 30, 2012	 	 	Six months ended
June 30, 2011	 	
Foreign exchange contracts	 	Realized gain (loss): Derivatives	 	$	1,730	  	 	$	(4,872	) 	 	$	786	  	 	$	(9,235	) 	
Foreign exchange contracts	 	Unrealized gain (loss): Derivatives	 	 	(277	) 	 	 	1,876	  	 	 	(901	) 	 	 	1,587	  	
Interest rate caps	 	Unrealized gain (loss): Derivatives	 	 	118	  	 	 	(1,403	) 	 	 	(375	) 	 	 	(1,373	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	$	1,571	  	 	$	(4,399	) 	 	$	(490	) 	 	$	(9,021	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Note 6. Borrowing Facilities and Senior Secured Notes
Senior Secured Credit Facility – On June 29, 2012, Solar Capital Ltd. entered into a $485 million Senior Secured Revolving Credit Facility (the “$485 Million Facility”) comprised of $450 million of revolving credit and a $35 million term loan. Borrowings bear interest at a rate per annum equal to the base rate plus 2.50% or the alternate base rate plus 1.50% and has no LIBOR floor requirement. For the $485 Million Facility, Citibank N.A. acted as Administrative Agent, JPMorgan Chase Bank, N.A. acted as Syndication Agent, and SunTrust Bank acted as Documentation Agent. The $485 Million Facility matures in July 2016 and includes a ratable amortization in the fourth year.
The $485 Million Facility may be increased up to $800 million with additional new lenders or the increase in commitments of current lenders. The $485 Million Facility contains certain customary affirmative and negative covenants and events of default. In addition, the $485 Million Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio.
In conjunction with the establishment of the $485 Million Facility, the predecessor facility and term loan was retired, resulting in $2,295 of non-recurring charges to expense unamortized costs. The Company will also pay the issuer of the term loan quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance.
Senior Secured Notes – On May 10, 2012, the Company closed a private offering of $75,000 of Senior Secured Notes (“Private Notes”) with a fixed interest rate of 5.875% and a maturity date of May 10, 2017. Interest on the Private Notes is due semi-annually on May 10 th and November 10 th . The Private Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
Senior Secured Loan Facility – On December 17, 2010, Solar Capital Ltd. entered into a $100 million senior secured credit facility (the “$100 Million Facility”) with Wells Fargo Securities LLC, as administrative agent. Solar Capital entered into (i) a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with SC Funding, pursuant to which Solar Capital will sell to SC Funding certain loans that it has originated or acquired, or will originate or acquire (the “Loans”) from time to time; (ii) a Loan and Servicing Agreement (the “Loan and
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Servicing Agreement” and, together with the Purchase and Sale Agreement, the “Agreements”) with SC Funding as borrower; and (iii) various supporting documentation. The $100 Million Facility is secured by all of the assets held by SC Funding. The $100 Million Facility, among other things, matures on December 17, 2015 and bears interest based on LIBOR plus 2.75%. Under the Agreements, Solar Capital and SC Funding, as applicable, are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. The Purchase and Sale Agreement includes usual and customary events of default for credit facilities of this nature.
The Company has made an irrevocable election to apply the fair value option of accounting to the $485 Million Facility and the Private Notes in accordance with ASC 825-10. Accounting for the $485 Million Facility and the Private Notes at fair value will better align the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. As a result of this election, $3,681 and $1,128 of costs related to the establishment of the $485 Million Credit Facility and the Private Notes, respectively, were expensed during the three months ended June 30, 2012, rather than being deferred and amortized over the life of the obligation. ASC 825-10 requires entities to record the fair value of the selected assets and liabilities on the face of the Consolidated Statements of Assets and Liabilities and changes in fair value of the $485 Million Facility and the Private Notes are reported in the Consolidated Statements of Operations. For the three months ended June 30, 2012, the $485 Million Facility and the Private Notes had no net change in unrealized (appreciation) depreciation.
The weighted average annualized interest cost for all borrowings for the six months ended June 30, 2012 and 2011 was 4.40% and 3.53%, respectively. These costs are exclusive of commitment fees and for other prepaid expenses, if any, related to establishing the $485 Million Facility, the Private Notes, and the $100 Million Credit Facility (collectively the “Credit Facilities.”) This weighted average annualized interest cost reflects the average interest cost for all outstanding borrowings. For the six months ended June 30, 2012 and 2011, average debt outstanding was $170,251 and $117,092, respectively. The maximum amounts borrowed on the Credit Facilities during the six months ended June 30, 2012 and 2011 was $236,879 and $435,356, respectively. There was $229,860 drawn on the Credit Facilities as of June 30, 2012 and $236,355 as of December 31, 2011. At June 30, 2012 and December 31, 2011, the Company was in compliance with all financial and operational covenants required by the Credit Facilities.
Note 7. Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, and most U.S. Government and agency securities).
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
 
 	a)	Quoted prices for similar assets or liabilities in active markets;	
 
 	b)	Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);	
 
 	c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and	
 
 	d)	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.	
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain of our private debt and equity investments) and long-dated or complex derivatives (including certain equity and currency derivatives).
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following tables do not take into consideration the effect of offsetting Levels 1 and 2 financial instruments entered into by the Company that economically hedge certain exposures to the Level 3 positions.
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis, as of June 30, 2012 and December 31, 2011:
Fair Value Measurements
As of June 30, 2012

 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Bank Debt/Senior Secured Loans	  	 	—  	  	  	 	48,189	  	  	 	462,919	  	  	 	511,107	  	
Subordinated Debt / Corporate Notes	  	 	—  	  	  	 	25,848	  	  	 	460,652	  	  	 	486,501	  	
Preferred Equity	  	 	—  	  	  	 	—  	  	  	 	145,568	  	  	 	145,568	  	
Common Equity / Partnership Interests / Warrants	  	 	8,240	  	  	 	—  	  	  	 	42,186	  	  	 	50,426	  	
Derivative assets – interest rate caps and foreign exchange contracts	  	 	—  	  	  	 	94	  	  	 	—  	  	  	 	94	  	
Liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Derivative liabilities	  	 	—  	  	  	 	721	  	  	 	—  	  	  	 	721	  	
Credit Facilities	  	 	—  	  	  	 	—  	  	  	 	131,860	  	  	 	131,860	  	
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Fair Value Measurements
As of December 31, 2011

 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Bank Debt/Senior Secured Loans	  	$	—  	  	  	$	46,377	  	  	$	366,019	  	  	$	412,396	  	
Subordinated Debt / Corporate Notes	  	 	—  	  	  	 	10,508	  	  	 	536,351	  	  	 	546,859	  	
Preferred Equity	  	 	—  	  	  	 	—  	  	  	 	14,664	  	  	 	14,664	  	
Common Equity / Partnership Interests / Warrants	  	 	11,460	  	  	 	—  	  	  	 	59,664	  	  	 	71,124	  	
Derivative assets – interest rate cap	  	 	—  	  	  	 	469	  	  	 	—  	  	  	 	469	  	
Derivative assets – forward contracts	  	 	—  	  	  	 	180	  	  	 	—  	  	  	 	180	  	
The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the six months ended June 30, 2012 and the year ended December 31, 2011, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, 2012 and December 31, 2011:
Fair Value Measurements Using Level 3 Inputs
As of June 30, 2012

