Solar Senior Capital Ltd. (NASDAQ: SUNS) (the “Company” “Solar
Senior” or “SUNS”), today reported net investment income
of $5.8 million, or $0.36 per average share, for the quarter
ended September 30, 2018.
At September 30, 2018, net asset value (NAV) was
$16.81 per share.
The Company’s Board of Directors declared a
monthly distribution for November of $0.1175 per share
payable on December 4, 2018 to stockholders of record
on November 21, 2018. Tax characteristics of all distributions
will be reported to shareholders on Form 1099 after the end of the
calendar year.
HIGHLIGHTS:
At September 30, 2018:
Comprehensive Investment portfolio* fair value: $625.9
millionNumber of portfolio companies*: ~170Net assets: $269.7
millionNet asset value per share: $16.81
Comprehensive Portfolio Activity** for the Quarter Ended
September 30, 2018
Investments made during the quarter: $40.7 millionInvestments
prepaid or sold during the quarter: $127.1 million
Operating Results for the Quarter Ended September 30,
2018
Net investment income: $5.8 millionNet investment income per
share: $0.36Net realized and unrealized loss: $0.4 millionNet
increase in net assets from operations: $5.4 millionEarnings per
share: $0.34
* The Comprehensive Investment Portfolio is
comprised of Solar Senior Capital Ltd.’s investment portfolio,
Gemino Healthcare Finance’s (“Gemino”) full portfolio and North
Mill Capital LLC’s (“North Mill”) full portfolio, and excludes the
Company’s fair value of its equity interest in Gemino and North
Mill.
** Comprehensive Portfolio Activity includes gross
originations/repayments through Gemino and North Mill attributable
to the Company, and includes investment activity through the First
Lien Loan Program (“FLLP”) prior to the date of consolidation,
attributable to the Company.
“We are pleased with Solar Senior Capital’s
operating performance in Q3 2018. Overall, the financial health of
our portfolio companies remains sound and our portfolio is 100%
performing,” said Michael Gross, Chairman and CEO of Solar Senior
Capital Ltd. "We appreciate the overwhelming support of our
shareholders and banks in approving the adoption of the modified
asset coverage ratio. The Company is well positioned and has ample
capital to expand our specialty finance platform while continuing
to be highly selective in cash flow lending."
Conference Call and Webcast
The Company will host an earnings conference
call and audio webcast at 11:00 a.m. (Eastern Time) on Tuesday,
November 6, 2018. All interested parties may participate in the
conference call by dialing (844) 889-7785 approximately 5-10
minutes prior to the call, international callers should dial (661)
378-9929. Participants should reference Solar Senior Capital
Ltd. and the participant passcode of 3697598 when prompted. A
telephone replay will be available until November 20,
2018 and can be accessed by dialing (855) 859-2056 and using
the passcode 3697598. International callers should dial (404)
537-3406. This conference call will also be broadcast live over the
Internet and can be accessed by all interested parties through
Solar Senior Capital’s website, www.solarseniorcap.com. To
listen to the webcast, please go to the Company's website prior to
the start of the call to register and download any necessary audio
software. For those who are not able to listen to the live
broadcast, a replay of the webcast will be available soon after the
call.
Comprehensive Investment Portfolio
Investment Activity
During the quarter ended September 30, 2018,
Solar Senior Capital had total originations of ~$41 million and
repayments of ~$127 million across the Company’s core businesses
comprised of senior secured cash flow, traditional asset-based
lending and healthcare asset-based lending, resulting in net
reduction of ~$86 million to the comprehensive portfolio.
