Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) ("FSFR" or
"we") today announced its financial results for the first fiscal
quarter ended December 31, 2016.
First Fiscal Quarter 2017 Highlights
- Net investment income of $5.9 million, or $0.20 per share;
- Net asset value per share of $10.86; and
- Closed $41.3 million of new investments.
“As FSFR moves into its next chapter, we will continue to
leverage Fifth Street’s direct origination platform to invest in
floating rate, senior secured loans with lower loss given default
characteristics and in companies with sustainable free cash flow,”
stated Patrick J. Dalton, FSFR's Chief Executive Officer. “We
believe that FSFR remains well-positioned to take advantage of
opportunities in the senior secured loan market and we plan to
reposition the portfolio in a way that increases operating
flexibility and drives long-term stockholder value.
Additionally, the management team and Board of Directors determined
it was prudent to calibrate FSFR’s dividend level with the goal of
meeting or exceeding it with net investment income on a quarterly
basis, to preserve NAV, enhance our balance sheet and create value
for our stockholders.”
Portfolio and Investment Activity
FSFR's Board of Directors determined the fair value of our
investment portfolio at December 31, 2016 to be $540.1
million, as compared to $573.6 million at September 30,
2016. Total assets were $590.2 million at December 31,
2016, as compared to $622.4 million at September 30, 2016.
During the quarter ended December 31, 2016, we closed $41.3
million of investments in six new and two existing portfolio
companies and funded $37.6 million across new and existing
portfolio companies. This compares to closing $128.5 million
of investments in 23 new and two existing portfolio companies, and
funding $132.4 million across new and existing portfolio companies
during the quarter ended December 31, 2015. During the quarter
ended December 31, 2016, we received $58.3 million in
connection with the repayments and exits of eight of our
investments, all of which were exited at or above par, and an
additional $8.4 million in connection with other paydowns and sales
of investments.
At December 31, 2016, our portfolio consisted of
investments in 61 companies. At fair value, 87.3% of our
portfolio consisted of senior secured floating rate debt
investments, 11.4% consisted of investments in the subordinated
notes and LLC equity interests of FSFR Glick JV LLC ("FSFR Glick
JV") and 1.2% consisted of equity investments in other portfolio
companies. Our average portfolio company debt investment size
at fair value was $8.7 million at December 31, 2016 versus
$8.9 million at September 30, 2016. The average
portfolio company EBITDA was $66.9 million at December 31,
2016.
At December 31, 2016, FSFR Glick JV had $170.0 million in
assets, including senior secured loans to 32 portfolio
companies. The joint venture generated income of $1.6 million
for FSFR during the first fiscal quarter, which represented an 8.9%
weighted average annualized return on investment.
Our weighted average yield on debt investments at
December 31, 2016, including the return on FSFR Glick JV, was
8.5%, and included a cash component of 8.2%. 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 0.79x leverage.
Results of Operations
Total investment income for the quarters ended December 31, 2016
and December 31, 2015 was $11.6 million and $13.9 million,
respectively. For the quarter ended December 31, 2016, the
amount primarily consisted of $11.0 million of interest income from
portfolio investments. For the quarter ended December 31,
2015, this amount primarily consisted of $12.2 million of interest
income from portfolio investments.
Net expenses for the quarters ended December 31, 2016 and
December 31, 2015 were $5.7 million and $6.9 million,
respectively. Total expenses decreased for the quarter ended
December 31, 2016 as compared to the quarter ended
December 31, 2015, due primarily to a $0.8 million decrease in
Part I incentive fees payable to our investment adviser and a $0.5
million decrease in professional fees, partially offset by a $0.3
million increase in general and administrative expenses and a $0.2
million increase in interest expense.
Net realized and unrealized losses on our investment portfolio
for the quarters ended December 31, 2016 and December 31, 2015 were
$5.2 million and $20.3 million, respectively.
