Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala", the “Company”,
“we”, “us”, or “our”) today announced its financial results for the
third quarter of 2018.
Third Quarter Highlights
- Net investment income of $3.9 million, or $0.24 per share
- Equity investments, on a fair value basis, decreased by $23.1
million during the quarter, mostly through Western Windows Systems,
LLC exit ($9.8 million gain), and the exercise of the Eastport
Holdings, LLC call option
- The Company is co-investing with Capitala Specialty Lending
Corp., now fully operational and originating first lien debt
investment opportunities up to $100 million
Management Commentary
In describing the Company’s third quarter results, Joseph B.
Alala, III, Chairman and Chief Executive Officer, stated, “Since
early 2016 when we changed the investment strategy to focus on
senior secured loans, we have been working diligently on
rebalancing the investment portfolio. While our NAV per share
has declined during that time, our non-performing assets have
declined from a high of 10.4% at June 30, 2017, to 2.9% at
September 30, 2018. In addition, senior secured loans are
51.1% of the portfolio at September 30, 2018, up from 36.2% at
March 31, 2016. We are on a path to fully rebalance the
portfolio over the next several quarters to achieve our 2016
strategic direction of moving from a primarily mezzanine investment
strategy to a predominantly senior debt investment strategy.”
Third Quarter 2018 Financial Results
During the third quarter of 2018, the Company originated $19.9
million of new investments, and received $42.6 million of
repayments. Debt investments totaled $19.6 million, all first
lien investments with a weighted average annualized yield of 9.7%,
while equity investments totaled $0.3 million.
Total investment income was $11.5 million for the third quarter
of 2018, compared to $12.3 million in the third quarter of
2017. Interest and fee income increased by $0.7 million in
the third quarter of 2018 compared to 2017, mostly related to
increases in yields on variable rate loans through increases in 30
day LIBOR rates. The Company’s focus on reducing PIK income
as a percentage of total income continues, as evidenced by a $0.9
million reduction in PIK income for the comparable periods.
Dividend income was $0.5 million lower during the third quarter of
2018 as compared to 2017, related to a one-time dividend paid
during 2017.
Total expenses for the third quarter of 2018 were $7.7 million,
compared to $7.9 million for the comparable period in 2017.
Interest and financing costs was $0.3 million lower in the third
quarter of 2018 as compared to 2017, the result of lower average
balances outstanding on the Company’s senior secured line of
credit. General and administrative expenses increased $0.2
million for the third quarter of 2018 as compared to 2017, driven
by legal costs associated with defense of a class action suit,
filed during the fourth quarter of 2017.
Net investment income for the third quarter of 2018 was $3.9
million, or $0.24 per share, compared to $4.4 million, or $0.28 per
share, for the same period in 2017.
Net realized gains totaled $6.3 million, or $0.39 per share, for
the third quarter of 2018, compared net losses of $10.3 million, or
$0.65 per share, for the same period in 2017. During the
quarter, the Company realized a $9.8 million gain on its equity
investment in Western Windows Systems, LLC, partially offset by a
$3.7 million loss on its first lien debt investment to Kelle’s
Transport Service, LLC.
Net unrealized depreciation totaled $22.0 million, or $1.37 per
share, for the third quarter of 2018, compared to appreciation of
$2.8 million for the third quarter of 2017. Contributing to
the depreciation for the third quarter of 2018 was the reversal of
$6.3 million of previous appreciation related to our net realized
gains during the period, while the remainder of the portfolio
collectively depreciated by $15.7 million, mostly related to On
Site Fuel Services, Inc.
During the third quarter of 2018, the Company recorded a tax
provision of $0.1 million compared to a $2.7 million provision for
the comparable period in 2017.
The net decrease in net assets resulting from operations was
$11.9 million for the third quarter of 2018, or $0.74 per share,
compared to a net decrease of $5.8 million, or $0.36 per share, for
the same period in 2017.
Investment Portfolio
As of September 30, 2018, our portfolio consisted of 42
companies with a fair market value of $439.4 million and a cost
basis of $411.7 million. First lien debt investments represented
51.1% of the portfolio, second lien debt investments represented
7.3% of the portfolio, subordinated debt investments represented
18.3% of the portfolio, and equity/warrant investments represented
23.3% of the portfolio, based on fair values at September 30,
2018. On a cost basis, equity investments comprised 13.1% of
the portfolio at September 30, 2018. The weighted average
yield on our debt portfolio was 12.0% at September 30, 2018,
compared to 11.4% at June 30, 2018.
At September 30, 2018, we had debt investments in three
portfolio companies on non-accrual status with a fair value and
cost basis of $12.7 million and $31.8 million, respectively.
