Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) ("FSFR" or
"we") announces its financial results for the fourth quarter and
year ended September 30, 2015.
Fourth Fiscal Quarter 2015 Financial
Highlights
- Net investment income for the quarter ended September 30,
2015 was $7.4 million or $0.25 per share, as compared to $2.3
million or $0.13 per share for the quarter ended September 30,
2014;
- Net asset value per share was $12.11 as of September 30,
2015; and
- We closed $103.7 million of investments during the quarter
ended September 30, 2015.
Fiscal Year 2015 Financial Highlights
- Adjusted net investment income for the year ended
September 30, 2015 (excluding a one-time debt securitization
charge) was $29.5 million or $1.00 per share, as compared to $5.8
million or $0.62 per share for the year ended September 30,
2014. Including the one-time debt securitization charge, net
investment income for the year ended September 30, 2015 was
$28.3 million or $0.96 per share; and
- Net increase in net assets resulting from operations for the
year ended September 30, 2015 was $15.9 million, or $0.54 per
share, as compared to $9.4 million, or $1.01 per share, for the
year ended September 30, 2014.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our
investment portfolio at September 30, 2015 to be $623.6
million, as compared to $300.0 million at September 30,
2014. Total assets were $697.7 million at September 30,
2015, as compared to $412.5 million at September 30, 2014.
During the quarter ended September 30, 2015, we closed
$103.7 million of investments in 25 new and one existing portfolio
companies, and funded $108.7 million across new and existing
portfolio companies. This compares to closing $139.9 million
in 12 new and two existing portfolio companies and funding $140.0
million during the quarter ended September 30, 2014. During
the quarter ended September 30, 2015, we also received $106.5
million in connection with full or partial payoffs of our debt
investments, all of which were exited at or above par, and sales of
debt investments.
At September 30, 2015, our portfolio consisted of
investments in 64 companies. 90.7% of our portfolio at fair
value consisted of senior secured floating rate debt investments,
and 9.2% of the portfolio consisted of investments in the
subordinated notes and LLC equity interests of FSFR Glick JV LLC
("FSFR Glick JV"). The portfolio remained diversified and our
average portfolio company debt investment size at fair value was
$9.7 million at September 30, 2015. The average
portfolio company EBITDA was $62.5 million as of September 30,
2015, and investments in the energy sector represented only 0.7% of
our portfolio at fair value.
As of September 30, 2015, FSFR Glick JV had $190.4 million
in assets, including senior secured loans to 29 portfolio
companies. The joint venture generated income of $1.7 million
for FSFR during the fourth fiscal quarter, which represented a
12.4% weighted average annualized return on investment.
Our weighted average cash yield on debt investments, including
the return on FSFR Glick JV, was 8.1% at September 30, 2015,
which increased from 7.2% at September 30, 2014. We
effectively utilized our attractively priced leverage and operated
within our target range of 0.8x to 0.9x debt-to-equity during the
quarter ended September 30, 2015.
"As part of our mission to deliver strong and sustainable
performance for FSFR shareholders, we are pleased to announce that
during the September quarter, FSFR generated net investment income
in excess of its dividend, providing for additional operating
flexibility,” stated Chief Executive Officer, Ivelin M. Dimitrov,
adding, “We continue to operate within our target leverage range,
building a diverse portfolio of senior secured loans with stable
credit quality and limited exposure to cyclical industries, such as
energy."
Results of Operations
Total investment income for the quarter ended September 30,
2015 was $14.1 million, primarily consisting of $11.7 million of
interest income and $1.7 million of fee income from portfolio
investments. For the quarter ended September 30, 2014, total
investment income was $4.9 million, which consisted of $3.4 million
of interest income and $1.5 million of fee income from portfolio
investments.
Total investment income for the years ended September 30, 2015
and September 30, 2014 was $51.5 million and $12.5 million,
respectively. For the year ended September 30, 2015, this
amount primarily consisted of $41.1 million of interest income from
portfolio investments and $9.7 million of fee income. For the year
ended September 30, 2014, this amount primarily consisted of
$10.5 million of interest income from portfolio investments and
$2.0 million of fee income.
