Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) ("FSFR" or
"we") today announced its financial results for the fourth fiscal
quarter and year ended September 30, 2016.
Fourth Fiscal Quarter 2016 Financial
Highlights
- Net investment income of $6.3 million, or $0.22 per share;
- Net asset value per share increased to $11.06 as of
September 30, 2016;
- Closed $28.2 million of new investments; and
- Reported only one investment on non-accrual status at
September 30, 2016, representing 1.3% of the portfolio at fair
value.
Fiscal Year 2016 Financial Highlights
- Net investment income of $25.3 million, or $0.86 per share;
and
- Closed $284.4 million of new investments.
“The September quarter was marked by credit stability and an
increase in NAV driven by spread tightening in the middle
market. We like the positioning of our portfolio, with very
low exposure to cyclical industries and a focus on companies that
operate in high cash flow sectors,” stated Ivelin M. Dimitrov,
FSFR's Chief Executive Officer. “Looking ahead, we plan to
continue operating within our target leverage range and further
fund the FSFR Glick joint venture in an effort to deliver strong
returns to our shareholders.”
Portfolio and Investment Activity
FSFR's Board of Directors determined the fair value of our
investment portfolio at September 30, 2016 to be $573.6
million, as compared to $623.6 million at September 30,
2015. Total assets were $624.9 million at September 30,
2016, as compared to $697.7 million at September 30, 2015.
During the quarter ended September 30, 2016, we closed
$28.2 million of investments in four new portfolio companies and
funded $26.2 million across new and existing portfolio
companies. This compares to closing $103.7 million of
investments in 25 new and one existing portfolio companies, and
funding $108.7 million across new and existing portfolio companies
during the quarter ended September 30, 2015. During the
quarter ended September 30, 2016, we received $25.6 million in
connection with full repayments of four of our debt investments,
all of which were exited at or above par, and an additional $28.2
million in connection with paydowns, syndications and sales of debt
investments.
At September 30, 2016, our portfolio consisted of
investments in 63 companies. At fair value, 87.6% of our
portfolio consisted of senior secured floating rate debt
investments, and 11.0% consisted of investments in the subordinated
notes and LLC equity interests of FSFR Glick JV LLC ("FSFR Glick
JV") and 1.4% consisted of equity investments. Our average
portfolio company debt investment size at fair value was $8.9
million at September 30, 2016 versus $9.7 million at
September 30, 2015. The average portfolio company EBITDA
was $55.7 million at September 30, 2016, with only 0.7% of the
portfolio's fair value invested in the energy sector and no
exposure to CLO equity.
At September 30, 2016, FSFR Glick JV had $201.1 million in
assets, including senior secured loans to 36 portfolio
companies. The joint venture generated income of $2.1 million
for FSFR during the fourth fiscal quarter, which represented an
11.7% weighted average annualized return on investment.
Our weighted average yield on debt investments at
September 30, 2016, including the return on FSFR Glick JV, was
8.6%, and included a cash component of 8.3%. We utilized our
attractively priced leverage and operated within our target
leverage range of 0.8x to 0.9x debt-to-equity during the quarter,
ending the quarter at 0.90x leverage.
Results of Operations
Total investment income for the quarters ended September 30,
2016 and September 30, 2015 was $13.2 million and $14.1 million,
respectively. For the quarter ended September 30, 2016, the
amount primarily consisted of $12.2 million of cash interest income
from portfolio investments. For the quarter ended
September 30, 2015, this amount primarily consisted of $11.7
million of cash interest income from portfolio investments.
Total investment income for the years ended September 30, 2016
and September 30, 2015 was $53.4 million and $51.5 million,
respectively. For the year ended September 30, 2016, the
amount primarily consisted of $47.5 million of cash interest income
from portfolio investments. For the quarter ended
September 30, 2015, this amount primarily consisted of $41.1
million of cash interest income from portfolio investments.