 	  	Bank Debt/
Senior Secured
Loans	 	 	Subordinated Debt/
Corporate Notes	 	 	Preferred Equity	 	  	Common Equity/
Partnership
Interests/
Warrants	 	
Fair value, December 31, 2011	  	$	366,019	  	 	$	536,351	  	 	$	14,664	  	  	$	59,664	  	
Total gains or losses included in earnings:	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net realized gain (loss)	  	 	—  	  	 	 	(21,047	) 	 	 	—  	  	  	 	11,002	  	
Net change in unrealized gain (loss)	  	 	4,151	  	 	 	30,867	  	 	 	2,498	  	  	 	(10,358	) 	
 	 	 	 	 	
Purchase of investment securities	  	 	149,897	  	 	 	86,216	  	 	 	128,406	  	  	 	2,880	  	
Proceeds from dispositions of investment securities	  	 	(57,148	) 	 	 	(171,735	) 	 	 	—  	  	  	 	(21,002	) 	
 	 	 	 	 	
Transfers in/out of Level 3	  	 	—  	  	 	 	—  	  	 	 	—  	  	  	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Fair value, June 30, 2012	  	$	462,919	  	 	$	460,652	  	 	$	145,568	  	  	$	42,186	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
 	 	 	 	 	
Net change in unrealized gain (loss):	  	$	4,895	  	 	$	30,975	  	 	$	2,498	  	  	$	(10,358	) 	
During the six months ended June 30, 2012, there were no transfers in and out of Levels 1 and 2.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Fair Value Measurements Using Level 3 Inputs
As of December 31, 2011

 	  	Bank Debt/
Senior Secured
Loans	 	 	Subordinated Debt/
Corporate Notes	 	 	Preferred Equity	 	 	Common Equity/
Partnership
Interests/
Warrants	 	
Fair value, December 31, 2010	  	$	200,532	  	 	$	566,308	  	 	$	3,934	  	 	$	53,092	  	
Total gains or losses included in earnings:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net realized gain (loss)	  	 	(87	) 	 	 	6,218	  	 	 	—  	  	 	 	(4,500	) 	
Net change in unrealized gain (loss)	  	 	(13,392	) 	 	 	(6,991	) 	 	 	(448	) 	 	 	6,931	  	
Purchase of investment securities	  	 	247,421	  	 	 	115,852	  	 	 	11,178	  	 	 	7,942	  	
Proceeds from dispositions of investment securities	  	 	(68,455	) 	 	 	(103,971	) 	 	 	—  	  	 	 	(3,801	) 	
Transfers in/out of Level 3	  	 	—  	  	 	 	(41,065	) 	 	 	—  	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, December 31, 2011	  	$	366,019	  	 	$	536,351	  	 	$	14,664	  	 	$	59,664	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in unrealized gain (loss):	  	$	(15,535	) 	 	$	(17,844	) 	 	$	(448	) 	 	$	4,988	  	
During 2011, one investment with a fair value of $41,065 was transferred from Level 3 to Level 2 as a result of an increase in the availability and reliability of third party market quotes for this investment. During 2011, one asset with a fair value of $9,900 was transferred from Level 2 to Level 1 when trading restrictions expired on a publicly traded equity investment.
The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the six months ended June 30, 2012:

 	  	For the six
months ended
June 30, 2012	 	
$485 Million Facility and Private Notes	  	 	 	 	
Beginning fair value	  	$	—  	  	
Total unrealized appreciation	  	 	—  	  	
Borrowings	  	 	131,860	  	
Repayments	  	 	—  	  	
Transfers in/out of Level 3	  	 	—  	  	
 	  	 	 	 	
Ending fair value	  	$	131,860	  	
 	  	 	 	 	
The Company has made an irrevocable election to apply the fair value option of accounting to the $485 Million Facility and the Private Notes, in accordance with ASC 825-10. On June 30, 2012, there were borrowings of $56,860 and $75,000, respectively, on the $485 Million Facility and the Private Notes. For the six months ended June 30, 2012, the $485 Million Facility and the Private Notes had no net change in unrealized (appreciation) depreciation. The Company used an independent third-party valuation firm to measure the fair value of the Private Notes.
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values and EBITDA multiples of similar companies, and comparable market transactions for equity securities. Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of June 30, 2012 is summarized in the table below:
Quantitative Information about Level 3 Fair Value Measurements

 	 	Asset or
Liability	 	Fair Value at
June 30, 2012	 	 	Valuation
Techniques/Methodology	 	Unobservable Input	 	Range (Weighted
Average)	
Senior Secured / Bank Debt	 	Asset	 	$	462,919	  	 	Yield Analysis/Market
Approach/Broker quoted	 	Market Yields /
Bid-Ask Spreads	 	10.00% – 17.00%
(12.9%)	
Subordinated Debt / Corporate Note	 	Asset	 	$	460,652	  	 	Yield Analysis/Market
Approach/Broker quoted	 	Market Yields /
Bid-Ask Spreads	 	12.00% – 20.33%
(15.1%)	
Preferred Equity	 	Asset	 	$	145,568	  	 	Yield Analysis	 	Market Yields	 	1.04% – 15.00%
(13.4%)	
Common Equity	 	Asset	 	$	42,186	  	 	Market Approach	 	Enterprise Value	 	4.99x – 11.36x	
$485 Million Facility	 	Liability	 	$	56,860	  	 	Yield Analysis/Market
Approach	 	Market Yields	 	L+0.5% – L+5.5%
(L+2.7%)	
Private Notes	 	Liability	 	$	75,000	  	 	Yield Analysis/Market
Approach	 	Market Yields	 	4.47% – 7.32%
(6.7%)	
Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, would result in a significantly lower or higher fair value measurement for such assets and liabilities.
Note 10. Earnings Per Share
The following information sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10, for the three and six months ended June 30, 2012 and 2011, respectively:

 	  	Three months ended
June 30, 2012	 	  	Three months ended
June 30, 2011	 	  	Six months ended
June 30, 2012	 	  	Six months ended
June 30, 2011	 	
Numerator for basic and diluted increase in net assets per share:	  	$	16,062	  	  	$	12,384	  	  	$	62,220	  	  	$	61,402	  	
Denominator for basic and diluted weighted average share:	  	 	36,639,037	  	  	 	36,444,775	  	  	 	36,623,538	  	  	 	36,414,137	  	
Basic and diluted earnings per share:	  	$	0.44	  	  	$	0.34	  	  	$	1.70	  	  	$	1.69	  	
 
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SOLAR CAPITAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
 
Note 11. Taxation
We did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did we have any unrecognized tax benefits as of the periods presented herein. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our inception-to-date federal tax years remain subject to examination by the Internal Revenue Service.
There were no deferred tax assets or liabilities as of June 30, 2012 or December 31, 2011.
Note 12. Financial Highlights
The following is a schedule of financial highlights for the six months ended June 30, 2012 and for the year ended December 31, 2011:

 	  	Six months ended
June 30, 2012	 	 	Year ended
December 31, 2011	 	
Per Share Data:(a)	  	 	 	 	 	 	 	 	
Net asset value, beginning of year	  	$	22.02	  	 	$	22.73	  	
Net investment income	  	 	0.96	  	 	 	2.25	  	
Net realized and unrealized gain (loss)	  	 	0.73	  	 	 	(0.57	) 	
 	  	 	 	 	 	 	 	 	
Net increase in net assets resulting from operations	  	 	1.69	  	 	 	1.68	  	
 	 	 	
Dividends to shareholders	  	 	(1.20	) 	 	 	(2.40	) 	
 	  	 	 	 	 	 	 	 	
