Alcentra Capital Corporation Announces First Quarter 2018 Financial Results

NEW YORK, May 7, 2018 /PRNewswire/ -- Alcentra Capital Corporation (NASDAQ: ABDC) ("Alcentra" or the "Company"), a provider of debt financing solutions to lower middle-market and middle-market companies based in the United States, today announced its financial results for the first quarter of 2018.

First Quarter 2018 Financial Highlights

Total investment income of $8.2 million; $1.4 million was from non-recurring fees
Net investment income of $3.8 million, or $0.27 per share
Invested $29.6 million of capital into one new portfolio company, two add on investments, six broadly syndicated loans, and three rated CLO debt securities
Received proceeds from repayments, loan dispositions, and amortizations on investments of $47.6 million
Paid regular quarterly dividend for the first quarter of 2018 of $0.18 per share on April 4, 2018
The Company's Board of Directors declared a dividend of $0.18 per share for the second quarter of 2018, which is payable on July 5, 2018 to stockholders of record as of June 29, 2018
Net asset value of $157.2 million, or $11.22 per share
On May 4, 2018, the Adviser agreed to a permanent 25 basis point reduction, effective as of May 1, 2018, across all of the base management fee breakpoints under the Company's investment advisory agreement. The Adviser has also agreed to an additional temporary 25 basis point reduction, from May 1, 2018 to April 30, 2019, across all of these base management fee breakpoints.
As of May 4, 2018, $3.2 million of common stock had been repurchased by the Company through its $5.0 million share repurchase program.

First Quarter 2018 Financial Results

For the three months ended March 31, 2018, total investment income was $8.2 million, a decrease of $1.0 million over the $9.2 million of total investment income for the three months ended March 31, 2017. This decrease was due to the continued yield compression in the markets, the previously announced conversion of debt to equity of Conisus, LLC and My Alarm Center, LLC as well as the loss of investment income from GST Autoleather, LLC, Southern Technical Institute, and Media Storm, LLC. For the three months ended March 31, 2018, interest and PIK income comprised $6.7 million and other non-recurring income was $1.5 million. Net investment income for the three months ended March 31, 2018 was $3.8 million or $0.27 per share as compared to $4.6 million or $0.34 per share for the three months ended March 31, 2017.

For the three months ended March 31, 2018, total expenses were $4.4 million. Interest and financing expenses for the quarter was $1.9 million, the base management fee was $1.2 million and there were no incentive fees earned. For the three months ended March 31, 2018, professional fees and other general and administrative expenses totaled $1.2 million of which $0.305 million was comprised of consulting fee expenses were incurred in connection with our exploration of measures to lower our cost of capital and other shareholder-related matters.

For the three months ended March 31, 2018, we recorded a net realized loss on investments of $0.015 million. We also recorded a net change in unrealized depreciation from portfolio investments of $0.2 million. As a result, our net increase in net assets resulting from operations was $3.5 million after the provision for taxes.

Portfolio and Investment Activities

As of March 31, 2018, the fair value of our investment portfolio totaled $270.2 million and consisted of 37 investments including 28 companies, six broadly syndicated loans, and three rated debt securities in CLOs. The average portfolio investment size on a cost basis was $7.9 million and equity investments constituted 10.8% of the portfolio. We received proceeds from repayments, loan dispositions, and amortizations on investments of $47.6 million during the three months ended March 31, 2018. This included the sale of Stancor, Inc. and IGT and the repayment of debt from Metal Powder Products and NextCare Holdings, Inc.

New and add-on investments totaling $29.6 million during the quarter ended March 31, 2018 included the following:

BayMark Health Services - $7.0 million in L+8.25% 2^nd lien secured debt
Healthcare Associates of Texas (HCAT) - $2.9 million of the delayed draw commitment
Cirrus Medical Staffing - $1.4 million of the delayed draw commitment
FeeCo - $1.8 million in L+8.5% 2^nd lien secured debt
West Corporation - $2.0 million in L+3.5% 1^st lien secured debt
Weight Watchers International - $2.0 million in L+4.75% 1^st lien secured debt
Lumileds - $2.0 million in L+3.5% 1^st lien secured debt
Asurion - $3.1 million in L+6.0% 2^nd lien secured debt
Red Ventures LLC - $2.0 million in L+4.0% 1^st lien secured debt
BlueMountain CLO 2016-3 Ltd. - Invested $2.0 million with a yield of L+6.85%
Goldentree Loan Management US Clo 2 Ltd. - Invested $1.9 million with a yield of L+4.7%
OZLM Funding IV Ltd. - Invested $1.4 million with a yield of L+6.3%

As of March 31, 2018, Alcentra had four debt investments, Show Media, Inc., Southern Technical Institute, Inc., Media Storm, LLC, and Black Diamond Rentals on non-accrual status.