Net expenses for the quarters ended September 30, 2016 and
September 30, 2015 were $6.9 million and $6.7 million,
respectively. Total expenses increased for the quarter ended
September 30, 2016 as compared to the quarter ended
September 30, 2015, due primarily to a $0.3 million increase
in interest expense and a $0.4 million increase in professional
fees, partially offset by a $0.5 million decrease in base
management fees and Part I incentive fees payable to our investment
adviser.
Net expenses for the years ended September 30, 2016 and
September 30, 2015 were $28.1 million and $23.2 million,
respectively. Total expenses increased for the year ended
September 30, 2016 as compared to the year ended
September 30, 2015, due primarily to a $3.2 million increase
in professional fees and a $0.6 million increase in interest
expense.
Net realized and unrealized gains (losses) on our investment
portfolio for the quarters ended September 30, 2016 and September
30, 2015 were $2.3 million and ($7.1 million), respectively.
Net realized and unrealized gains (losses) on our investment
portfolio for the years ended September 30, 2016 and September 30,
2015 were ($29.8 million) and ($12.4 million), respectively.
Liquidity and Capital Resources
At September 30, 2016, we had $28.8 million of cash and
cash equivalents (including $9.0 million of restricted cash),
portfolio investments (at fair value) of $573.6 million, $4.6
million of interest, dividends and fees receivable, $12.9 million
of receivables from unsettled transactions, $107.4 million of
borrowings outstanding under our revolving credit facilities,
$180.0 million of borrowings outstanding under our debt
securitization, $5.0 million of secured borrowings and unfunded
commitments of $52.8 million. Our regulatory leverage ratio
was 0.90x debt-to-equity.
At September 30, 2015, we had $52.7 million of cash and
cash equivalents (including $11.3 million of restricted cash),
portfolio investments (at fair value) of $623.6 million, $2.8
million of interest, dividends and fees receivable, $1.7 million of
net receivables from unsettled transactions, $136.7 million of
borrowings outstanding under our revolving credit facility, $186.4
million of borrowings outstanding under our debt securitization and
$76.8 million of unfunded commitments. Our regulatory
leverage ratio was 0.91x debt-to-equity.
Dividend Declaration
In addition to our previously declared dividend of $0.075 per
share, which was paid on November 30, 2016 to stockholders of
record on November 15, 2016, our Board of Directors met on October
19, 2016 and declared the following distributions:
- $0.075 per share, payable on December 30, 2016 to stockholders
of record on December 15, 2016;
- $0.075 per share, payable on January 31, 2017 to stockholders
of record on January 13, 2017; and
- $0.075 per share, payable on February 28, 2017 to stockholders
of record on February 15, 2017.
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.
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. To the extent that the
underlying agreement has a PIK interest provision, investments with
a ranking of 3 are generally those on which we are not accruing PIK
interest.
- 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, 2016 and September 30, 2015, the
distribution of our investments on the 1 to 4 investment ranking
scale at fair value was as follows:
Investment Ranking |
|
September 30, 2016 |
|
|
September 30, 2015 |
|
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
|
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
|
1 |
|
$ |
20,056,209 |
|
|
3.49 |
% |
|
3.80 |
|
|
— |
|
|
— |
|
|
— |
|
2 |
|
533,951,690 |
|
|
93.09 |
|
|
4.20 |
|
|
$ |
596,955,786 |
|
|
95.72 |
% |
|
4.71 |
|
3 |
|
12,440,322 |
|
|
2.17 |
|
|
NM |
(1 |
) |
|
26,691,688 |
|
|
4.28 |
|
|
5.87 |
|
4 |
|
7,156,160 |
|
|
1.25 |
|
|
NM |
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
Total |
|
$ |
573,604,381 |
|
|
100.00 |
% |
|
4.19 |
|
|
$ |
623,647,474 |
|
|
100.00 |
% |
|
4.76 |
|
_____________
(1) Due to operating performance this ratio is not measurable
and, as a result, is excluded from the total portfolio
calculation.
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, 2016, we had modified the payment terms of
our investments in five portfolio companies. Such modified
terms may include increased PIK interest rates and reduced cash
interest rates. 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.