Liquidity and Capital Resources
At December 31, 2016, we had $43.7 million of cash and cash
equivalents (including $7.5 million of restricted cash), portfolio
investments (at fair value) of $540.1 million, $3.8 million of
interest, dividends and fees receivable, $14.5 million of payables
from unsettled transactions, $72.3 million of borrowings
outstanding under our revolving credit facilities, $177.6 million
of borrowings outstanding under our debt securitization (net of
unamortized financing costs) and unfunded commitments of $49.7
million. Our regulatory leverage ratio was 0.79x
debt-to-equity.
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,
$177.5 million of borrowings outstanding under our debt
securitization (net of unamortized financing costs) and unfunded
commitments of $52.8 million. Our regulatory leverage ratio
was 0.90x debt-to-equity.
Dividend Declaration
In addition to our previously declared monthly dividend of
$0.075 per share, which is payable on February 28, 2017 to
stockholders of record on February 15, 2017, our Board of Directors
met on February 6, 2017 and declared the following
distributions:
- monthly dividend of $0.04 per share, payable on March 31, 2017
to stockholders of record on March 15, 2017; and
- quarterly dividend of $0.19 per share, payable on June 30, 2017
to stockholders of record on June 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 to assess and
monitor our debt investment portfolio:
- Investment Ranking 1 is used for debt investments that are
performing above expectations and/or capital gains are
expected.
- Investment Ranking 2 is used for debt 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 debt
investments are initially ranked 2.
- Investment Ranking 3 is used for debt 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, debt investments
with a ranking of 3 are generally those on which we are not
accruing PIK interest.
- Investment Ranking 4 is used for debt investments that are
performing substantially below our expectations and for which risk
has increased substantially since the original or restructured
investment. Debt 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 December 31, 2016 and September 30, 2016, the
distribution of our debt investments on the 1 to 4 investment
ranking scale at fair value was as follows:
Investment Ranking |
|
December 31, 2016 |
|
September 30, 2016(2) |
|
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
|
Fair Value |
|
% of Portfolio |
|
Leverage Ratio |
|
1 |
|
$ |
— |
|
|
— |
% |
|
N/A |
|
$ |
20,056,209 |
|
|
3.59 |
% |
|
3.80 |
|
|
2 |
|
499,964,057 |
|
|
93.72 |
|
|
4.13 |
|
|
519,618,113 |
|
|
92.91 |
|
|
4.20 |
|
|
3 |
|
27,105,518 |
|
|
5.08 |
|
|
NM |
|
(1 |
) |
12,440,322 |
|
|
2.22 |
|
|
NM |
|
(1 |
) |
4 |
|
6,393,980 |
|
|
1.20 |
|
|
NM |
|
(1 |
) |
7,156,160 |
|
|
1.28 |
|
|
NM |
|
(1 |
) |
Total |
|
$ |
533,463,555 |
|
|
100.00 |
% |
|
4.13 |
|
|
$ |
559,270,804 |
|
|
100.00 |
% |
|
4.18 |
|
|
_____________
(1) Due to operating performance this ratio is not measurable
and, as a result, is excluded from the total portfolio
calculation.
(2) Beginning as of December 31, 2016, we have revised our
investment ranking scale to include only debt investments.
Accordingly, in order to make the table comparative, we revised the
investment ranking table as of September 30, 2016 to exclude equity
investments.
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 December 31, 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 December 31, 2016, there were two investments on
which we had stopped accruing cash and/or PIK interest or OID
income that represented 2.9% of our debt portfolio at fair value in
the aggregate.