A risk rating of the portfolio companies is available in our website presentation (https://investors.alcentracapital.com/events-presentations) and in the MD&A section of the Form 10-Q for the quarter ended March 31, 2018 filed with the SEC.

Liquidity and Capital Resources

At March 31, 2018, Alcentra had $13.4 million in cash and cash equivalents, $55.4 million of borrowings outstanding on its $135 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes; resulting in a leverage ratio of 0.7x.

Subsequent Events

On April 2, 2018, Cirrus Medical Staffing paid down $290,909 of their deferred draw facility.
On April 4, 2018, Alcentra paid a dividend to shareholders of record as of March 30, 2018 of $0.18 per share.
On April 4, 2018, Superior Controls paid back $3 million of their 1st lien debt.
On April 30, 2018, Cirrus Medical Staffing paid down $363,636 of their revolver.
On May 1, 2018, T. Ulrich Brechbuhl stepped down as a member of the Company's Board of Directors in order to accept his appointment as Counselor to the Office of the Secretary of State. Subsequently the Board of Directors decreased the size of the board from six to five members.
On May 4, 2018, the Board of Directors approved the 2018 second quarter dividend of $0.18 per share for shareholders of record June 29, 2018 and payable July 5, 2018.
On May 4, 2018, the Adviser agreed to a permanent 25 basis point reduction, effective as of May 1, 2018, across all of the base management fee breakpoints under the Company's investment advisory agreement. The Adviser has also agreed to an additional temporary 25 basis point reduction, from May 1, 2018 to April 30, 2019, across all of these base management fee breakpoints.
As of May 4, 2018, $3.2 million of common stock had been repurchased by the Company through its $5.0 million share repurchase program.
On May 4, 2018, Paul Hatfield, the Co-Chief Investment Officer at the Adviser, resigned as the chairman and a member of our board of directors. The Company's Board of Directors appointed Vijay Rajguru, the Co-Chief Investment Officer at the Adviser, to the vacancy created by Mr. Hatfield's resignation and elected him as the chairman of the Board of Directors. Mr. Rajguru was recently appointed to head up the Adviser's US direct lending efforts and his transition onto the Company's Board of Directors is a direct outgrowth of this new appointment as well as the logistical and administrative benefits relating to board meetings and related duties given the significant amount of time that he spends in the US.

First Quarter 2018 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 9:30 am ET on May 8, 2018. To participate in the conference call, please dial (844) 832-0218 approximately 10 minutes prior to the call. International callers should dial (484) 756-4314. Please reference conference ID 8399369#.

A live webcast of the conference call will be available at http://investors.alcentracapital.com/events-presentations. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

An archived webcast replay will be available on the Company's website until May 8, 2019.

ABOUT ALCENTRA CAPITAL CORPORATION

Alcentra Capital Corporation provides customized debt and equity financing solutions to lower middle-market companies and middle-market companies, which the Company generally defines as U.S. based companies having revenues between $10.0 million and $250.0 million. Alcentra's investment objective is to provide attractive risk-adjusted returns by generating both current income from our debt investments and capital appreciation from our equity related investments. Alcentra seeks to partner with business owners, management teams and financial sponsors by providing customized financing for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.

Alcentra is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. In addition, for tax purposes, Alcentra has elected to be treated as a regulated investment company, under Subchapter M of the Internal Revenue Code of 1986.