Non-accrual loans, on a fair value and cost basis, represent 2.9%
and 7.7%, respectively, of the portfolio at September 30,
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 September 30, 2018, the Company had $50.5 million in cash and
cash equivalents. In addition, the Company had SBA debentures
outstanding totaling $165.7 million with an annual weighted average
interest rate of 3.25%, $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 September 30, 2018, the
Company $114.5 available on its undrawn senior secured revolving
credit facility, which is priced at LIBOR plus 3.0%. The
Company’s regulatory leverage ratio at September 30, 2018 was
0.62x, compared to 0.61x at December 31, 2017. During the
third quarter of 2018, the Company repaid $5.0 million of SBA
debentures scheduled to mature on March 1, 2019, bearing an
interest rate of 4.62%.
Subsequent Events
On October 29, 2019, Hibbett Sports, Inc. announced that it
signed a definitive agreement to acquire City Gear, LLC, a
portfolio company of Capitala. The transaction is scheduled
to close during the fourth quarter of 2018.
On November 1, 2018, the Company’s Board of Directors approved
that the Company be subject to a minimum asset coverage ratio of at
least 150% to be effective as of November 1, 2019, unless the
Company’s shareholders approve the 150% minimum asset coverage
ratio prior to the Board’s effective date.
Third 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, November 6,
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 $2.7 billion asset
management firm that provides capital to lower and traditional
middle market businesses throughout North America with office
locations in Atlanta, Charlotte, Fort Lauderdale, Los Angeles, New
York, and Raleigh. Capitala’s lower middle market investment
strategy focuses on investing in debt securities with minority
equity co-investments with less than $250 million in enterprise
value through its permanent capital vehicles, Capitala Finance
Corp. (Nasdaq:CPTA) and Capitala Specialty Lending Corp.
(CSLC). Capitala’s growth fund strategy targets control and
minority equity investments, typically coupled with credit
investments, in lower middle market companies with less than $30
million in enterprise value through both SBIC (CapitalSouth SBIC
Fund IV, L.P.) and non-SBIC closed-end funds. Capitala Group
has invested in over 150 companies since its inception in 1998
and seeks to partner with strong management teams to create
value and achieve optimal outcomes for its investors. For
more information, visit our website
at 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.
SOURCE: Capitala Finance Corp.
Capitala Finance Corp.Stephen Arnall, Chief Financial
Officer704-376-5502sarnall@capitalagroup.com
| |
| Capitala Finance
Corp. |
|
|
|
|
|
|
|
| Consolidated Statements of Assets and
Liabilities |
| (in thousands, except share and per share
data) |
| |
|
|
|
|
|
|
|
|
|
As
of |
| |
|
|
September 30, 2018 |
|
December 31, 2017 |
| |
|
|
(unaudited) |
|
|
| ASSETS |
|
|
|
|
| Investments
at fair value |
|
|
|
|
| Non-control/non-affiliate investments (amortized cost of
$238,039 and $298,132, respectively) |
|
$ |
247,128 |
|
|
$ |
288,374 |
|
| Affiliate investments (amortized cost of $100,520 and
$77,336, respectively) |
|
|
132,868 |
|
|
|
103,957 |
|
| Control investments (amortized cost of $73,098 and
$89,559, respectively) |
|
|
59,425 |
|
|
|
107,608 |
|
| Total investments at fair value (amortized cost of
$411,657 and $465,027, respectively) |