Net asset value, end of period	  	$	22.51	  	 	$	22.02	  	
 	  	 	 	 	 	 	 	 	
Total return(b)	  	 	6.29	% 	 	 	(1.07	)% 	
 	  	 	 	 	 	 	 	 	
Net assets, end of period	  	$	824,923	  	 	$	805,941	  	
 	  	 	 	 	 	 	 	 	
Per share market value at end of period	  	$	22.26	  	 	$	22.09	  	
 	  	 	 	 	 	 	 	 	
Shares outstanding end of period	  	 	36,640,094	  	 	 	36,608,038	  	
 	  	 	 	 	 	 	 	 	
Ratio to average net assets:(c)	  	 	 	 	 	 	 	 	
Expenses without incentive fees	  	 	3.23	% 	 	 	4.45	% 	
Incentive fees	  	 	1.08	% 	 	 	2.49	% 	
 	  	 	 	 	 	 	 	 	
Total expenses	  	 	4.31	% 	 	 	6.94	% 	
 	  	 	 	 	 	 	 	 	
Net investment income	  	 	4.32	% 	 	 	9.97	% 	
 	  	 	 	 	 	 	 	 	
Portfolio turnover ratio	  	 	30.75	% 	 	 	34.54	% 	

(a)	Calculated using the average shares outstanding method	
(b)	Total return is based on the change in market price per share during the period and takes into account dividends reinvested with the dividend reinvestment plan. Not annualized for periods less than one year.	
(c)	Not annualized for six months ended June 30, 2012	
 
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SOLAR CAPITAL LTD.
SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES (unaudited)
(in thousands, except shares)
Schedule 12-14

 	 	 	 	 	 	 	Six months  ended
June 30, 2012	 	 	 	 	
Portfolio Company	 	Investment	 	As of
June 30,  2012
Number of
Shares/Principal
Amount	 	 	Amount of
dividends  and
interest included
in income	 	 	Amount of
equity in
net profit
and loss	 	 	As of
June 30, 2012
Fair Value	 	
Investments Owned Greater than 25%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AviatorCap SII, LLC I	 	Senior Secured Debt	 	 	3,400	  	 	$	226	  	 	$	—  	  	 	$	3,400	  	
AviatorCap SII, LLC II	 	Senior Secured Debt	 	 	5,070	  	 	 	316	  	 	 	—  	  	 	 	5,070	  	
AviatorCap SII, LLC III	 	Senior Secured Debt	 	 	6,320	  	 	 	552	  	 	 	—  	  	 	 	6,320	  	
USAW 767	 	Senior Secured Debt	 	 	3,986	  	 	 	349	  	 	 	—  	  	 	 	3,986	  	
SODO Corp.	 	Preferred Equity/Common	 	 	2,084	  	 	 	85	  	 	 	—  	  	 	 	2,251	  	
SOCAY Corp.	 	Preferred Equity/Common	 	 	13,526	  	 	 	566	  	 	 	—  	  	 	 	14,611	  	
SOINT, LLC	 	Senior Secured Debt	 	 	16,667	  	 	 	—  	  	 	 	—  	  	 	 	16,333	  	
SOINT, LLC	 	Preferred Equity/Common	 	 	87	  	 	 	—  	  	 	 	—  	  	 	 	8,667	  	
National Specialty Alloys, LLC	 	Equity	 	 	—  	  	 	 	350	  	 	 	—  	  	 	 	—  	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments Owned Greater than 25%	 	 	 	 	 	 	 	$	2,444	  	 	$	—  	  	 	$	60,638	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments Owned Greater than 5% and Less than 25%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ark Real Estate Partners LP	 	Equity	 	 	44,697,684	  	 	$	—  	  	 	$	—  	  	 	$	34,864	  	
AREP Fifty-Seventh LLC	 	Senior Debt	 	 	19,768	  	 	 	128	  	 	 	—  	  	 	 	19,373	  	
ARK Real Estate Partners II LP	 	Senior Debt	 	 	8,027	  	 	 	—  	  	 	 	—  	  	 	 	7,866	  	
DS Waters of America, Inc.	 	Senior Debt	 	 	30,292	  	 	 	1,515	  	 	 	—  	  	 	 	30,292	  	
Senior Preferred 15% Units of DSW Group Holdings LLC	 	Preferred Equity	 	 	13,952	  	 	 	4,009	  	 	 	—  	  	 	 	119,990	  	
Participating Preferred Units of DSW Group Holdings LLC	 	Common Equity	 	 	12,961	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments Owned Greater than 5% and Less than 25%	 	 	 	 	 	 	 	$	5,652	  	 	$	—  	  	 	$	212,384	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The table below represents the balance at the beginning of the year, December 31, 2011 and any gross additions and reductions and net unrealized gain (loss) made to such investments as well as the ending fair value as of June 30, 2012.
Gross additions represent increases in the investment from additional investments, payments in kind of interest or dividends.
 
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SOLAR CAPITAL LTD.
SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES (unaudited) (continued)
(in thousands, except shares)
 
Gross reductions represent decreases in the investment from sales of investments or repayments.

 	  	Beginning
Fair Value
December 31,
2011	 	  	Gross
additions	 	  	Gross
reductions	 	  	Change in
Unrealized
Gain
(Loss)	 	 	Fair Value
as of
June 30,
2012	 	
AviatorCap SII, LLC I	  	$	3,671	  	  	$	12	  	  	$	326	  	  	$	43	  	 	$	3,400	  	
AviatorCap SII, LLC II	  	 	5,611	  	  	 	19	  	  	 	628	  	  	 	68	  	 	 	5,070	  	
AviatorCap SII, LLC III	  	 	8,724	  	  	 	54	  	  	 	2,536	  	  	 	78	  	 	 	6,320	  	
USAW 767	  	 	4,831	  	  	 	30	  	  	 	918	  	  	 	43	  	 	 	3,986	  	
SODO Corp.	  	 	1,949	  	  	 	75	  	  	 	—  	  	  	 	227	  	 	 	2,251	  	
SOCAY Corp.	  	 	12,668	  	  	 	465	  	  	 	—  	  	  	 	1,478	  	 	 	14,611	  	
SOINT, LLC	  	 	—  	  	  	 	16,333	  	  	 	—  	  	  	 	—  	  	 	 	16,333	  	
SOINT, LLC	  	 	—  	  	  	 	8,667	  	  	 	—  	  	  	 	—  	  	 	 	8,667	  	
Ark Real Estate Partners LP	  	 	35,820	  	  	 	2,879	  	  	 	—  	  	  	 	(3,835	) 	 	 	34,864	  	
AREP Fifty-Seventh LLC	  	 	—  	  	  	 	19,373	  	  	 	—  	  	  	 	—  	  	 	 	19,373	  	
ARK Real Estate Partners II LP	  	 	—  	  	  	 	7,866	  	  	 	—  	  	  	 	—  	  	 	 	7,866	  	
DS Waters of America, Inc.	  	 	—  	  	  	 	36,033	  	  	 	6,755	  	  	 	1,014	  	 	 	30,292	  	
Senior Preferred 15% Units of DSW Group Holdings LLC	  	 	—  	  	  	 	119,196	  	  	 	—  	  	  	 	794	  	 	 	119,990	  	
Schedule 12-14