The increase in our total investment income for the year ended
September 30, 2015, as compared to the year ended
September 30, 2014, was primarily attributable to higher
average levels of outstanding debt investments, which was
principally due to a net increase of 16 debt investments in our
portfolio year over year and an increase in fees related to
investment activity, partially offset by amortization repayments
received on our debt investments.
Net expenses for the quarters ended September 30, 2015 and
September 30, 2014 were $6.7 million and $2.6 million,
respectively. Net expenses for the years ended
September 30, 2015 and September 30, 2014 were $23.2
million and $6.8 million, respectively. Net expenses increased for
the year ended September 30, 2015 as compared to the year
ended September 30, 2014 by $16.4 million. This was due
primarily to increases in:
- Base management fee, which was attributable to $346.1 million
of net funded deal originations during the year;
- Incentive fee, which was attributable to a $26.0 million
increase in pre-incentive fee net investment income for the
year-over-year period; and
- Interest expense, which was attributable to a $193.4 million
increase in weighted average debt outstanding for the
year-over-year period, as well as a one-time charge of $2.1 million
related to a debt securitization that closed in May 2015.
The following table presents a reconciliation of net investment
income to adjusted net investment income (excluding the one-time
debt securitization charge) for the years ended September 30,
2015 and September 30, 2014:
|
Year ended September 30, 2015 |
|
Year ended September 30, 2014 |
Net investment
income |
$ |
28,278,030 |
|
|
$ |
5,763,881 |
Adjustment for one-time
debt securitization charge, net of reduction in incentive fee |
1,246,287 |
|
|
— |
Adjusted net
investment income |
$ |
29,524,317 |
|
|
$ |
5,763,881 |
Weighted average common
shares outstanding - basic and diluted |
29,466,768 |
|
|
9,290,330 |
Adjusted net
investment income per share |
$ |
1.00 |
|
|
$ |
0.62 |
Net realized and unrealized gains (losses) on our investment
portfolio for the quarters ended September 30, 2015 and September
30, 2014 were ($7.1 million) and $2.1 million, respectively.
Net realized and unrealized gains (losses) on our investment
portfolio for the years ended September 30, 2015 and September 30,
2014 were ($12.4 million) and $3.6 million, respectively. For
the quarter ended September 30, 2015, approximately half of the net
losses on our portfolio were due to market movements, as increased
volatility in loan prices driven by the market dislocation that
occurred during the quarter negatively affected our investment
valuations accordingly.
During our September 30, 2015 fiscal year-end audit work, we
identified errors in the recognition of fee income since inception
through 2015. These errors mainly affected the timing of fee
income recognition and were partially offset by the net overpayment
of Part I and Part II fees to our investment adviser. In
aggregate over the two year period, we prematurely recognized $8.1
million in revenue and paid $1.5 million in Part I and Part II
fees, which resulted in a cumulative overstatement to net
investment income of $6.6 million. In addition, we
understated our net assets by $1.5 million as of June 30,
2015. We assessed the materiality of the errors on our prior
quarterly and annual financial statements, both quantitatively and
qualitatively, in accordance with the SEC’s Staff Accounting
Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the
errors were not material to any of our previously issued financial
statements.
Under the SAB No. 99 and SAB No. 108 framework, we concluded the
cumulative corrections of these errors would be qualitatively
material to our quarterly financial statements within the 2015
fiscal year and, therefore, it is not appropriate to recognize the
cumulative corrections in any 2015 period. Accordingly, we
have revised our prior period financials to reflect the adjustments
related to the fiscal years of 2013 and 2014, as well as the first
three quarters of 2015.
The $1.5 million of cumulative premature payments of Part I and
Part II fees will be fully refunded by the limited partners of
Fifth Street Holdings LP, the owner of our investment adviser, by
December 31, 2015, and the prior period financial impacts have been
reflected in FSFR's September 30, 2015 Form 10-K.