|
|
439,421 |
|
|
|
499,939 |
|
| Cash and
cash equivalents |
|
|
50,456 |
|
|
|
31,221 |
|
| Interest
and dividend receivable |
|
|
4,044 |
|
|
|
2,976 |
|
| Due from
related parties |
|
|
- |
|
|
|
95 |
|
| Prepaid
expenses |
|
|
151 |
|
|
|
309 |
|
| Other
assets |
|
|
128 |
|
|
|
55 |
|
| Total assets |
|
$ |
494,200 |
|
|
$ |
534,595 |
|
| |
|
|
|
|
|
| LIABILITIES |
|
|
|
|
| SBA debentures (net of
deferred financing costs of $1,842 and $2,300, respectively) |
|
|
$ |
163,858 |
|
|
$ |
168,400 |
|
| 2022 Notes
(net of deferred financing costs of $2,117 and $2,496,
respectively) |
|
|
72,883 |
|
|
|
72,504 |
|
| 2022
Convertible Notes (net of deferred financing costs of $1,342 and
$1,583, respectively) |
|
|
50,746 |
|
|
|
50,505 |
|
| Credit
Facility (net of deferred financing costs of $1,021 and $1,293,
respectively) |
|
|
(1,021 |
) |
|
|
7,707 |
|
| Management
and incentive fees payable |
|
|
2,509 |
|
|
|
2,172 |
|
| Interest
and financing fees payable |
|
|
1,509 |
|
|
|
3,141 |
|
| Trade
settlement payable |
|
|
- |
|
|
|
175 |
|
| Deferred
tax liability, net |
|
|
104 |
|
|
|
1,289 |
|
| Written
call option at fair value (proceeds of $0 and $20,
respectively) |
|
|
- |
|
|
|
6,815 |
|
| Accounts
payable and accrued expenses |
|
|
16 |
|
|
|
- |
|
| Total liabilities |
|
$ |
290,604 |
|
|
$ |
312,708 |
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| NET ASSETS |
|
|
|
|
| Common stock, par value $.01, 100,000,000 common shares
authorized, 16,017,970 and 15,951,231 common shares issued and
outstanding, respectively |
|
$ |
160 |
|
|
$ |
160 |
|
| Additional paid in capital |
|
|
241,543 |
|
|
|
241,027 |
|
| Total distributable loss |
|
|
(38,107 |
) |
|
|
(19,300 |
) |
| Total net assets |
|
$ |
203,596 |
|
|
$ |
221,887 |
|
| Total liabilities and net assets |
|
$ |
494,200 |
|
|
$ |
534,595 |
|
| |
|
|
|
|
|
| Net asset value per share |
|
$ |
12.71 |
|
|
$ |
13.91 |
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Capitala Finance
Corp. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated Statements of
Operations |
|
|
|
|
|
|
|
| (in thousands, except
share and per share data) |
|
|
|
|
|
|
|
| |
(unaudited) |
|
|
|
|
|
|
|
| |
|
|
For the Three Months Ended
September 30 |
|
For the Nine Months Ended
September 30 |
| |
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2018 |
|
|
|
2017 |
|
| INVESTMENT
INCOME |
|
|
|
|
|
|
|
|
| Interest
and fee income: |
|
|
|
|
|
|
|
|
| |
Non-control/non-affiliate investments |
|
$ |
6,692 |
|
|
$ |
6,935 |
|
|
$ |
20,915 |
|
|
$ |
23,978 |
|
| |
Affiliate
investments |
|
|
1,852 |
|
|
|
1,187 |
|
|
|
5,870 |
|
|
|
3,344 |
|
| |
Control
investments |
|
|
1,898 |
|
|
|
1,639 |
|
|
|
5,585 |
|
|
|
5,209 |
|
| |
Total interest and fee
income |
|
|
10,442 |
|
|
|
9,761 |
|
|
|
32,370 |
|
|
|
32,531 |
|
|
Payment-in-kind interest and dividend income: |
|
|
|
|
|
|
|
|
| |
Non-control/non-affiliate investments |
|
|
350 |
|
|
|
1,103 |
|
|
|
1,482 |
|
|
|
3,810 |
|
| |
Affiliate
investments |
|
|
343 |
|
|
|
611 |
|
|
|
1,118 |
|
|
|
1,254 |
|
| |
Control
investments |
|
|
295 |
|
|
|
166 |
|
|
|
715 |
|
|
|
574 |
|
| |
Total payment-in-kind
interest and dividend income |
|
|
988 |
|
|
|
1,880 |
|
|
|
3,315 |
|
|
|
5,638 |
|
| Dividend
income: |
|
|
|
|
|
|
|
|
| |
Non-control/non-affiliate investments |
|
|
- |
|
|
|
- |
|
|
|
59 |
|
|
|
168 |
|
| |
Affiliate
investments |
|
|
29 |
|
|
|
555 |
|
|
|
87 |
|
|
|
612 |
|
| |
Control
investments |
|
|
25 |
|
|
|
25 |
|
|
|
75 |
|
|
|
330 |
|
| |