 	 	 	 	 	 	 	Year ended December 31, 2011	 	 	 	 	
Portfolio Company	 	Investment	 	As of
December 31, 2011
Number of
Shares/Principal
Amount	 	 	Amount of
dividends and
interest included
in income	 	 	Amount of
equity in
net profit
and loss	 	 	As of
December 31,
2011
Fair Value	 	
Investments Owned Greater than 25%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
AviatorCap SII, LLC I	 	Senior Debt	 	 	3,678	  	 	$	288	  	 	$	—  	  	 	$	3,671	  	
AviatorCap SII, LLC II	 	Senior Debt	 	 	5,618	  	 	 	243	  	 	 	—  	  	 	 	5,611	  	
AviatorCap SII, LLC III	 	Senior Debt	 	 	8,696	  	 	 	628	  	 	 	—  	  	 	 	8,724	  	
USAW 767	 	Senior Debt	 	 	4,850	  	 	 	920	  	 	 	—  	  	 	 	4,831	  	
SODO Corp.	 	Preferred Equity/Common	 	 	2,009	  	 	 	96	  	 	 	—  	  	 	 	1,949	  	
SOCAY Corp.	 	Preferred Equity/Common	 	 	13,059	  	 	 	686	  	 	 	—  	  	 	 	12,668	  	
National Specialty Alloys, LLC	 	Equity	 	 	10,000	  	 	 	4,102	  	 	 	—  	  	 	 	16,000	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments Owned Greater than 25%	 	 	 	 	 	 	 	$	6,963	  	 	$	—  	  	 	$	53,454	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investments Owned Greater than 5% and Less than 25%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ark Real Estate Partners LP	 	Equity	 	 	41,818,834	  	 	 	—  	  	 	 	—  	  	 	 	35,820	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Investments Owned Greater than 5% and Less than 25%	 	 	 	 	 	 	 	$	—  	  	 	$	—  	  	 	$	35,820	  	

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SOLAR CAPITAL LTD.
SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES (unaudited) (continued)
(in thousands, except shares)
 
The table below represents the balance at the beginning of the year, December 31, 2010 and any gross additions and reductions and net unrealized gain (loss) made to such investments as well as the ending fair value as of December 31, 2011.
Gross additions represent increases in the investment from additional investments, amortization and payments in kind of interest or dividends.
Gross reductions represent decreases in the investment from sales of investments or repayments.

 	  	Beginning
Fair Value
December 31,
2010	 	  	Gross
additions	 	  	Gross
reductions	 	  	Change in
Unrealized
Gain
(Loss)	 	 	Fair Value
as of
December 31,
2011	 	
AviatorCap SII, LLC I	  	$	—  	  	  	$	4,047	  	  	$	369	  	  	 	(7	) 	 	$	3,671	  	
AviatorCap SII, LLC II	  	 	—  	  	  	 	6,094	  	  	 	476	  	  	 	(7	) 	 	 	5,611	  	
AviatorCap SII, LLC III	  	 	—  	  	  	 	10,062	  	  	 	1,366	  	  	 	28	  	 	 	8,724	  	
USAW 767	  	 	6,618	  	  	 	76	  	  	 	1,848	  	  	 	(15	) 	 	 	4,831	  	
SODO Corp.	  	 	390	  	  	 	1,619	  	  	 	—  	  	  	 	(60	) 	 	 	1,949	  	
SOCAY Corp.	  	 	3,500	  	  	 	9,559	  	  	 	—  	  	  	 	(391	) 	 	 	12,668	  	
National Specialty Alloys, LLC	  	 	10,000	  	  	 	—  	  	  	 	—  	  	  	 	6,000	  	 	 	16,000	  	
Ark Real Estate Partners LP	  	 	29,235	  	  	 	7,066	  	  	 	53	  	  	 	(428	) 	 	 	35,820	  	
 
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Solar Capital Ltd.:
We have reviewed the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Solar Capital Ltd. (the Company) as of June 30, 2012, and the consolidated statements of operations for the three and six-month periods ended June 30, 2012 and 2011, the consolidated statement of changes in net assets for the six-month period ended June 30, 2012 and consolidated statements of cash flows for the six-month periods ended June 30, 2012 and 2011. These consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial accounting and reporting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Solar Capital Ltd. as of December 31, 2011, and the related consolidated statement of changes in net assets for the year ended December 31, 2011 and we expressed an unqualified opinion on them in our report dated February 22, 2012.
/s/ KPMG LLP
New York, New York
July 31, 2012
 
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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 financial statements and the notes thereto contained elsewhere in this report.
Overview
Solar Capital Ltd. (“Solar”, the “Company” or “we”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). In February 2010, we completed our initial public offering and a concurrent private offering of shares to management.
We invest primarily in U.S. middle market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle market companies in the form of senior secured loans, mezzanine loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $20 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base. We are managed by Solar Capital Partners, LLC. Solar Capital Management, LLC provides the administrative services necessary for us to operate.
In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States.
As of June 30, 2012, our investments totaled $1.19 billion and our net asset value was $824.9 million. Our portfolio was comprised of debt and equity investments in 41 portfolio companies and our income producing assets, which represented 94.0% of our total portfolio, had a weighted average annualized yield on a fair value basis of approximately 13.9%.
Recent Developments
Dividend
On July 31, 2012, our board of directors declared a quarterly dividend of $0.60 per share payable on October 2, 2012 to holders of record as of September 20, 2012. We expect the dividend to be paid from taxable earnings with specific tax characteristics reported to stockholders after the end of the calendar year.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
 
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Valuation of Portfolio Investments
We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below:
Securities for which market quotations are readily available on an exchange are valued at the closing price on the day of valuation. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is sufficient according to GAAP to determine the fair value of the security. If determined reliable, we use the quote obtained.
Securities for which reliable market quotations are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of our investment adviser or board of directors, does not represent fair value, shall be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; (iii) independent third-party valuation firms engaged by, or on behalf of, the board of directors will conduct independent appraisals and review management’s preliminary valuations and make their own assessment for all material assets; (iv) the board of directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the investment adviser and, where appropriate, the respective third-party valuation firms.
The recommendation of fair value will generally be based on the following factors, as relevant:
 
 	•	 	the nature and realizable value of any collateral including credit risk;	
 
 	•	 	the portfolio company’s ability to make payments;	
 
 	•	 	the portfolio company’s earnings and discounted cash flow;	
 
 	•	 	the markets in which the issuer does business and; and	
 
 	•	 	comparisons to publicly traded securities.	
Securities for which market quotations are not readily available or for which a pricing source is not sufficient may include, but are not limited to, the following:
 
 	•	 	private placements and restricted securities that do not have an active trading market;	
 
 	•	 	securities whose trading has been suspended or for which market quotes are no longer available;	
 
 	•	 	debt securities that have recently gone into default and for which there is no current market;	
 
 	•	 	securities whose prices are stale;	
 
 	•	 	securities affected by significant events; and	
 
 	•	 	securities that the investment adviser believes were priced incorrectly.	
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
GAAP fair value measurement guidance classifies the inputs used to measure these fair values into the following hierarchy:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, and most U.S. Government and agency securities).
 