Liquidity and Capital Resources
As of September 30, 2015, we had $52.7 million of cash and
cash equivalents (including restricted cash), portfolio investments
(at fair value) of $623.6 million, receivables from unsettled
transactions of $13.5 million, payables from unsettled transactions
of $11.8 million, $136.7 million of borrowings outstanding under
our Citibank credit facility and $186.4 million of borrowings
outstanding under our debt securitization.
As of September 30, 2014, we had $109.6 million of cash and
cash equivalents (including restricted cash), portfolio investments
(at fair value) of $300.0 million, distribution payable of $8.8
million and payables from unsettled transactions of $27.9
million.
Dividend Declaration
On November 30, 2015, our Board of Directors declared the
following distributions:
- $0.075 per share, payable on December 22, 2015 to stockholders
of record on December 11, 2015;
- $0.075 per share, payable on January 15, 2016 to stockholders
of record on January 4, 2016; and
- $0.075 per share, payable on February 16, 2016 to stockholders
of record on February 5, 2016.
Dividends are paid primarily from distributable (taxable)
income. To the extent our taxable earnings for a fiscal taxable
year fall below the total amount of our dividend distributions for
that fiscal year, a portion of those distributions may be deemed a
return of capital to our stockholders. Our Board of Directors
determines dividends based on estimates of distributable (taxable)
income, which differ from book income due to temporary and
permanent differences in income and expense recognition and changes
in unrealized appreciation and depreciation on investments.
Non-GAAP Financial Measures
Certain of the terms used in this press release, including
Adjusted Net Investment Income, may not be comparable to similarly
titled measures used by other companies. Further, Adjusted Net
Investment Income is not a performance measure calculated in
accordance with GAAP. Adjusted Net Investment Income has been
included in this press release to adjust Net Investment Income, the
most comparable GAAP financial measure, for certain one-time and
non-recurring items. We use Adjusted Net Investment Income as a
measure of our operating performance, not as a measure of
liquidity. We believe that the use of Adjusted Net Investment
Income provides investors with a meaningful indication of our core
operating performance and the use of Adjusted Net Investment Income
is evaluated regularly by our management as a decision tool for
deployment of resources. The use of Adjusted Net Investment Income
has limitations as an analytical tool and should not be considered
in isolation or as a substitute for analyzing our results prepared
in accordance with GAAP due to the adjustments described herein.
Please refer to the chart herein for a reconciliation of Net
Investment Income to Adjusted Net Investment Income.
Portfolio Asset Quality
We utilize the following investment ranking system for our
investment portfolio:
- Investment Ranking 1 is used for investments that are
performing above expectations and/or capital gains are
expected.
- Investment Ranking 2 is used for investments that are
performing substantially within our expectations, and whose risks
remain materially consistent with the potential risks at the time
of the original or restructured investment. All new
investments are initially ranked 2.
- Investment Ranking 3 is used for investments that are
performing below our expectations and for which risk has materially
increased since the original or restructured investment. The
portfolio company may be out of compliance with debt covenants and
may require closer monitoring.
- Investment Ranking 4 is used for investments that are
performing substantially below our expectations and for which risk
has increased substantially since the original or restructured
investment. Investments with a ranking of 4 are those for
which some loss of principal is expected and are generally those on
which we are not accruing cash interest.
At September 30, 2015 and September 30, 2014, the
distribution of our investments on the 1 to 4 investment ranking
scale at fair value was as follows:
Investment Ranking |
|
September 30, 2015 |
|
September 30, 2014 |
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
1 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
2 |
|
$ |
596,955,786 |
|
|
95.72 |
% |
|
4.71 |
|
|
$ |
300,001,397 |
|
|
100.00 |
% |
|
4.48 |
|
3 |
|
26,691,688 |
|
|
4.28 |
|
|
5.87 |
|
|
— |
|
|
— |
|
|
— |
|
4 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
|
$ |
623,647,474 |
|
|
100.00 |
% |
|
4.76 |
|
|
$ |
300,001,397 |
|
|
100.00 |
% |
|
4.48 |
|
We may from time to time modify the payment terms of our
investments, either in response to current economic conditions and
their impact on certain of our portfolio companies or in accordance
with tier pricing provisions in certain loan agreements. As
of September 30, 2015, we had modified the payment terms of
our investments in two portfolio companies. These
modifications, and any future modifications to our loan agreements,
may limit the amount of interest income that we recognize from the
modified investments, which may, in turn, limit our ability to make
distributions to our stockholders.
