CHARLOTTE, N.C.--(BUSINESS WIRE)--May 7, 2018--
Capitala Finance Corp. (Nasdaq:CPTA) (“Capitala,” the “Company,” “we,”
“us,” or “our”) today announced its financial results for the first
quarter of 2018.
First Quarter Highlights
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Net investment income of $4.4 million, or $0.28 per share
-
Net asset value per share of $13.66 at March 31, 2018, compared to
$13.91 at December 31, 2017
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Deployed $27.8 million during the quarter, $27.0 million of first lien
debt and $0.8 million of equity. The debt investments made during the
quarter had a weighted average yield of 10.8%
Management Commentary
In describing the Company’s first quarter results, Joseph B. Alala, III,
Chairman and Chief Executive Officer, stated, “Operationally, our first
quarter net investment income exceeded distributions, while NAV per
share declined only slightly to $13.66 per share. All debt investments
made during the quarter were senior debt structures, while 85% of all
debt investments made over the last seven quarters were senior
structures, thus validating the investment shift to less-risky and more
senior debt focused investment strategy. We continue to build out our
team of professionals, including the addition of a new partner who is
opening a full service office in New York. Lastly, we recently announced
the closing of a $1.0 billion pool of private capital, Capitala
Specialty Lending Corp., which will significantly benefit the Company by
providing substantial platform liquidity that allows the Company to be
an active co-investor in new deals irrespective of liquidity
limitations. Moreover, the Company benefits from the additional
resources resulting from the growth of the investment adviser, including
the addition of very talented seasoned professionals, the opening of new
full service offices, and the upgrading of our investment adviser’s
technology and software resources.”
First Quarter 2018 Financial Results
During the first quarter of 2018, the Company originated $27.8 million
of new investments, and received $21.4 million of repayments. Debt
investments represented 97% of first quarter investment activity, all of
which were first lien structures. The weighted average annualized yield
on the first quarter debt investments was 10.8%.
Total investment income was $12.6 million for the first quarter of 2018,
compared to $14.8 million in the first quarter of 2017. Interest, fee
and PIK income collectively were $1.8 million lower in the first quarter
of 2018 compared to 2017, resulting from a decline in the Company’s
investment portfolio and the impact of higher non-accrual balances. All
other income decreased by $0.4 million from the comparable period.
Total expenses for the first quarter of 2018 were $8.1 million, compared
to $8.6 million for the comparable period in 2017. The decrease of $0.5
million is attributable to (1) a decrease in interest and financing
expenses of $0.3 million, (2) a decrease of $0.1 million in incentive
fees, net of the waiver, and (3) a $0.1 million decrease in all other
expenses.
Net investment income for the first quarter of 2018 was $4.4 million, or
$0.28 per share, compared to $6.2 million, or $0.39 per share, for the
same period in 2017.
Net realized losses totaled $3.9 million, or $0.24 per share, for the
first quarter of 2018, compared to net gains of $4.8 million, or $0.31
per share, for the same period in 2017. During the quarter, the Company
realized a loss related to American Exteriors, LLC ($4.6 million),
partially offset by other gains totaling $0.7 million.
Net unrealized depreciation totaled $0.4 million, or $0.02 per share,
for the first quarter of 2018, compared to depreciation of $6.2 million
for the first quarter of 2017.
During the first quarter of 2018, the Company recorded a tax expense of
$50 thousand primarily related to net income from our blocker
corporation. There was no tax provision for the first quarter of 2017.
The net increase in net assets resulting from operations was $0.1
million for the first quarter of 2018, or $0.01 per share, compared to a
net increase of $4.9 million, or $0.31 per share, for the same period in
2017.
Investment Portfolio
As of March 31, 2018, our portfolio consisted of 46 companies with a
fair market value of $503.7 million and a cost basis of $469.2 million.
First lien debt investments represented 51.0% of the portfolio, second
lien debt investments represented 6.3% of the portfolio, subordinated
debt investments represented 18.4% of the portfolio, and equity/warrant
investments represented 24.3% of the portfolio, based on fair values at
March 31, 2018. On a cost basis, equity investments comprised 12.0% of
the portfolio at March 31, 2018. The weighted average yield on our debt
portfolio was 12.0% at March 31, 2018, compared to 11.9% at December 31,
2017.
At March 31, 2018, we had debt investments in three portfolio companies
on non-accrual status with a fair value and cost basis of $20.2 million
and $44.4 million, respectively. Non-accrual loans, on a fair value and
cost basis, represent 4.0% and 9.5%, respectively, of the portfolio at
March 31, 2018. At December 31, 2017, the fair value of the non-accrual
investments was $25.0 million, with a cost basis of $50.1 million.