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Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
c) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and
d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.
Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain of our private debt and equity investments) and long-dated or complex derivatives (including certain equity and currency derivatives).
Fair Value Measurements
As of June 30, 2012

 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Total	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Bank Debt/Senior Secured Loans	  	 	—  	  	  	 	48,188	  	  	 	462,919	  	  	 	511,107	  	
Subordinated Debt / Corporate Notes	  	 	—  	  	  	 	25,849	  	  	 	460,652	  	  	 	486,501	  	
Preferred Equity	  	 	—  	  	  	 	—  	  	  	 	145,568	  	  	 	145,568	  	
Common Equity / Partnership Interests / Warrants	  	 	8,240	  	  	 	—  	  	  	 	42,186	  	  	 	50,426	  	
Derivative assets – interest rate caps and foreign exchange contracts	  	 	—  	  	  	 	94	  	  	 	—  	  	  	 	94	  	
Liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Derivative liabilities	  	 	—  	  	  	 	721	  	  	 	—  	  	  	 	721	  	
Credit Facilities	  	 	—  	  	  	 	—  	  	  	 	131,860	  	  	 	131,860	  	
At June 30, 2012, the fair value of investments classified as Level 3 was approximately $1,111 million or 91.1% of total assets. There were no investments transferred in or out of Level 3 during the 2nd quarter of 2012.
Revenue Recognition
Our revenue recognition policies are as follows:
Sales: Gains or losses on the sale of investments are calculated by using the specific identification method.
Interest Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income. We have loans in our portfolio that contain a PIK provision. PIK interest is accrued at the contractual rates and added to the loan principal on the reset dates.
Non-accrual: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is
 
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generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Payment-in-Kind Interest
We have investments in our portfolio which contain a PIK interest provision. Over time, PIK interest increases the principal balance of the investment, but is recorded as interest income. For us to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even though we have not currently collected cash with respect to the PIK interest.
New Accounting Pronouncements and Accounting Standards Updates
In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 was issued concurrently with International Financial Reporting Standards No. 13 (“IFRS 13”), Fair Value Measurements, to provide largely identical guidance about fair value measurement and disclosure requirements as is currently required under ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or GAAP. For GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. ASU 2011-04 eliminates the concepts of in-use and in-exchange when measuring fair value of all financial instruments. For Level 3 fair value measurements, the ASU requires that our disclosure include quantitative information about significant unobservable inputs, a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs and the interrelationship between inputs, and a description of our valuation process. Public companies are required to apply ASU 2011-04 prospectively for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on the Company’s financial statements or its disclosures.
Portfolio Investments
The total value of our investments was approximately $1.19 billion and $1.05 billion at June 30, 2012 and December 31, 2011, respectively. During the three months ended June 30, 2012, we invested approximately $164.5 million in five new portfolio companies and $27.8 million in one existing portfolio company. During the six months ended June 30, 2012, we originated approximately $164.5 million of new investments in five new portfolio companies and approximately $89.7 million was invested in five existing portfolio companies.
In certain instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we may receive repayments of certain debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period. Our portfolio activity also reflects sales of securities. For the three months ended June 30, 2012, we had approximately $5.8 million in debt repayments. For the six month ended June 30, 2012, we had approximately $112.2 million in debt repayments and sales of securities of two portfolio companies for approximately $29.4 million.
At June 30, 2012, we had investments in debt and preferred securities of 37 portfolio companies, totaling approximately $1.14 billion, and equity investments in seven portfolio companies, totaling approximately $50.4 million. At December 31, 2011, we had investments in debt and preferred securities of 34 portfolio companies, totaling approximately $973.9 million, and equity investments in seven portfolio companies, totaling approximately $71.1 million.
 
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The following table shows the fair value of our portfolio of investments by asset class as of June 30, 2012 and December 31, 2011 (in thousands):

 	  	June 30, 2012	 	  	December 31, 2011	 	
 	  	Cost	 	  	Fair Value	 	  	Cost	 	  	Fair Value	 	
Bank Debt/Senior Secured Loans	  	$	519,005	  	  	$	511,107	  	  	$	426,201	  	  	$	412,396	  	
Subordinated Debt/Corporate Notes	  	 	509,640	  	  	 	486,501	  	  	 	604,157	  	  	 	546,859	  	
Preferred Equity	  	 	143,512	  	  	 	145,568	  	  	 	15,107	  	  	 	14,664	  	
Common Equity/Partnership Interests/Warrants	  	 	90,854	  	  	 	50,426	  	  	 	107,108	  	  	 	71,124	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,263,011	  	  	$	1,193,602	  	  	$	1,152,573	  	  	$	1,045,043	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As of June 30, 2012 and December 31, 2011, the weighted average yield on income producing investments in our portfolio based on fair market value was approximately 13.9% and 14.2%, respectively. The weighted average yield on income producing investments in our portfolio based on cost was approximately 13.8% and 13.2%, respectively. We had two non-accrual assets with a total market value of $21.1 million and one asset with a market value of $5.9 million as of June 30, 2012 and December 31, 2011, respectively.
Results of Operations for the Quarter Ended June 30, 2012 compared to the Quarter Ended June 30, 2011
Revenue

 	  	For the Three Months June 30,	 	  	 	 	
 	  	        2012        	 	  	        2011        	 	  	% Change	 	
 	  	(in thousands)	 	  	 	 	
Investment income	  	$	34,833	  	  	$	35,283	  	  	 	(1	%) 	
Investment income for the second quarter of 2012 was comparable to the second quarter of 2011. For the second quarter of 2011 compared same period of 2012, interest income was earned on a larger earning asset balance, offset by a slightly lower weighted average yield.
Expenses

 	  	For the Three Months
June 30,	 	  	 	 	
 	  	2012	 	  	2011	 	  	% Change	 	
 	  	(in thousands)	 	  	 	 	
Investment advisory and management fees	  	$	5,673	  	  	$	5,096	  	  	 	11	% 	
Performance-based incentive fee	  	 	3,591	  	  	 	5,269	  	  	 	(32	%) 	
Interest and other credit facility expenses	  	 	9,051	  	  	 	1,895	  	  	 	378	% 	
Administrative service fee	  	 	1,128	  	  	 	279	  	  	 	304	% 	
Other general and administrative expenses	  	 	995	  	  	 	1,376	  	  	 	(28	%) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total operating expenses	  	$	20,438	  	  	$	13,915	  	  	 	47	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment advisory and management fees, which are calculated based on average gross assets, were higher during the three months ended June 30, 2012 due to larger average gross assets. The performance-based incentive fee, which is calculated as a percentage of net investment income above certain hurdle rates, was lower for the three months June 30, 2012 to the comparable period in 2011 due to lower net investment income. Interest and other credit facility expenses for the three months ended June 30, 2012 were higher than during the comparable period in 2011 mainly due to costs associated with the establishment of a credit facility and private notes and for expenses to retire a predecessor credit facility and term loan. Administrative service fees are higher for the three months ended June 30, 2012 due to higher operating costs. Other general and administrative expenses for the three months ended June 30, 2012 were lower compared to the same period in 2011 due to tax expenses incurred in 2011, which was presented within this expense item.
 