FORWARD-LOOKING STATEMENTS

This press release may contain certain forward-looking statements. Any such statements, other than statements of historical fact, are based on management's current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company's control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including those described from time to time in Alcentra's filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and Alcentra undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Assets and Liabilities

	As of March 31, 2018 (Unaudited)		As of December 31, 2017
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $249,671,529 and $265,675,598, respectively)	$	235,987,908	$	252,325,403
Non-controlled, affiliated investments, at fair value (cost of $50,590,919 and $51,734,635, respectively)		18,721,815		19,972,905
Controlled, affiliated investments, at fair value (cost $15,806,300 and $15,806,301, respectively)		15,477,140		15,256,237
Cash		13,421,745		13,882,956
Dividends and interest receivable		1,634,770		1,942,300
Receivable for investments sold		644,733		669,733
Deferred financing costs		410,260		514,241
Deferred tax asset		4,932,473		4,934,962
Income tax asset		669,331		748,408
Prepaid expenses and other assets		45,517		79,005
Total Assets	$	291,945,692	$	310,326,150

Liabilities
Credit facility payable	$	55,403,273	$	89,703,273
Notes payable (net of deferred note offering costs of $1,125,471 and $1,252,165, respectively)		53,874,529		53,747,835
Payable for investments purchased		16,621,902		—
Other accrued expenses and liabilities		917,732		447,589
Directors' fees payable		72,250		68,917
Professional fees payable		551,938		548,455
Interest and credit facility expense payable		1,527,558		1,248,791
Management fee payable		1,234,863		1,265,172
Income-based incentive fees payable		1,294,985		1,294,985
Distributions payable		2,560,130		3,561,305
Unearned structuring fee revenue		660,983		725,653
Consulting Fees payable		43,149		—
Total Liabilities	$	134,763,292	$	152,611,975

Commitments and Contingencies (Note 12)

Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 14,010,374 and 14,222,945 shares issued and outstanding, respectively)		14,010		14,223
Additional paid-in capital		205,060,309		206,570,701
Accumulated net realized loss		(11,450,970)		(11,436,155)
Undistributed net investment income		5,665,152		4,449,122
Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for deferred taxes of $3,775,784 and $3,778,273 as of March 31, 2018 and December 31, 2017, respectively		(42,106,101)		(41,883,716)
Total Net Assets		157,182,400		157,714,175
Total Liabilities and Net Assets	$	291,945,692	$	310,326,150

Net Asset Value Per Share	$	11.22	$	11.09

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Operations

	For the three months ended March 31, 2018 (Unaudited)		For the three months ended March 31, 2017 (Unaudited)
Investment Income:
From non-controlled, non-affiliated investments:
Interest income from portfolio investments	$	5,742,386	$	7,004,677
Paid-in-kind interest income from portfolio investments		199,650		348,192
Other income from portfolio investments		1,507,304		609,965
Dividend income from portfolio investments		30,756		27,520
From non-controlled, affiliated investments:
Interest income from portfolio investments		77,453		251,778
Paid in-kind income from portfolio investments		123,126		387,036
Other income from portfolio investments		—		—
From controlled, affiliated investments:
Interest income from portfolio investments		500,890		405,835
Paid in-kind income from portfolio investments		—		166,445
Other income from portfolio investments		—		—
Total investment income		8,181,565		9,201,448

Expenses:
Management fees		1,234,863		1,249,569
Income-based incentive fees		—		653,911
Professional fees		354,070		266,339
Valuation services		63,971		101,396
Interest and credit facility expense		1,694,887		1,526,907
Amortization of deferred financing costs		103,981		285,563
Directors' fees		96,202		68,136
Insurance expense		55,988		64,481
Amortization of deferred note offering costs		126,694		98,410
Consulting Fees		305,038		—
Other expenses		369,711		294,120
Total expenses		4,405,405		4,608,832
Net investment income	$	3,776,160	$	4,592,616

Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		(14,815)		(1,049,239)
Non-controlled, affiliated investments		—		—
Controlled, affiliated investments		—		—
Net realized gain (loss) from portfolio investments		(14,815)		(1,049,239)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		(333,426)		(1,116,201)
Non-controlled, affiliated investments		(107,374)		(818,281)
Controlled, affiliated investments		220,904		146,999
Net change in unrealized appreciation (depreciation) from portfolio investments		(219,896)		(1,787,483)
Benefit/(Provision) for taxes on unrealized gain (loss) on investments		(2,489)		(724,816)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments		(237,200)		(3,561,538)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	3,538,960	$	1,031,078

Basic and diluted:
Net investment income per share	$	0.27	$	0.34
Earnings per share	$	0.25	$	0.08
Weighted Average Shares of Common Stock Outstanding		14,198,651		13,438,800
Dividends declared per common share	$	0.180	$	0.370

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