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 also stepped down
from his role 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 |
|
|
|
December 31, 2016 |
|
September 30, 2016 |
ASSETS |
|
|
Investments at
fair value: |
|
|
|
|
Control
investments (cost December 31, 2016: $71,117,506; cost September
30, 2016: $71,117,506) |
|
$ |
61,745,473 |
|
|
$ |
63,316,667 |
|
Affiliate
investments (cost December 31, 2016: $16,005,917; cost September
30, 2016: $15,953,798) |
|
11,871,173 |
|
|
13,006,458 |
|
Non-control/Non-affiliate investments (cost December 31, 2016:
$485,071,327; cost September 30, 2016: $513,397,659) |
|
466,486,082 |
|
|
497,281,256 |
|
Total
investments at fair value (cost December 31, 2016:
$572,194,750; cost September 30, 2016:
$600,468,963) |
|
540,102,728 |
|
|
573,604,381 |
|
Cash and cash
equivalents |
|
36,210,945 |
|
|
19,778,841 |
|
Restricted cash |
|
7,465,489 |
|
|
9,036,838 |
|
Interest, dividends and
fees receivable |
|
3,771,724 |
|
|
4,579,935 |
|
Due from portfolio
companies |
|
772,097 |
|
|
336,429 |
|
Receivables from
unsettled transactions |
|
— |
|
|
12,869,092 |
|
Deferred financing
costs |
|
1,911,359 |
|
|
2,063,133 |
|
Other assets |
|
13,458 |
|
|
148,492 |
|
Total
assets |
|
$ |
590,247,800 |
|
|
$ |
622,417,141 |
|
LIABILITIES AND NET ASSETS |
|
|
Liabilities: |
|
|
|
|
Accounts
payable, accrued expenses and other liabilities |
|
$ |
1,102,087 |
|
|
$ |
1,246,286 |
|
Base
management fee and incentive fee payable |
|
2,409,361 |
|
|
2,987,721 |
|
Due to
FSC CT LLC |
|
541,048 |
|
|
402,073 |
|
Interest
payable |
|
1,842,396 |
|
|
1,798,653 |
|
Payables
from unsettled transactions |
|
14,490,000 |
|
|
— |
|
Amounts
payable to syndication partners |
|
— |
|
|
18,750 |
|
Director
fees payable |
|
123,650 |
|
|
236,275 |
|
Credit
facilities payable |
|
72,256,800 |
|
|
107,426,800 |
|
Notes
payable (net of $2,441,710 and $2,514,236 of unamortized financing
costs as of December 31, 2016 and September 30, 2016,
respectively) |
|
177,558,290 |
|
|
177,485,764 |
|
Secured
borrowings at fair value (proceeds September 30, 2016:
$5,000,000) |
|
— |
|
|
4,985,425 |
|
Total
liabilities |
|
270,323,632 |
|
|
296,587,747 |
|
Commitments and
contingencies |
|
|
|
|
Net
assets: |
|
|
|
|
Common
stock, $0.01 par value, 150,000,000 shares authorized;
29,466,768 shares issued and outstanding at December 31, 2016 and
September 30, 2016 |
|
294,668 |
|
|
294,668 |
|
Additional paid-in-capital |
|
373,995,934 |
|
|
373,995,934 |
|
Net
unrealized depreciation on investments and secured borrowings |
|
(32,092,022 |
) |
|
(26,850,007 |
) |
Net
realized loss on investments |
|
(10,886,945 |
) |
|
(10,969,707 |
) |
Accumulated overdistributed net investment income |
|
(11,387,467 |
) |
|
(10,641,494 |
) |
Total net
assets (equivalent to $10.86 and $11.06 per common share at
December 31, 2016 and September 30, 2016,
respectively) |
|
319,924,168 |
|
|
325,829,394 |
|
Total
liabilities and net assets |
|
$ |
590,247,800 |
|
|
$ |
622,417,141 |
|
Fifth Street Senior Floating Rate
Corp. |
Consolidated Statements of
Operations |
|
|
|
|
|
|
|
Three months ended December 31,
2016 |
|
Three months ended December 31,
2015 |
Interest
income: |
|
|
|
|
Control
investments |
|
$ |
1,395,436 |
|
|
$ |
1,120,491 |
|
Affiliate
investments |
|
97,936 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
9,384,005 |
|
|