As of September 30, 2016, there was one investment on which
we had stopped accruing cash and/or PIK interest or OID income that
represented 1.3% of our debt portfolio at fair value.
Recent Developments
On December 8, 2016, our Board of Directors appointed Patrick J.
Dalton as Chief Executive Officer and elected him as a member of
the Board of Directors, effective January 2, 2017, succeeding
Ivelin M. Dimitrov. In addition, Todd G. Owens will also step
down from his roles as President and a member of the Board of
Directors, effective January 2, 2017.
Fifth Street Senior Floating Rate
Corp.Consolidated Statements of Assets and
Liabilities(audited)
|
|
September 30, 2016 |
|
September 30, 2015 |
ASSETS |
|
|
Investments at
fair value: |
|
|
|
|
Control investments (cost September 30, 2016: $71,117,506; cost
September 30, 2015: $58,977,973) |
|
$ |
63,316,667 |
|
|
$ |
57,156,921 |
|
Affiliate investments (cost September 30, 2016: $15,953,798; cost
September 30, 2015: $0) |
|
13,006,458 |
|
|
— |
|
Non-control/Non-affiliate investments (cost September 30, 2016:
$513,397,659; cost September 30, 2015: $574,538,984) |
|
497,281,256 |
|
|
566,490,553 |
|
Total
investments at fair value (cost September 30, 2016:
$600,468,963; cost September 30, 2015:
$633,516,957) |
|
573,604,381 |
|
|
623,647,474 |
|
Cash and cash
equivalents |
|
19,778,841 |
|
|
41,433,301 |
|
Restricted cash |
|
9,036,838 |
|
|
11,258,796 |
|
Interest, dividends and
fees receivable |
|
4,579,935 |
|
|
2,783,379 |
|
Due from portfolio
companies |
|
336,429 |
|
|
11,587 |
|
Receivables from
unsettled transactions |
|
12,869,092 |
|
|
13,541,056 |
|
Deferred financing
costs |
|
4,577,369 |
|
|
5,001,675 |
|
Other assets |
|
148,492 |
|
|
33,216 |
|
Total
assets |
|
$ |
624,931,377 |
|
|
$ |
697,710,484 |
|
LIABILITIES AND NET ASSETS |
|
|
Liabilities: |
|
|
|
|
Accounts payable, accrued expenses and other liabilities |
|
$ |
1,246,286 |
|
|
$ |
1,911,599 |
|
Base management fee and incentive fee payable |
|
2,987,721 |
|
|
2,055,179 |
|
Due to FSC CT LLC |
|
402,073 |
|
|
379,641 |
|
Interest payable |
|
1,798,653 |
|
|
1,669,012 |
|
Payables from unsettled transactions |
|
— |
|
|
11,809,500 |
|
Amounts payable to syndication partners |
|
18,750 |
|
|
— |
|
Director fees payable |
|
236,275 |
|
|
52,650 |
|
Credit facilities payable |
|
107,426,800 |
|
|
136,659,800 |
|
Notes payable |
|
180,000,000 |
|
|
186,366,000 |
|
Secured borrowings at fair value (proceeds September 30, 2016:
$5,000,000; proceeds September 30, 2015: $0) |
|
4,985,425 |
|
|
— |
|
Total
liabilities |
|
299,101,983 |
|
|
340,903,381 |
|
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, 2016 and
September 30, 2015 |
|
294,668 |
|
|
294,668 |
|
Additional paid-in-capital |
|
373,995,934 |
|
|
373,995,934 |
|
Net unrealized depreciation on investments and secured
borrowings |
|
(26,850,007 |
) |
|
(9,869,483 |
) |
Net realized gain (loss) on investments |
|
(10,969,707 |
) |
|
1,800,070 |
|
Accumulated overdistributed net investment income |
|
(10,641,494 |
) |
|
(9,414,086 |
) |
Total net
assets (equivalent to $11.06 and $12.11 per common share at
September 30, 2016 and September 30, 2015,
respectively) |
|
325,829,394 |
|
|
356,807,103 |
|
Total
liabilities and net assets |
|
$ |