The investment activity of our Comprehensive
Investment Portfolio for the quarter ended September 30, 2018 was
as follows:
Total Portfolio Activity(1) – Q3
2018(in millions) |
Asset Classes |
Cash Flow Loans |
Asset-based LoansNorth Mill |
Asset-basedHealthcare LoansGemino |
Total Portfolio Activity |
Originations |
$29.7 |
$0.9 |
$10.1 |
$40.7 |
Repayments / Amortization |
$95.8 |
$17.9 |
$13.4 |
$127.1 |
Net Portfolio Activity |
$(66.1) |
$(17.0) |
$(3.3) |
$(86.4) |
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit, including
investment activity attributable to the Company through FLLP prior
to the date of consolidation.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at September 30, 2018 was as follows:
Comprehensive Investment Portfolio
Composition |
Amount |
|
WeightedAverage Asset-level
Yield |
(at fair value) |
($mm) |
% |
First Lien
Senior Secured Loans |
|
|
|
Cash Flow 1st Lien
Senior Secured Loans |
$358.2 |
57.2% |
7.8%5 |
Traditional Asset-Based
1st Lien Senior Secured Loans(1) (North Mill) |
$145.9 |
23.3% |
12.7%6 |
Healthcare Asset-Based 1st Lien Senior Secured Loans(2)
(Gemino) |
$108.1 |
17.3% |
11.4%7 |
Total First
Lien Senior Secured Loans |
$612.2 |
97.8% |
|
Cash Flow 2nd Lien
Senior Secured Loans |
$13.5 |
2.2% |
9.1%5 |
Equity
and Equity-like Securities(3) |
$0.2 |
<0.1% |
|
Total Comprehensive Investment Portfolio |
$625.9 |
100% |
9.6% |
Floating Rate
Investments(4) |
$563.8 |
90.1% |
|
(1) Includes North Mill’s full portfolio, all of which are 1st
lien senior secured loans.(2) Includes Gemino’s full portfolio, all
of which are 1st lien senior secured loans.(3) Excludes the
Company’s equity investments in North Mill and Gemino, which
distribute quarterly dividends to the Company.(4) Floating rate
investments calculated as a percent of the Company’s
income-producing Comprehensive Investment Portfolio.(5) Represents
the yield to maturity based on fair market value at 9/30/18.(6)
Represents total interest and fee income for the month of September
2018 against the average portfolio for the last fiscal month,
annualized.(7) Represents total interest and fee income for the
month of September 2018 against the average portfolio for the last
fiscal month, annualized.
The Comprehensive Investment Portfolio is
diversified across approximately 170 unique borrowers with average
issuer exposure of $3.7 million, or 0.6% of the comprehensive
portfolio at September 30, 2018.
The Comprehensive Investment Portfolio is
invested 97.8% in first lien senior secured cash flow and
asset-based loans and 2.2% in second lien senior secured cash flow
loans.
Solar Senior Capital Ltd. Portfolio
Asset Quality
At September 30, 2018, 100% of Solar Senior’s
portfolio was performing.
The Company puts its greatest emphasis on risk
mitigation and credit performance. On a quarterly basis, or more
frequently if deemed necessary, the Company formally rates each
portfolio investment on a scale of one to four, with one
representing the least amount of risk.
As of September 30, 2018, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal
Investment Rating |
Investments at Fair Value |
% of Total
Portfolio |
1 |
$54.9 |
11.8% |
2 |
$390.2 |
83.9% |
3 |
$20.0 |
4.3% |
4 |
$0.1 |
0.0% |
Solar Senior Capital Ltd.’s Results of
Operations for the Quarter Ended September 30, 2018 compared to the
Quarter Ended September 30, 2017:
Investment Income
For the quarters ended September 30, 2018 and
2017, gross investment income totaled $11.0 million and $8.0
million, respectively. The increase in gross investment income was
primarily due to average portfolio growth, including from our
investment in North Mill, as well as our portfolio yield increasing
year over year.
Our gross investment income by business unit is
broken out below.
Investment Income
Contribution by Business Unit(1)(in millions) |
For theQuarter Ended: |
Cash Flow Lending |
Asset-based
Lending(North Mill) |
Asset-basedHealthcare
Lending(Gemino) |
Total |
6/30/2018 |
$8.7 |
$1.4 |
$0.9 |
$11.0 |
% Contribution |
79.1% |
13.0% |
7.9% |
100.0% |
(1) Investment Income Contribution by Business Unit includes
interest income/fees from cash flow loans on balance sheet and
distributions from FLLP prior to consolidation, and distributions
from North Mill Capital and Gemino Healthcare Finance.
Expenses
Net expenses totaled $5.3 million and $2.3
million, respectively, for the quarters ended September 30, 2018
and 2017. For the fiscal quarters ended September 30, 2018 and
September 30, 2017, $0.0 million and $0.7 million, respectively, of
management and performance-based incentive fees were voluntarily
waived by the Company’s investment manager.
Net Investment Income
Net investment income totaled $5.8 million and
$5.7 million, or $0.36 and $0.35 per average share, respectively,
for the quarters ended September 30, 2018 and 2017.