Total dividend
income |
|
|
54 |
|
|
|
580 |
|
|
|
221 |
|
|
|
1,110 |
|
| Other
Income |
|
|
- |
|
|
|
48 |
|
|
|
- |
|
|
|
125 |
|
| Interest
income from cash and cash equivalents |
|
|
46 |
|
|
|
43 |
|
|
|
78 |
|
|
|
85 |
|
| |
Total investment
income |
|
|
11,530 |
|
|
|
12,312 |
|
|
|
35,984 |
|
|
|
39,489 |
|
| |
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
| Interest
and financing expenses |
|
|
4,320 |
|
|
|
4,585 |
|
|
|
13,015 |
|
|
|
14,726 |
|
| Loss on
extinguishment of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,732 |
|
| Base
management fee |
|
|
2,254 |
|
|
|
2,417 |
|
|
|
6,871 |
|
|
|
7,436 |
|
| Incentive
fees |
|
|
- |
|
|
|
- |
|
|
|
244 |
|
|
|
1,308 |
|
| General and
administrative expenses |
|
|
1,105 |
|
|
|
900 |
|
|
|
3,334 |
|
|
|
2,941 |
|
| |
Expenses before
incentive fee waiver |
|
|
7,679 |
|
|
|
7,902 |
|
|
|
23,464 |
|
|
|
29,143 |
|
| |
Incentive fee
waiver |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(958 |
) |
| |
Total expenses, net of
fee waivers |
|
|
7,679 |
|
|
|
7,902 |
|
|
|
23,464 |
|
|
|
28,185 |
|
| |
|
|
|
|
|
|
|
|
|
| |
NET INVESTMENT
INCOME |
|
|
3,851 |
|
|
|
4,410 |
|
|
|
12,520 |
|
|
|
11,304 |
|
| |
|
|
|
|
|
|
|
|
|
| REALIZED
AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL
OPTION: |
|
|
|
|
|
|
|
| Net
realized gain (loss) from investments: |
|
|
|
|
|
|
|
|
| |
Non-control/non-affiliate investments |
|
|
9,874 |
|
|
|
(10,381 |
) |
|
|
(15,820 |
) |
|
|
(5,336 |
) |
| |
Affiliate
investments |
|
|
93 |
|
|
|
98 |
|
|
|
956 |
|
|
|
4,587 |
|
| |
Control
investments |
|
|
(3,669 |
) |
|
|
- |
|
|
|
(5,315 |
) |
|
|
- |
|
| |
Net realized gain
(loss) on investments |
|
|
6,298 |
|
|
|
(10,283 |
) |
|
|
(20,179 |
) |
|
|
(749 |
) |
| Net
unrealized appreciation (depreciation) on investments: |
|
|
|
|
|
|
|
|
| |
Non-control/non-affiliate investments |
|
|
(8,380 |
) |
|
|
9,605 |
|
|
|
18,847 |
|
|
|
(3,245 |
) |
| |
Affiliate
investments |
|
|
11,730 |
|
|
|
(1,472 |
) |
|
|
5,727 |
|
|
|
(498 |
) |
| |
Control
investments |
|
|
(32,100 |
) |
|
|
(4,946 |
) |
|
|
(31,722 |
) |
|
|
(7,728 |
) |
| |
Net unrealized
appreciation (depreciation) on investments |
|
|
(28,750 |
) |
|
|
3,187 |
|
|
|
(7,148 |
) |
|
|
(11,471 |
) |
| Net
unrealized appreciation (depreciation) on written call option |
|
|
6,795 |
|
|
|
(407 |
) |
|
|
6,795 |
|
|
|
(2,819 |
) |
| |
Net realized and
unrealized loss on investments and written call option |
|
|
(15,657 |
) |
|
|
(7,503 |
) |
|
|
(20,532 |
) |
|
|
(15,039 |
) |
| Tax benefit
(provision) |
|
|
(110 |
) |
|
|
(2,660 |
) |
|
|
1,185 |
|
|
|
(2,660 |
) |
| |
Total net realized and
unrealized loss on investments and written call option, net of
taxes |
|
|
(15,767 |
) |
|
|
(10,163 |
) |
|
|
(19,347 |
) |
|
|
(17,699 |
) |
| |
|
|
|
|
|
|
|
|
|
| NET
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS |
|
$ |
(11,916 |
) |
|
$ |
(5,753 |
) |
|
$ |
(6,827 |
) |
|
$ |
(6,395 |
) |
| |
|
|
|
|
|
|
|
|
|
| NET DECREASE IN NET ASSETS PER SHARE
RESULTING FROM OPERATIONS – BASIC AND DILUTED |
|
$ |
(0.74 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.43 |
) |
|
$ |
(0.40 |
) |
| |
|
|
|
|
|
|
|
|
|
| WEIGHTED
AVERAGE COMMON STOCK OUTSTANDING – BASIC AND
DILUTED |
|
|
16,001,919 |
|
|
|
15,911,160 |
|
|
|
15,981,154 |
|
|
|
15,891,636 |
|
| |
|
|
|
|
|
|
|
|
|
|
DISTRIBUTIONS PAID PER SHARE |
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
$ |
0.75 |
|
|
$ |
1.17 |
|
| |
|
|
|
|
|
|
|
|
|
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