We added one investment to noncash non-accrual status during the
quarter ended September 30, 2015. While this investment was
current with its cash interest payments, we reversed approximately
$14,000 of OID income related to this investment for the
quarter.
Fifth Street
Senior Floating Rate Corp. |
|
Consolidated
Statements of Assets and Liabilities |
(audited) |
|
|
|
September 30, 2015 |
|
September 30, 2014 |
ASSETS |
|
|
Investments at
fair value: |
|
|
|
|
Control investments (cost September
30, 2015: $58,977,973; cost September 30, 2014: $0) |
|
$ |
57,156,921 |
|
|
$ |
— |
|
Non-control/Non-affiliate
investments (cost September 30, 2015: $574,538,984; cost September
30, 2014: $297,098,712) |
|
566,490,553 |
|
|
300,001,397 |
|
Total investments
at fair value (cost September 30, 2015:
$633,516,957; cost September 30, 2014:
$297,098,712) |
|
623,647,474 |
|
|
300,001,397 |
|
Cash and cash
equivalents |
|
41,433,301 |
|
|
107,429,760 |
|
Restricted cash |
|
11,258,796 |
|
|
2,127,405 |
|
Interest, dividends and
fees receivable |
|
2,783,379 |
|
|
1,120,010 |
|
Due from portfolio
companies |
|
11,587 |
|
|
200,840 |
|
Receivables from unsettled
transactions |
|
13,541,056 |
|
|
— |
|
Deferred financing
costs |
|
5,001,675 |
|
|
1,625,932 |
|
Other assets |
|
33,216 |
|
|
— |
|
Total
assets |
|
$ |
697,710,484 |
|
|
$ |
412,505,344 |
|
LIABILITIES AND NET ASSETS |
|
|
Liabilities: |
|
|
|
|
Accounts payable, accrued expenses
and other liabilities |
|
$ |
1,964,249 |
|
|
$ |
1,213,683 |
|
Base management fee payable |
|
1,656,205 |
|
|
475,437 |
|
Part I incentive fee payable |
|
253,076 |
|
|
77,803 |
|
Part II incentive fee payable |
|
145,898 |
|
|
912,450 |
|
Due to FSC CT |
|
379,641 |
|
|
239,617 |
|
Interest payable |
|
1,669,012 |
|
|
205,646 |
|
Distributions payable |
|
— |
|
|
8,840,030 |
|
Payables from unsettled
transactions |
|
11,809,500 |
|
|
27,863,000 |
|
Credit facility payable |
|
136,659,800 |
|
|
— |
|
Notes payable |
|
186,366,000 |
|
|
— |
|
Total
liabilities |
|
340,903,381 |
|
|
39,827,666 |
|
Commitments and
contingencies |
|
|
|
|
Net
assets: |
|
|
|
|
Common stock, $0.01 par value,
150,000,000 shares authorized; 29,466,768 shares issued and
outstanding at September 30, 2015 and September 30, 2014 |
|
294,668 |
|
|
294,668 |
|
Additional paid-in-capital |
|
373,995,934 |
|
|
374,101,816 |
|
Net unrealized appreciation
(depreciation) on investments |
|
(9,869,483 |
) |
|
2,902,685 |
|
Net realized gain on
investments |
|
1,800,070 |
|
|
1,115,453 |
|
Accumulated overdistributed net
investment income |
|
(9,414,086 |
) |
|
(5,736,944 |
) |
Total net assets
(equivalent to $12.11 and $12.65 per common share at September 30,
2015 and September 30, 2014, respectively) |
|
356,807,103 |
|
|
372,677,678 |
|
Total liabilities
and net assets |
|
$ |
697,710,484 |
|
|
$ |
412,505,344 |
|
Fifth Street
Senior Floating Rate Corp. |
|
Consolidated
Statements of Operations |
(audited) |
|
|
|
Three months ended September 30,
2015 |
|
Three months ended September 30,
2014 |
|
Year ended September 30, 2015 |
|
Year ended September 30, 2014 |
Interest
income: |
|
|
|
|
|
|
|
|
Control investments |
|
$ |
1,015,914 |
|
|