Net Realized and Unrealized Gain (Loss)
Net realized and unrealized gain (loss) for the
quarters ended September 30, 2018 and 2017 totaled approximately
$(0.4) million and $0.4 million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the quarters ended September 30, 2018 and
2017, the Company had a net increase in net assets resulting from
operations of $5.4 million and $6.0 million, respectively. For the
quarters ended September 30, 2018 and 2017, earnings per average
share were $0.34 and $0.37, respectively.
First Lien Loan Program LLC
On September 18, 2018, FLLP became a wholly owned investment
subsidiary of the Company. As a result, the Company has
consolidated FLLP on its balance sheet at quarter end.
Liquidity and Capital Resources
On July 13, 2018, the revolving credit
commitments under the Company’s revolving credit facility were
expanded by $25 million to $225 million. In addition, FLLP’s $100
million credit facility is now consolidated.
As of September 30, 2018, the Company had a total of
approximately $130 million of unused borrowing capacity under the
Company’s revolving credit facilities, subject to borrowing base
limits. When including North Mill and Gemino non-recourse
credit facilities, the Company had approximately $250 million of
unused borrowing capacity under its revolving credit facilities,
subject to borrowing base limits at September 30, 2018.
Subsequent Event
The Small Business Credit Availability Act
permits BDCs to reduce the required minimum asset coverage ratio
applicable to a BDC from 200% to 150%, subject to certain
requirements therein. At the Company’s Annual Stockholder Meeting
held on October 11, 2018, the Company’s stockholders approved the
proposal to authorize the Company to become subject to a minimum
asset coverage ratio of at least 150% effective as of October 12,
2018. The Company previously announced that its board of directors,
including a “required majority” approved the Reduced Asset Coverage
Ratio, which would have become effective August 2, 2019. However,
as a result of the stockholder approval at the Company’s Annual
Meeting, the asset coverage ratio will be decreased to the new
requirement permitting the Company to incur additional leverage as
of October 12, 2018.
SOLAR SENIOR CAPITAL
LTD.CONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES(in thousands, except share
amounts)
|
September 30, 2018 (unaudited) |
|
December 31, 2017 |
Assets |
|
|
|
|
|
Investments at fair
value: |
|
|
Companies less than 5%
owned (cost: $372,779 and $289,848, respectively) |
$ |
369,138 |
|
|
$ |
283,983 |
|
Companies
5% to 25% owned (cost: $3,835 and $3,625, respectively) |
|
2,711 |
|
|
|
2,213 |
|
Companies
more than 25% owned (cost: $87,439 and $121,298, respectively) |
|
93,350 |
|
|
|
121,885 |
|
Cash |
|
4,759 |
|
|
|
3,726 |
|
Cash equivalents (cost:
$0 and $104,874, respectively) |
|
— |
|
|
|
104,874 |
|
Receivable for
investments sold |
|
9,642 |
|
|
|
508 |
|
Dividends
receivable |
|
1,927 |
|
|
|
2,723 |
|
Interest
receivable |
|
1,978 |
|
|
|
1,732 |
|
Other receivable |
|
103 |
|
|
|
20 |
|
Prepaid expenses and
other assets |
|
229 |
|
|
|
277 |
|
Total assets |
$ |
483,837 |
|
|
$ |
521,941 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Credit facility
($148,600 and $124,200 face amounts, respectively, reported net of
unamortized debt issuance costs of $1,738 and $0, respectively |
$ |
146,862 |
|
|
$ |
124,200 |
|
FLLP 2015-1, LLC
revolving credit facility |
|
44,784 |
|
|
|
— |
|
Payable for investments
and cash equivalents purchased |
|
14,610 |
|
|
|
122,110 |
|
Distributions
payable |
|
1,976 |
|
|
|
1,884 |
|
Management fee
payable |
|
1,222 |
|
|
|
999 |
|
Performance-based
incentive fee payable |
|
1,344 |
|
|
|
374 |
|
Interest payable |
|
1,394 |
|
|
|
401 |
|
Administrative services
expense payable |