624,931,377 |
|
|
$ |
697,710,484 |
|
Fifth Street Senior Floating Rate
Corp.Consolidated Statements of
Operations(audited)
|
|
Three months ended September 30,
2016 |
|
Three months ended September 30,
2015 |
|
Year ended September 30, 2016 |
|
Year ended September 30, 2015 |
Interest
income: |
|
|
|
|
|
|
|
|
Control
investments |
|
$ |
1,383,409 |
|
|
$ |
1,015,914 |
|
|
$ |
5,065,350 |
|
|
$ |
1,770,130 |
|
Affiliate
investments |
|
97,191 |
|
|
— |
|
|
182,194 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
10,736,098 |
|
|
10,673,916 |
|
|
42,152,565 |
|
|
39,269,556 |
|
Interest
on cash and cash equivalents |
|
15,319 |
|
|
12,344 |
|
|
68,630 |
|
|
28,571 |
|
Total interest income |
|
12,232,017 |
|
|
11,702,174 |
|
|
47,468,739 |
|
|
41,068,257 |
|
PIK interest
income: |
|
|
|
|
|
|
|
|
Affiliate
investments |
|
48,595 |
|
|
— |
|
|
91,097 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
13,182 |
|
|
— |
|
|
75,968 |
|
|
— |
|
Total PIK interest income |
|
61,777 |
|
|
— |
|
|
167,065 |
|
|
— |
|
Fee
income: |
|
|
|
|
|
|
|
|
Affiliate
investments |
|
3,148 |
|
|
— |
|
|
6,296 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
206,405 |
|
|
1,709,630 |
|
|
3,071,634 |
|
|
9,673,649 |
|
Total fee income |
|
209,553 |
|
|
1,709,630 |
|
|
3,077,930 |
|
|
9,673,649 |
|
Dividend and
other income: |
|
|
|
|
|
|
|
|
Control
investments |
|
700,000 |
|
|
656,250 |
|
|
2,712,500 |
|
|
730,625 |
|
Total dividend and other income |
|
700,000 |
|
|
656,250 |
|
|
2,712,500 |
|
|
730,625 |
|
Total
investment income |
|
13,203,347 |
|
|
14,068,054 |
|
|
53,426,234 |
|
|
51,472,531 |
|
Expenses: |
|
|
|
|
|
|
|
|
Base
management fee |
|
1,516,133 |
|
|
1,656,205 |
|
|
6,134,304 |
|
|
5,931,155 |
|
Part I
incentive fee |
|
1,477,820 |
|
|
1,854,021 |
|
|
5,211,729 |
|
|
5,689,371 |
|
Part II
incentive fee |
|
— |
|
|
— |
|
|
— |
|
|
(766,552 |
) |
Professional fees |
|
664,247 |
|
|
227,179 |
|
|
4,193,532 |
|
|
985,607 |
|
Board of
Directors fees |
|
81,275 |
|
|
95,150 |
|
|
546,300 |
|
|
359,700 |
|
Interest
expense |
|
2,546,007 |
|
|
2,196,506 |
|
|
9,594,441 |
|
|
8,950,703 |
|
Administrator expense |
|
98,269 |
|
|
218,382 |
|
|
504,299 |
|
|
794,725 |
|
General
and administrative expenses |
|
483,778 |
|
|
418,344 |
|
|
1,955,177 |
|
|
1,249,792 |
|
Total
expenses |
|
6,867,529 |
|
|
6,665,787 |
|
|
28,139,782 |
|
|
23,194,501 |
|
Base
management fee waived |
|
(6,232 |
) |
|
— |
|
|
(6,232 |
) |
|
— |
|
Net
expenses |
|
6,861,297 |
|
|
6,665,787 |
|
|
28,133,550 |
|
|
23,194,501 |
|
Net investment
income |
|
6,342,050 |
|
|
7,402,267 |
|
|
25,292,684 |
|
|
28,278,030 |
|
Unrealized
appreciation (depreciation) on investments: |
|
|
|
|
|
|
|
|
Control
investments |
|
(214,065 |
) |
|
(1,249,342 |
) |
|
(5,979,787 |
) |
|
(1,821,052 |
) |
Affiliate
investments |
|
(566,607 |
) |
|
— |
|
|
(2,947,340 |
) |
|
— |
|
Non-control/Non-affiliate investments |
|
2,426,107 |
|
|
(6,660,992 |
) |
|
(8,067,972 |
) |
|
(10,951,116 |
) |
Net unrealized
appreciation (depreciation) on investments |
|
1,645,435 |
|
|
(7,910,334 |
) |
|
(16,995,099 |
) |
|
(12,772,168 |
) |
Net unrealized
depreciation on secured borrowings |
|
14,575 |
|
|
— |
|
|
14,575 |
|
|
— |
|
Realized gain
(loss) on investments: |
|
|
|
|
|
|
|
|