$ |
— |
|
|
$ |
1,770,130 |
|
|
$ |
— |
|
Non-control/Non-affiliate
investments |
|
10,673,916 |
|
|
3,440,028 |
|
|
39,269,556 |
|
|
10,468,094 |
|
Interest on cash and cash
equivalents |
|
12,344 |
|
|
6,319 |
|
|
28,571 |
|
|
8,889 |
|
Total interest
income |
|
11,702,174 |
|
|
3,446,347 |
|
|
41,068,257 |
|
|
10,476,983 |
|
Fee
income: |
|
|
|
|
|
|
|
|
Non-control/Non-affiliate
investments |
|
1,709,630 |
|
|
1,471,506 |
|
|
9,673,649 |
|
|
2,039,691 |
|
Total fee
income |
|
1,709,630 |
|
|
1,471,506 |
|
|
9,673,649 |
|
|
2,039,691 |
|
Dividend and other
income: |
|
|
|
|
|
|
|
|
Control investments |
|
656,250 |
|
|
— |
|
|
730,625 |
|
|
— |
|
Total dividend and other
income |
|
656,250 |
|
|
— |
|
|
730,625 |
|
|
— |
|
Total investment
income |
|
14,068,054 |
|
|
4,917,853 |
|
|
51,472,531 |
|
|
12,516,674 |
|
Expenses: |
|
|
|
|
|
|
|
|
Base management fee |
|
1,656,205 |
|
|
630,312 |
|
|
5,931,155 |
|
|
1,757,492 |
|
Part I incentive fee |
|
1,854,021 |
|
|
652,762 |
|
|
5,689,371 |
|
|
708,235 |
|
Part II incentive fee |
|
— |
|
|
468,727 |
|
|
(766,552 |
) |
|
774,841 |
|
Professional fees |
|
227,179 |
|
|
253,781 |
|
|
985,607 |
|
|
827,447 |
|
Board of Directors fees |
|
95,150 |
|
|
55,833 |
|
|
359,700 |
|
|
185,083 |
|
Interest expense |
|
2,196,506 |
|
|
442,768 |
|
|
8,950,703 |
|
|
1,555,767 |
|
Administrator expense |
|
218,382 |
|
|
153,272 |
|
|
794,725 |
|
|
514,861 |
|
General and administrative
expenses |
|
418,344 |
|
|
118,080 |
|
|
1,249,792 |
|
|
583,942 |
|
Total
expenses |
|
6,665,787 |
|
|
2,775,535 |
|
|
23,194,501 |
|
|
6,907,668 |
|
Base management fee waived |
|
— |
|
|
(154,875 |
) |
|
— |
|
|
(154,875 |
) |
Net
expenses |
|
6,665,787 |
|
|
2,620,660 |
|
|
23,194,501 |
|
|
6,752,793 |
|
Net investment
income |
|
7,402,267 |
|
|
2,297,193 |
|
|
28,278,030 |
|
|
5,763,881 |
|
Realized and
unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
Control investments |
|
(1,249,342 |
) |
|
— |
|
|
(1,821,052 |
) |
|
— |
|
Non-control/Non-affiliate
investments |
|
(5,865,593 |
) |
|
2,069,507 |
|
|
(10,544,896 |
) |
|
3,600,076 |
|
Net realized and
unrealized gain (loss) on investments |
|
(7,114,935 |
) |
|
2,069,507 |
|
|
(12,365,948 |
) |
|
3,600,076 |
|
Net increase in
net assets resulting from operations |
|
$ |
287,332 |
|
|
$ |
4,366,700 |
|
|
$ |
15,912,082 |
|
|
$ |
9,363,957 |
|
Net investment
income per common share — basic and diluted |
|
$ |
0.25 |
|
|
$ |
0.13 |
|
|
$ |
0.96 |
|
|
$ |
0.62 |
|
Earnings per
common share — basic and diluted |
|
$ |
0.01 |
|
|
$ |
0.26 |
|
|
$ |
0.54 |
|
|
$ |
1.01 |
|
Weighted average common
shares outstanding — basic and diluted |
|
29,466,768 |
|
|
17,075,464 |
|
|
29,466,768 |
|
|
9,290,330 |
|
Distributions per
common share |
|
$ |
0.18 |
|
|
$ |
0.30 |
|
|
$ |
1.07 |
|
|
$ |
1.01 |
|
Conference Call Information
We will hold a conference call at 11:00 a.m. (Eastern Time) on
Tuesday, December 15, 2015, to discuss our fourth quarter and
fiscal year end financial results. All interested parties are
welcome to participate. Domestic callers can access the conference
call by dialing (877) 369-6549. International callers can access