Liquidity and Capital Resources
At March 31, 2018, the Company had $25.7 million in cash and cash
equivalents. In addition, the Company had SBA debentures outstanding
totaling $170.7 million with an annual weighted average interest rate of
3.29%, $75.0 million of fixed rate notes bearing an interest rate of
6.00%, and $52.1 million of convertible notes bearing an interest rate
of 5.75%. At March 31, 2018, the Company had $12.0 million outstanding
and $102.5 million available under its senior secured revolving credit
facility, which is priced at LIBOR plus 3.0%. The Company’s regulatory
leverage ratio at March 31, 2018 was 0.64x, compared to 0.61x at
December 31, 2017.
Subsequent Events
On April 2, 2018, the Company restructured its investment in Cedar
Electronics Holdings Corp., exchanging its $21.6 million subordinated
debt investment for 4,759,250 Class C Preferred Units, 16,562,190 Class
D Preferred Units, and 19.04% of the Class E Common Units of Cedar
Ultimate Parent, LLC.
First Quarter 2018 Financial Results Conference Call
Management will host a conference call to discuss the operating and
financial results at 8:30 a.m. on Tuesday, May 8, 2018. To participate
in the conference call, please dial 1-877-312-5507 approximately 10
minutes prior to the call. A live webcast of the conference will be
available at http://investor.CapitalaGroup.com.
About Capitala Finance Corp.
Capitala Finance Corp. is a business development company that invests
primarily in first and second liens, subordinated debt and, to lesser
extent, equity securities issued by lower and traditional middle-market
companies. The Company is managed by Capitala Investment Advisors, LLC.
For more information on Capitala, or to automatically receive email
notifications of Company financial information, press releases, stock
alerts, or other corporate filings, please visit the Investor
Relations section of our website.
About Capitala Group
Capitala Group is a leading provider of capital to lower and traditional
middle market companies, through its family of credit focused funds.
Since 1998, Capitala Group’s managed funds have participated in over 145
transactions, representing over $1.4 billion of investments in a variety
of industries throughout North America. Capitala’s approach to
investing, whether in its growth fund strategy or its lower middle
market credit strategy, has proven to be a reliable and attractive
financing solution to our partners. Capitala Group manages both public
capital (Capitala Finance Corp.) (Nasdaq:CPTA) and private capital
(Capitala Private Credit Fund V L.P.; CapitalSouth SBIC Fund IV, L.P.;
and Capitala Specialty Lending Corp.) for institutional and individual
investors, and seeks to partner with strong management teams to create
value and serve as long term partners. For more information, please
visit www.CapitalaGroup.com.
Forward-Looking Statements
This press release contains certain forward-looking statements. Words
such as “believes,” “intends,” “expects,” “projects,” “anticipates,” and
“future” or similar expressions are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of
future performance, condition or results and involve a number of risks
and uncertainties. Actual results may differ materially from those in
the forward-looking statements as a result of a number of factors,
including those described from time to time in the Company’s filings
with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as may be required by law.
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| Capitala Finance Corp. |
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| Consolidated Statements of Assets and Liabilities |
| (in thousands, except share and per share data) |
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As of |
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March 31, 2018 |
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December 31, 2017 |
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(unaudited) |
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ASSETS
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Investments at fair value
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Non-control/non-affiliate investments (amortized cost of $278,716
and $298,132, respectively)
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$
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271,092
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$
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288,374
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Affiliate investments (amortized cost of $99,167 and $77,336,
respectively)
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125,012
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103,957
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Control investments (amortized cost of $91,319 and $89,559,
respectively)
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107,618
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107,608
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Total investments at fair value (amortized cost of $469,202 and
$465,027, respectively)
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503,722
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499,939
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Cash and cash equivalents
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25,720
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31,221
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Interest and dividend receivable
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3,090
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2,976
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Due from related parties
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-
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95
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Prepaid expenses
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275
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309
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Other assets
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57
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55
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Total assets
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$
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532,864
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$
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534,595
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LIABILITIES
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SBA debentures (net of deferred financing costs of $2,146 and
$2,300, respectively)
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$
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168,554
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$
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168,400
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2022 Notes (net of deferred financing costs of $2,371 and $2,496,
respectively)
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72,629
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72,504
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2022 Convertible Notes (net of deferred financing costs of $1,504
and $1,583, respectively)
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50,584
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50,505
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Credit Facility (net of deferred financing costs of $1,186 and
$1,293, respectively)
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10,814
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7,707
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Management and incentive fee payable
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2,446
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2,172
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Interest and financing fees payable
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1,479
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3,141
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Trade settlement payable
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-
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175
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Deferred tax liability, net
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1,339
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1,289
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Written call option at fair value (proceeds of $20 and $20,
respectively)
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6,815
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6,815
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Total liabilities
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$
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314,660
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$
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312,708
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NET ASSETS
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Common stock, par value $.01, 100,000,000 common shares
authorized, 15,974,218 and 15,951,231 common shares issued and
outstanding, respectively
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$
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160
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$
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160
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Additional paid in capital
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241,191
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241,027
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Undistributed net investment income
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16,304
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15,854
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Accumulated net realized losses from investments
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(65,837
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)
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(61,982
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)
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Net unrealized appreciation on investments, net of deferred taxes