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Net Realized and Unrealized Gains and Losses

 	  	For the Three Months
June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(in thousands)	 	
Net realized gain (loss) loss on investments	  	$	(20,322	) 	 	$	2,304	  	
Net realized gain (loss) on forward contracts	  	 	1,730	  	 	 	(4,872	) 	
Net realized loss on foreign currency exchange	  	 	(563	) 	 	 	(242	) 	
Net unrealized gain (loss) on investments	  	 	19,286	  	 	 	(7,430	) 	
Net unrealized gain on forward contracts	  	 	159	  	 	 	473	  	
Net unrealized gain on foreign currency exchange	  	 	1,403	  	 	 	783	  	
 	  	 	 	 	 	 	 	 	
Total realized and unrealized gain (loss)	  	$	1,693	  	 	$	(8,984	) 	
 	  	 	 	 	 	 	 	 	
The combined net gain during the second quarter of 2012 was primarily due to an increase in the fair value of our portfolio during the period due to improved market trends. During the second quarter of 2011, total realized and unrealized loss of approximately $9.0 million was attributable to worsening conditions in the credit markets and the widening of spreads. We analyze this section on a combined basis because offsets may exist in the individual line items due to foreign exchange fluctuations and movements from unrealized to realized, which may have impacted income in prior periods.
Results of Operations for the Six Months Ended June 30, 2012 compared to the Six Months Ended June 30, 2011
Revenue

 	  	For the Six Months Ended June 30,	 	  	 	 	
 	  	        2012        	 	  	        2011        	 	  	% Change	 	
 	  	(in thousands)	 	  	 	 	
Investment income	  	$	71,142	  	  	$	67,577	  	  	 	5	% 	
Investment income was higher during the first six months of 2012 primarily due to higher interest income earned on a larger earning asset balance and higher prepayment premiums and accelerated amortization of upfront fees related to early repayment of assets compared to the same period in 2011.
Expenses

 	  	For the Six Months
Ended June 30,	 	  	 	 	
 	  	2012	 	  	2011	 	  	% Change	 	
 	  	(in thousands)	 	  	 	 	
Investment advisory and management fees	  	$	10,951	  	  	$	10,083	  	  	 	9	% 	
Performance-based incentive fee	  	 	8,866	  	  	 	10,057	  	  	 	(12	%) 	
Interest and other credit facility expenses	  	 	11,746	  	  	 	3,932	  	  	 	199	% 	
Administrative service fee	  	 	1,824	  	  	 	717	  	  	 	154	% 	
Other general and administrative expenses	  	 	2,004	  	  	 	2,270	  	  	 	(12	%) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total operating expenses	  	$	35,391	  	  	$	27,059	  	  	 	31	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment advisory and management fees, which are calculated based on average gross assets, were higher during the six months ended June 30, 2012 due to larger average gross assets. The performance-based incentive fee, which is calculated as a percentage of net investment income above certain hurdle rates, was lower for the six months June 30, 2012 to the comparable period in 2011 due to lower net investment income. Interest and
 
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other credit facility expenses for the six months ended June 30, 2012 were higher than during the comparable period in 2011 mainly due to costs associated with the establishment of a new credit facility and Private Notes and for expenses to retire a predecessor credit facility and term loan. Administrative service fees are higher for the six months ended June 30, 2012 due to higher operating costs. Other general and administrative expenses for the six months ended June 30, 2012 are lower compared to the same period in 2011 due to tax expenses incurred in 2011, which was presented within this expense item.
Net Realized and Unrealized Gains and Losses

 	  	For the Six Months Ended
June 30,	 	
 	  	       2012       	 	 	       2011       	 	
 	  	(in thousands)	 	
Net realized gain (loss) on investments	  	$	(10,045	) 	 	$	5,106	  	
Net realized gain (loss) on derivatives	  	 	786	  	 	 	(9,235	) 	
Net realized gain (loss) on foreign currency exchange	  	 	55	  	 	 	(314	) 	
Net unrealized gain on investments	  	 	38,120	  	 	 	24,802	  	
Net unrealized gain (loss) on derivatives	  	 	(1,276	) 	 	 	214	  	
Net unrealized gain (loss) on foreign currency exchange	  	 	(103	) 	 	 	311	  	
 	  	 	 	 	 	 	 	 	
Total net realized and unrealized gain	  	$	27,537	  	 	$	20,884	  	
 	  	 	 	 	 	 	 	 	
The combined net gain during the six months ended June 30, 2012, was mostly attributable to an increase in the fair value of our portfolio during the period due to improved market trends and realization above prior period marks. The net gain during the first six months of 2011 was primarily due to general credit improvement in the portfolio. We analyze this section on a combined basis because offsets may exist in the individual line items due to foreign exchange fluctuations and movements from unrealized to realized, which may have impacted income in prior periods.
Our investments denominated in Euro, British Pounds and Australian dollars are converted into U.S. dollars at the balance sheet date, and as such, we are exposed to movements in exchange rates. To limit our exposure to movements in foreign currency exchange rates we enter into foreign exchange forward contracts or borrow in foreign currencies under our multi-currency revolving credit facility. For the first half of 2012, the total net change in realized and unrealized gain on forward contracts was a loss of approximately $0.4 million compared to a loss of $7.8 million in 2011.
To partially mitigate this risk of rising interest rates on our floating rate debt exposure, we purchased two interest rate derivative contracts during 2011, which effectively cap the London Interbank Borrowing Rate (LIBOR) at 1.00% on $100 million of notional amount through January 2014 and $50 million of notional amount through May 2014. The interest rate caps were purchased for $2.9 million and were valued at $0.1 million and $0.5 million on June 30, 2012 and December 31, 2012, respectively.
Liquidity and Capital Resources
The Company’s liquidity and capital resources are generated and generally available through its $485 million credit facility maturing in July 2016 (the “$485 Million Facility”) and a $100 million credit facility maturing in December 2015 (the “$100 Million Facility” and together with the $485 Million Facility, collectively the “Credit Facilities”), through cash flows from operations, investment sales, repayments of senior and subordinated loans, income earned on investments and cash equivalents, and we expect periodic follow-on equity and/or debt offerings. We may from time to time issue such securities in either public or private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.
 
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The primary use of existing funds and any funds raised in the future is expected to be for repayment of indebtedness, investments in portfolio companies, cash distributions to our shareholders or for other general corporate purposes.
At June 30, 2012 and December 31, 2011, we had cash and cash equivalents of approximately $12.0 million and $11.8 million, respectively. Cash provided by operating activities for the six months ended June 30, 2012 and 2011 was approximately $25.8 million and $104.9 million, respectively. We expect that all current liquidity needs will be met with cash flows from operations and other activities.
Credit Facilities and Senior Secured Notes – On June 29, 2012, Solar Capital Ltd. entered into a $485 million Senior Secured Credit Facility comprised of $450 million of multi-currency revolving credit and a $35 million term loan. Borrowings bear interest at a rate per annum equal to the base rate plus 2.50% or the alternate base rate plus 1.50% and has no LIBOR floor requirement. The $485 Million Facility matures in July 2016 and includes a ratable amortization in the fourth year. With additional new lenders or the increase in commitments of current lenders, the $485 Million Facility may be increased up to $800 million. The $485 Million Facility contains certain customary affirmative and negative covenants and events of default. In addition, the $485 Million Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio. The Company will also pay the issuer of the term loan quarterly in arrears a commitment fee at the rate of 0.25% per annum on the average daily outstanding balance. In conjunction with the establishment of the $485 Million Facility, a predecessor facility and term loan were retired.
On May 10, 2012, the Company closed a private offering of $75,000 of Senior Secured Notes (“Private Notes”) with a fixed interest rate of 5.875% and a maturity date of May 10, 2017. Interest on the Private Notes is due semi-annually on May 10 th  and November 10 th . The Private Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.
On December 17, 2010, we established the $100 Million Facility with Wells Fargo Securities, LLC acting as administrative agent. In connection with the $100 Million Facility, our wholly-owned financing subsidiary, Solar Capital Funding II, LLC (“SC Funding”), as borrower, entered into a Loan and Servicing Agreement whereby we transferred certain loans we have originated or acquired or will originate or acquire from time to time to SC Funding via a Purchase and Sale Agreement. The $100 Million Facility, as amended, among other things, matures on December 17, 2015 and generally bears interest based on LIBOR plus 2.75%. The $100 Million Facility is secured by all of the assets held by SC Funding. Under the $100 Million Facility, Solar and SC Funding, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. The $100 Million Facility includes usual and customary events of default for credit facilities of this nature.
Certain covenants may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code.
Contractual Obligations
A summary of our significant contractual payment obligations is as follows as of June 30, 2012:

 	  	Payments Due by Period	 	
(in millions)	  	Total	 	  	Less than
1 Year	 	  	1-3 Years	 	  	3-5 Years	 	  	More Than
5 Years	 	
Senior secured revolving credit facilities(1)	  	$	119.9	  	  	$	—  	  	  	$	—  	  	  	$	119.9	  	  	$	—  	  	
Senior Secured Notes	  	$	75.0	  	  	$	—  	  	  	$	—  	  	  	$	75.0	  	  	$	—  	  	
Term Loan	  	$	35.0	  	  	$	—  	  	  	$	—  	  	  	$	35.0	  	  	$	—  	  	
 
(1)	As of June 30, 2012, we had approximately $430.1 million of unused borrowing capacity under our credit facilities.	
 