|
708 |
|
|
|
944 |
|
Other liabilities and
accrued expenses |
|
1,261 |
|
|
|
898 |
|
Total liabilities |
$ |
214,161 |
|
|
$ |
251,810 |
|
|
|
|
|
|
|
|
|
Net
Assets |
|
|
Common stock, par value
$0.01 per share, 200,000,000 and 200,000,000 common shares
authorized, respectively, and 16,040,485 and 16,036,730 issued and
outstanding, respectively |
$ |
160 |
|
|
$ |
160 |
|
Paid-in capital in
excess of par |
|
287,906 |
|
|
|
287,841 |
|
Distributions in excess
of net investment income |
|
(5,228 |
) |
|
|
(5,336 |
) |
Accumulated net
realized loss |
|
(11,099 |
) |
|
|
(5,844 |
) |
Net unrealized
appreciation (depreciation) |
|
2,063 |
|
|
|
(6,690 |
) |
Total net assets |
$ |
269,676 |
|
|
$ |
270,131 |
|
Net Asset Value Per Share |
$ |
16.81 |
|
|
$ |
16.84 |
|
|
|
|
|
|
|
|
|
SOLAR SENIOR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(in thousands, except share
amounts)
|
Three months ended |
|
September 30, 2018 |
|
September 30, 2017 |
INVESTMENT
INCOME: |
|
|
|
|
|
|
|
Interest: |
|
|
Companies
less than 5% owned |
$ |
7,734 |
|
|
$ |
5,946 |
|
Companies
5% to 25% owned |
|
117 |
|
|
|
51 |
|
Dividends: |
|
|
Companies
more than 25% owned |
|
3,138 |
|
|
|
1,924 |
|
Other income: |
|
|
Companies
less than 5% owned |
|
11 |
|
|
|
25 |
|
Companies
5% to 25% owned |
|
— |
|
|
|
— |
|
Companies
more than 25% owned |
|
13 |
|
|
|
20 |
|
Total
investment income |
|
11,013 |
|
|
|
7,966 |
|
EXPENSES: |
|
|
|
|
|
|
|
Management fees |
$ |
1,222 |
|
|
$ |
955 |
|
Performance-based
incentive fees |
|
1,344 |
|
|
|
231 |
|
Interest and other
credit facility expenses |
|
2,034 |
|
|
|
977 |
|
Administrative services
expense |
|
390 |
|
|
|
372 |
|
Other general and
administrative expenses |
|
261 |
|
|
|
491 |
|
Total
expenses |
|
5,251 |
|
|
|
3,026 |
|
Management fees
waived |
|
— |
|
|
|
(481 |
) |
Performance-based
incentive fees waived |
|
— |
|
|
|
(231 |
) |
Net
expenses |
|
5,251 |
|
|
|
2,314 |
|
Net investment income |
$ |
5,762 |
|
|
$ |
5,652 |
|
|
|
|
|
|
|
|
|
REALIZED AND
UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH
EQUIVALENTS: |
|
|
Net realized gain
(loss) on investments and cash equivalents (companies less than 5%
owned) |
$ |
(4 |
) |
|
$ |
52 |
|
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
(282 |
) |
|
|
(457 |
) |
Companies
5% to 25% owned |
|
14 |
|
|
|
281 |
|
Companies
more than 25% owned |
|
(84 |
) |
|
|
484 |
|
Net
change in unrealized gain (loss) on investments and cash
equivalents |
|
(352 |
) |
|
|
308 |
|
Net realized and unrealized gain (loss) on
investments and cash equivalents |
|
(356 |
) |
|
|
360 |
|
|
|
|
|
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
5,406 |
|
|
$ |
6,012 |
|
EARNINGS PER
SHARE |
$ |
0.34 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
About Solar Senior Capital Ltd.
Solar Senior Capital Ltd. is a closed-end
investment company that has elected to be treated as a business
development company under the Investment Company Act of 1940. A
specialty finance company with expertise in several niche markets,
the Company primarily invests directly and indirectly in leveraged,
U. S. middle market companies primarily in the form of cash flow
first lien senior secured debt instruments and asset-based loans
including senior secured loans collateralized on a first lien basis
primarily by current assets.
Forward-Looking Statements
Statements included herein may constitute
“forward-looking statements,” which relate to future events or our
future performance or financial condition. These 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 our filings with the Securities and Exchange Commission. Solar
Senior Capital Ltd. undertakes no duty to update any
forward-looking statements made herein.
ContactInvestor Relations(646)
308-8770
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