11,005,597 |
|
Interest
on cash and cash equivalents |
|
30,542 |
|
|
20,399 |
|
Total interest income |
|
10,907,919 |
|
|
12,146,487 |
|
PIK interest
income: |
|
|
|
|
Affiliate
investments |
|
48,972 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
10,432 |
|
|
17,161 |
|
Total PIK interest income |
|
59,404 |
|
|
17,161 |
|
Fee
income: |
|
|
|
|
Affiliate
investments |
|
3,148 |
|
|
— |
|
Non-control/Non-affiliate investments |
|
403,296 |
|
|
1,312,607 |
|
Total fee income |
|
406,444 |
|
|
1,312,607 |
|
Dividend and
other income: |
|
|
|
|
Control
investments |
|
187,420 |
|
|
437,500 |
|
Total dividend and other income |
|
187,420 |
|
|
437,500 |
|
Total
investment income |
|
11,561,187 |
|
|
13,913,755 |
|
Expenses: |
|
|
|
|
Base
management fee |
|
1,425,216 |
|
|
1,586,192 |
|
Part I
incentive fee |
|
990,377 |
|
|
1,748,812 |
|
Professional fees |
|
258,528 |
|
|
722,803 |
|
Board of
Directors fees |
|
123,650 |
|
|
168,650 |
|
Interest
expense |
|
2,456,128 |
|
|
2,273,433 |
|
Administrator expense |
|
146,459 |
|
|
185,000 |
|
General
and administrative expenses |
|
533,011 |
|
|
226,947 |
|
Total
expenses |
|
5,933,369 |
|
|
6,911,837 |
|
Base
management fee waived |
|
(6,232 |
) |
|
— |
|
Insurance
recoveries |
|
(250,000 |
) |
|
— |
|
Net
expenses |
|
5,677,137 |
|
|
6,911,837 |
|
Net investment
income |
|
5,884,050 |
|
|
7,001,918 |
|
Unrealized
appreciation (depreciation) on investments: |
|
|
|
|
Control
investments |
|
(1,571,194 |
) |
|
(3,750,492 |
) |
Affiliate
investments |
|
(1,187,404 |
) |
|
— |
|
Non-control/Non-affiliate investments |
|
(2,468,842 |
) |
|
(16,503,665 |
) |
Net unrealized
depreciation on investments |
|
(5,227,440 |
) |
|
(20,254,157 |
) |
Net unrealized
appreciation on secured borrowings |
|
(14,575 |
) |
|
— |
|
Realized gain
(loss) on investments: |
|
|
|
|
Non-control/Non-affiliate investments |
|
82,762 |
|
|
(54,120 |
) |
Net realized
gain (loss) on investments |
|
82,762 |
|
|
(54,120 |
) |
Net increase
(decrease) in net assets resulting from operations |
|
$ |
724,797 |
|
|
$ |
(13,306,359 |
) |
Net investment
income per common share — basic and diluted |
|
$ |
0.20 |
|
|
$ |
0.24 |
|
Earnings (loss)
per common share — basic and diluted |
|
$ |
0.02 |
|
|
$ |
(0.45 |
) |
Weighted average common
shares outstanding — basic and diluted |
|
29,466,768 |
|
|
29,466,768 |
|
Distributions
per common share |
|
$ |
0.23 |
|
|
$ |
0.30 |
|
Discussion of Financial Results
We will make available an audio recording discussing our
financial results at 10:00 a.m. (Eastern Time) on Friday, February
10, 2017. Domestic callers can access the audio recording by
dialing (877) 359-2861. International callers can access the audio
recording by dialing +1 (540) 318-1180. All callers will need to
enter the Conference ID Number 55871239 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 call and will be
available through February 17, 2017 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
55871239. 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 approximately $5 billion in assets
under management across multiple public and private
vehicles. With a track record of over 18 years, the Fifth
Street platform 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.
FSC's website can be found
at fsc.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
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