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We have certain commitments pursuant to our Investment Advisory and Management Agreement entered into with Solar Capital Partners, LLC. We have agreed to pay a fee for investment advisory and management services consisting of two components – a base management fee and an incentive fee. Payments under the Investment Advisory and Management Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. We have also entered into a contract with Solar Capital Management, LLC to serve as our administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of Solar Capital Management, LLC’s overhead in performing its obligation under the agreement, including rent, fees, and other expenses inclusive of our allocable portion of the compensation of our chief financial officer and any administrative staff.
Off-Balance Sheet Arrangements
In the normal course of its business, we trade various financial instruments and may enter into various investment activities with off-balance sheet risk, which include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statement of Assets and Liabilities.
Borrowings
We had borrowings of approximately $154.9 million outstanding as of June 30, 2012 under the Credit Facilities. As of June 30, 2012, we also had a $75 million borrowing under our Private Notes.
We had borrowings of approximately $201.4 million outstanding as of December 31, 2011 under credit facilities existing at that time. We also had $35 million outstanding under a retired term loan agreement.
See “Credit Facilities and Other Borrowings” for a further description of the Credit Facilities and the Private Notes.
 
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Distributions and Dividends
The following table reflects the cash distributions, including dividends and returns of capital, if any, per share that we have declared on our common stock since our initial public offering:

Date Declared	  	Record Date	 	  	Payment Date	 	  	Amount	 	
Fiscal 2012	  	 	 	 	  	 	 	 	  	 	 	 	
July 31, 2012	  	 	September 20, 2012	  	  	 	October 2, 2012	  	  	$	0.60	  	
May 1, 2012	  	 	June 19, 2012	  	  	 	July 3, 2012	  	  	 	0.60	  	
February 22, 2012	  	 	March 20, 2012	  	  	 	April 3, 2012	  	  	 	0.60	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total 2012	  	 	 	 	  	 	 	 	  	$	1.80	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Fiscal 2011	  	 	 	 	  	 	 	 	  	 	 	 	
November 1, 2011	  	 	December 15, 2011	  	  	 	December 29, 2011	  	  	$	0.60	  	
August 2, 2011	  	 	September 20, 2011	  	  	 	October 4, 2011	  	  	 	0.60	  	
May 2, 2011	  	 	June 17, 2011	  	  	 	July 5, 2011	  	  	 	0.60	  	
March 1, 2011	  	 	March 17, 2011	  	  	 	April 4, 2011	  	  	 	0.60	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total 2011	  	 	 	 	  	 	 	 	  	$	2.40	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Fiscal 2010	  	 	 	 	  	 	 	 	  	 	 	 	
November 2, 2010	  	 	December 17, 2010	  	  	 	December 30, 2010	  	  	$	0.60	  	
August 3, 2010	  	 	September 17, 2010	  	  	 	October 4, 2010	  	  	 	0.60	  	
May 4, 2010	  	 	June 17, 2010	  	  	 	July 2, 2010	  	  	 	0.60	  	
January 26, 2010	  	 	March 18, 2010	  	  	 	April 1, 2010	  	  	 	0.34	* 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total 2010	  	 	 	 	  	 	 	 	  	$	2.14	  	

*	Partial period dividend of $0.60 per share prorated for the number of days that remained in the quarter after our initial public offering.	
Tax characteristics of all dividends will be reported to shareholders on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, will be determined by our board of directors.
We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute net realized capital gains (net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.
We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.
Related Parties
We have entered into a number of business relationships with affiliated or related parties, including the following:
 
 	•	 	We have entered into an Investment Advisory and Management Agreement with Solar Capital Partners, LLC. Mr. Gross, our chairman and chief executive officer, is the managing member and a senior investment professional of, and has financial and controlling interests in, Solar Capital Partners, LLC. In addition, Mr. Spohler, our chief operating officer is a partner and a senior investment professional of, and has financial interests in, Solar Capital Partners, LLC.	
 
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 	•	 	Solar Capital Management, LLC provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement. We reimburse Solar Capital Management, LLC for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and any administrative support staff. Solar Capital Partners, LLC, our Investment Adviser, is the sole member of and controls Solar Capital Management, LLC.	
 
 	•	 	We have entered into a license agreement with Solar Capital Partners, LLC, pursuant to which Solar Capital Partners, LLC has granted us a non-exclusive, royalty-free license to use the name “Solar Capital.”	
Solar Capital Partners, LLC and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, Solar Capital Partners, LLC presently serves as investment adviser to Solar Senior Capital Ltd., a publicly traded BDC, which to focuses on investing primarily in senior secured loans, including first lien, unitranche and second lien debt instruments. In addition, Michael S. Gross, our chairman and chief executive officer, Bruce Spohler, our chief operating officer, and Nicholas Radesca, our chief financial officer, serve in similar capacities for Solar Senior Capital Ltd.
Solar Capital Partners, LLC and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Solar Capital Partners, LLC or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Solar Capital Partners, LLC’s allocation procedures.
In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.
 
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	
We are subject to financial market risks, including changes in interest rates. During the six months ended June 30, 2012, certain of the loans in our portfolio had floating interest rates and our Credit Facilities also incur floating rate interest. Interest rates on these loans are typically based on floating LIBOR and reset to current market rates every one to six months. A moderate change in interest rates would not have a material effect on our net investment income. However, we may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options, swaps, caps and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During 2011, we purchased two 1.00% LIBOR caps on a total of $150 million of notional for 3 years. If during the three year contract period LIBOR exceeds 1.00%, we will receive payments from the counterparty equal to the difference between LIBOR and 1.00% on $150 million. The cost of the caps was approximately $2.9 million.
The following table quantifies the potential changes in interest income net of interest expense should interest rates increase by 100 or 200 basis points or decrease by 25 basis points. Investment income is calculated as revenue from loans and other lending investments held at June 30, 2012. Interest expense is calculated separately for each of our borrowings. For our Credit Facilities, we use the balance and interest rate as of June 30, 2012 and adjust the interest rate based on the hypothetical changes below. The base interest rate case assumes the rates on our portfolio investments remain as they were on June 30, 2012. All of the hypothetical
 
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calculations are based on a model of our portfolio for the twelve months subsequent to June 30, 2012 and assume no change to any input other than the underlying base interest rates. Actual results could differ significantly from those estimated in the table.