Non-control/Non-affiliate investments |
|
590,889 |
|
|
795,399 |
|
|
(12,769,777 |
) |
|
406,220 |
|
Net realized
gain (loss) on investments |
|
590,889 |
|
|
795,399 |
|
|
(12,769,777 |
) |
|
406,220 |
|
Net increase
(decrease) in net assets resulting from operations |
|
$ |
8,592,949 |
|
|
$ |
287,332 |
|
|
$ |
(4,457,617 |
) |
|
$ |
15,912,082 |
|
Net investment
income per common share — basic and diluted |
|
$ |
0.22 |
|
|
$ |
0.25 |
|
|
$ |
0.86 |
|
|
$ |
0.96 |
|
Earnings (loss)
per common share — basic and diluted |
|
$ |
0.29 |
|
|
$ |
0.01 |
|
|
$ |
(0.15 |
) |
|
$ |
0.54 |
|
Weighted average common
shares outstanding — basic and diluted |
|
29,466,768 |
|
|
29,466,768 |
|
|
29,466,768 |
|
|
29,466,768 |
|
Distributions
per common share |
|
$ |
0.225 |
|
|
$ |
0.18 |
|
|
$ |
0.90 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conference Call Information
We will hold a conference call at 10:00 a.m. (Eastern Time) on
Wednesday, December 14, 2016, to discuss our financial results. All
interested parties are welcome to participate. Domestic callers can
access the conference call by dialing (877) 359-2861. International
callers can access the conference call by dialing +1 (540)
318-1180. All callers will need to enter the Conference ID Number
48926580 and reference "Fifth Street Senior Floating Rate 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 21, 2016 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 48926580. An archived replay
will also be available online on the "Investor Relations" section
of our website under the "News & Events - Calendar of Events"
section. FSFR's website can be accessed at
fsfr.fifthstreetfinance.com.
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. FSFR 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. Having committed approximately
$10 billion of loans over its 18-year track record, 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
Some of the statements in this press release constitute
forward-looking statements, because they relate to future events or
our future performance or financial condition. Forward-looking
statements may include statements as to the future operating
results, dividends and business prospects of FSFR. Words such as
"believes," "expects," "seeks," "plans," "should," "estimates,"
"project," and "intend" indicate forward-looking statements,
although not all forward-looking statements include these words.
These forward-looking statements involve risks and uncertainties.
Actual results could differ materially from those implied or
expressed in these forward-looking statements for any reason. Such
factors are identified from time to time in FSFR's filings with the
Securities and Exchange Commission and include changes in the
economy and the financial markets and future changes in laws or
regulations and conditions in FSFR's operating areas. FSFR
undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law.
CONTACT:
Investor Contact:
Robyn Friedman, Executive Director, Head of Investor Relations
(203) 681-3720
ir@fifthstreetfinance.com
Media Contact:
James Golden / Aura Reinhard / Andrew Squire
Joele Frank Wilkinson Brimmer Katcher
(212) 355-4449
Fifth Str SR Floating Rate Corp (NASDAQ:FSFR)
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