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33,181
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33,623
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Net unrealized depreciation on written call option
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(6,795
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)
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(6,795
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)
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Total net assets
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$
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218,204
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$
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221,887
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Total liabilities and net assets
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$
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532,864
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$
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534,595
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Net asset value per share
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$
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13.66
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$
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13.91
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| Capitala Finance Corp. |
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| Consolidated Statements of Operations |
| (in thousands, except share and per share data) |
| (unaudited) |
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For the Three Months Ended March 31 |
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2018 |
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2017 |
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INVESTMENT INCOME
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Interest and fee income:
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Non-control/non-affiliate investments
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$
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7,356
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$
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9,638
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Affiliate investments
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1,941
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1,044
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Control investments
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1,849
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1,988
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Total interest and fee income
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11,146
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12,670
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Payment-in-kind interest and dividend income:
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Non-control/non-affiliate investments
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705
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1,178
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Affiliate investments
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486
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|
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231
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Control investments
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166
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|
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246
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Total payment-in-kind interest and dividend income
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1,357
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1,655
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Dividend income:
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Non-control/non-affiliate investments
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-
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168
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Affiliate investments
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29
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29
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Control investments
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25
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280
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Total dividend income
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54
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477
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Interest income from cash and cash equivalents
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15
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13
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Total investment income
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12,572
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14,815
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EXPENSES
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Interest and financing expenses
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4,364
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4,653
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Base management fee
|
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2,303
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|
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2,514
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Incentive fees
|
|
|
|
244
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|
|
|
|
1,308
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General and administrative expenses
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1,223
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|
|
|
|
1,107
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Expenses before incentive fee waiver
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|
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8,134
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|
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9,582
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Incentive fee waiver
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-
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(958
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)
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Total expenses, net of fee waivers
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8,134
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8,624
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NET INVESTMENT INCOME
|
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4,438
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6,191
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL
OPTION:
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Net realized gain (loss) from investments:
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Non-control/non-affiliate investments
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|
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(4,579
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)
|
|
|
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4,831
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Affiliate investments
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|
|
|
724
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|
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|
15
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|
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Net realized gain (loss) from investments
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|
|
|
(3,855
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)
|
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|
4,846
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Net unrealized appreciation (depreciation) on investments:
|
|
|
|
|
|
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Non-control/non-affiliate investments
|
|
|
|
2,134
|
|
|
|
|
(6,395
|
)
|
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Affiliate investments
|
|
|
|
(776
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)
|
|
|
|
225
|
|
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Control investments
|
|
|
|
(1,750
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)
|
|
|
|
1,499
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Net unrealized depreciation from investments
|
|
|
|
(392
|
)
|
|
|
|
(4,671
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)
|
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Net unrealized depreciation on written call option
|
|
|
|
-
|
|
|
|
|
(1,485
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)
|
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Net loss on investments and written call option
|
|
|
|
(4,247
|
)
|
|
|
|
(1,310
|
)
|
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Tax provision
|
|
|
|
(50
|
)
|
|
|
|
-
|
|
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Total net realized and unrealized loss on investments and written
call option, net of taxes
|
|
|
|
(4,297
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)
|
|
|
|
(1,310
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)
|
|
|
|
|
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NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
|
$
|
141
|
|
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|
$
|
4,881
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NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS –
BASIC AND DILUTED
|
|
|
$
|
0.01
|
|
|
|
$
|
0.31
|
|
|
|
|
|
|
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WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED
|
|
|
|
15,959,215
|
|
|
|
|
15,873,655
|
|
|
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DISTRIBUTIONS PAID PER SHARE
|
|
|
$
|
0.25
|
|
|
|
$
|
0.39
|
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View source version on businesswire.com: https://www.businesswire.com/news/home/20180507005063/en/
Source: Capitala Finance Corp.
Capitala Finance Corp.
Stephen Arnall, 704-376-5502
Chief
Financial Officer
sarnall@capitalagroup.com