Change in Interest Rates	  	Estimated Percentage
Change in Interest
Income Net of Interest
Expense
(Unaudited)	 	
-25 Basis Points	  	 	0.23	% 	
Base Interest Rate	  	 	0.00	% 	
+100 Basis Points	  	 	(0.44	%) 	
+200 Basis Points	  	 	(0.32	%) 	
We have exposure to foreign currencies (Euro, British Pound, Australian Dollar and Canadian Dollar) through various investments. These investments are converted into U.S. dollars at the balance sheet date, exposing us to movements in exchange rates. To limit our exposure to fluctuations in exchange rates, we enter into foreign exchange forward contracts or borrow in those currencies under our multi-currency revolving credit facility. Our foreign currency exchange contracts are short term contracts that are continuously rolled forward to hedge the longer term portfolio investments. The table below presents our exchange rate sensitive assets and liabilities as of June 30, 2012:

  	  	Euro	 	 	 British Pound 	 	 	 Australian Dollar 	 	  	 Canadian Dollar 	 	
Portfolio Investments (Long)	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Par Amount, Fair Value for Equity (in Currency)	  	€	16.6	  	 	£	34.0	  	 	$	0.8	  	  	$	18.2	  	
Par Amount, Fair Value for Equity ($ in millions)	  	$	21.0	  	 	$	53.2	  	 	$	0.8	  	  	$	17.9	  	
Fair Value ($ in millions)	  	$	13.4	  	 	$	52.2	  	 	$	0.8	  	  	$	15.2	  	
 	 	 	 	 	
Forward Contracts (Short)	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Notional Amount (in Currency)	  	€	17.3	  	 	£	21.7	  	 	$	—  	  	  	$	18.9	  	
Weighted Average Exchange Rate	  	 	1.254	  	 	 	1.550	  	 	 	—  	  	  	 	0.973	  	
Contract Amount ($ in millions)	  	$	21.8	  	 	$	34.0	  	 	$	—  	  	  	$	18.6	  	
Fair Value ($ in millions)	  	$	(0.2	) 	 	$	(0.3	) 	 	$	—  	  	  	$	(0.2	) 	
 	 	 	 	 	
Credit Facilities (Short)	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Par Amount (in Currency)	  	€	—  	  	 	£	13.0	  	 	$	—  	  	  	$	—  	  	
Par Amount ($ in millions)	  	$	—  	  	 	$	20.4	  	 	$	—  	  	  	$	—  	  	
 
Item 4.	Controls and Procedures	
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2012 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission (“SEC”) filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
 
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(b) Changes in Internal Controls Over Financial Reporting
Management has not identified any change in the Company’s internal control over financing reporting that occurred during the second quarter of 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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PART II. OTHER INFORMATION
 
Item 1.	Legal Proceedings	
We, Solar Capital Management, LLC and Solar Capital Partners, LLC are not currently subject to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition or results of operations.
 
Item 1A.	Risk Factors	
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. There have been no material changes during the six months ended June 30, 2012 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	
We did not engage in unregistered sales of equity securities during the quarter ended June 30, 2012.
 
Item 3.	Defaults Upon Senior Securities	
None.
 
Item 4.	Mine Safety Disclosure	
Not applicable.
 
Item 5.	Other Information	
None.
 
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Item 6.	Exhibits	
(a) Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:

Exhibit
Number	  	Description	
 	 	
  3.1	  	Articles of Amendment and Restatement(2)	
 	 	
  3.2	  	Amended and Restated Bylaws(2)	
 	 	
  4.1	  	Form of Common Stock Certificate(3)	
 	 	
  4.2	  	Form of Indenture(7)	
 	 	
10.1	  	Dividend Reinvestment Plan(2)	
 	 	
10.2	  	Form of Senior Secured Credit Agreement by and between the Registrant, Citibank, N.A., as administrative agent, the lenders party thereto, JPMorgan Chase Bank, N.A., as syndication agent, and SunTrust Bank, as documentation agent(8)	
 	 	
10.3	  	Form of Loan and Servicing Agreement by and among the Registrant, Solar Capital Funding II LLC, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Delaware Trust Company, as collateral agent and Wells Fargo Bank, N.A., as account bank and collateral custodian(5)	
 	 	
10.4	  	Investment Advisory and Management Agreement by and between Registrant and Solar Capital Partners, LLC(1)	
 	 	
10.5	  	Form of Custodian Agreement(3)	
 	 	
10.6	  	Administration Agreement by and between Registrant and Solar Capital Management, LLC(1)	
 	 	
10.7	  	Form of Indemnification Agreement by and between Registrant and each of its directors(2)	
 	 	
10.8	  	First Amendment to the Registration Rights Agreement by and between Registrant, Solar Cayman Limited, Solar Offshore Limited, Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and purchasers in the initial private placement(1)	
 	 	
10.9	  	Registration Rights Agreement by and between Registrant, Magnetar Capital Fund, LP and Solar Offshore Limited(2)	
 	 	
10.10	  	Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(2)	
 	 	
10.11	  	Form of Registration Rights Agreement(4)	
 	 	
10.12	  	Form of Purchase and Sale Agreement by and between the Registrant and Solar Capital Funding II LLC(5)	
 	 	
10.13	  	Amendment No. 2 to the Loan and Servicing Agreement by and among Registrant, Solar Capital Funding II LLC, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Delaware Trust Company, as collateral agent, and Wells Fargo Bank, N.A., as account bank and collateral custodian(6)	
 	 	
11	  	Computation of Per Share Earnings (included in the notes to the financial statements contained in this report).	
 	 	
31.1	  	Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.	
 	 	
31.2	  	Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.	
 	 	
32.1	  	Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
 	 	
32.2	  	Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.	
 
(1)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 (File No. 333-148734) filed on January 18, 2008.	
 
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(2)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010.	
(3)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 (File No. 333-148734) filed on February 9, 2010.	
(4)	Previously filed in connection with Solar Capital Ltd.’s report on Form 8-K filed on November 29, 2010.	
(5)	Previously filed in connection with Solar Capital Ltd.’s report on Form 8-K filed on December 22, 2010.	
(6)	Previously filed in connection with Solar Capital Ltd.’s report on Form 8-K filed on February 8, 2012.	
(7)	Previously filed in connection with Solar Capital Ltd.’s registration statement on Form N-2 Pre-Effective Amendment No. 1 (File No. 333-172968) filed on July 6, 2011.	
(8)	Previously filed in connection with Solar Capital Ltd.’s report on Form 8-K filed on July 6, 2012.	
 
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 31, 2012.

SOLAR CAPITAL LTD.	
 	 	
By:	 	/s/    MICHAEL S. GROSS        	
 	 	Michael S. Gross	
 	 	Chief Executive Officer	
 	 	(Principal Executive Officer)	
 	 	
By:	 	/s/    RICHARDL. PETEKA        	
 	 	Richard L. Peteka	
 	 	Chief Financial Officer	
 	 	(Principal Financial and Accounting Officer)	
 
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Michael S. Gross, Chief Executive Officer of Solar Capital Ltd., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Solar Capital Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 31stday of July, 2012

/s/    MICHAEL S. GROSS	
Michael S. Gross	

EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Richard L. Peteka, Chief Financial Officer of Solar Capital Ltd., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Solar Capital Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this 31stday of July, 2012

/S/    RICHARDL. PETEKA	
Richard L. Peteka	

EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2012 (the “Report”) of Solar Capital Ltd. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, MICHAEL S. GROSS, the Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 	 	 	 	/s/    MICHAEL S. GROSS	
 	 	Name:	 	Michael S. Gross	
 	 	Date:	 	July 31, 2012	

EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2012 (the “Report”) of Solar Capital Ltd. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, RICHARD L. PETEKA, the Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 	 	 	 	/s/    RICHARDL. PETEKA	
 	 	Name:	 	Richard L. Peteka	
 	 	Date:	 	July 31, 2012