the conference call by dialing +1 (330) 863-3349. All callers will
need to enter the Conference ID Number 55957046 and reference
"Fifth Street Senior Floating Corp." after being connected with the
operator. All callers are asked to dial in 10-15 minutes prior to
the call so that name and company information can be
collected. An archived replay of the call will be available
approximately four hours after the end of the conference call and
will be available through December 23, 2015 to domestic callers by
dialing (855) 859-2056 and to international callers by dialing +1
(404) 537-3406. For all replays, please reference Conference ID
Number 55357046. An archived replay will also be available
online on the "Investor Relations" section of FSFR's website under
the "News & Events - Calendar of Events" section.
About Fifth Street Senior Floating Rate Corp.
Fifth Street Senior Floating Rate Corp. is a specialty finance
company that provides financing solutions in the form of floating
rate senior secured loans to mid-sized companies, primarily in
connection with investments by private equity sponsors.
FSFR's investment objective is to maximize its portfolio's total
return by generating current income from its debt investments while
seeking to preserve its capital. The company has elected to
be regulated as a business development company and is externally
managed by a subsidiary of Fifth Street Asset Management Inc.
(NASDAQ:FSAM), a nationally recognized credit-focused asset manager
with over $5 billion in assets under management across multiple
public and private vehicles. With a track record of over 17
years, Fifth Street's platform has the ability to hold loans up to
$250 million and structure and syndicate transactions up to $500
million. Fifth Street received the 2015 ACG New York
Champion's Award for "Lender Firm of the Year," and other
previously received accolades include the ACG New York Champion's
Award for "Senior Lender Firm of the Year," "Lender Firm of the
Year" by The M&A Advisor and "Lender of the Year" by Mergers
& Acquisitions. FSFR's website can be found at
fsfr.fifthstreetfinance.com.
Forward-Looking Statements
This press release may contain certain forward-looking
statements, including statements with regard to the future
performance of the company. Words such as "believes,"
"expects," "estimates," "projects," "anticipates," and "future" or
similar expressions are intended to identify forward-looking
statements. These forward-looking statements are subject to
the inherent uncertainties in predicting future results and
conditions. Certain factors could cause actual results to
differ materially from those projected in these forward-looking
statements, and these factors are identified 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.
CONTACT:
Investor Contact:
Robyn Friedman, Senior Vice President, Head of Investor Relations
(203) 681-3720
ir@fifthstreetfinance.com
Media Contact:
Tom Becker
Sitrick And Company
(212) 573-6100
Tom_Becker@sitrick.com
Fifth Str SR Floating Rate Corp (NASDAQ:FSFR)
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Fifth Str SR Floating Rate Corp (NASDAQ:FSFR)
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