Alcentra Capital Corporation Announces Second Quarter 2018 Financial Results

NEW YORK, Aug. 6, 2018 /PRNewswire/ -- Alcentra Capital Corporation (NASDAQ: ABDC) ("Alcentra" or the "Company"), a provider of debt financing solutions to middle-market companies based in the United States, today announced its financial results for the second quarter of 2018.

Second Quarter 2018 Financial Highlights

Total investment income of $7.3 million
Net investment income of $3.5 million, or $0.25 per share
Invested $19.6 million of capital into one new portfolio company, two add on investments and one loan refinancing
Received proceeds from repayments, amortizations on investments and a loan refinancing of $30.9 million
Paid regular quarterly dividend for the second quarter of 2018 of $0.18 per share on July 5, 2018
The Company's Board of Directors declared a dividend of $0.18 per share for the third quarter of 2018, which is payable on October 4, 2018 to stockholders of record as of September 28, 2018
Net asset value of $149.6 million, or $11.01 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.
Weighted average debt portfolio yield – 10.9%

Second Quarter 2018 Financial Results

For the three months ended June 30, 2018, total investment income was $7.3 million, a decrease of $1.0 million over the $8.3 million of total investment income for the three months ended June 30, 2017. This decrease was due to the continued yield compression in the markets and the continued transition of the portfolio. For the three months ended June 30, 2018, interest and PIK income comprised $6.7 million and other non-recurring income was $0.6 million as compared to $7.7 million of interest and PIK income and $0.6 of other non-recurring income as of June 30, 2017. Net investment income for the three months ended June 30, 2018 was $3.5 million or $0.25 per share as compared to $4.8 million or $0.36 per share for the three months ended June 30, 2017.

For the three months ended June 30, 2018, total expenses were $3.8 million. Interest and financing expenses for the quarter were $2.0 million, the base management fee, after the management fee waiver, was $0.9 million and there were no incentive fees earned. For the three months ended June 30, 2018, professional fees and other general and administrative expenses totaled $0.9 million of which $0.2 million was comprised of consulting fee expenses incurred in connection with our exploration of measures to lower our cost of capital and other shareholder-related matters.

For the three months ended June 30, 2018, we recorded a net realized loss and net change in unrealized depreciation from portfolio investments of $5.7 million after the provision for taxes. As a result, our net decrease in net assets resulting from operations was $2.2 million after the provision for taxes.

During the quarter five investments were written down: Black Diamond ($1.6mm), My Alarm Capital ($3.1mm), SAFE ($0.2mm), Tunnel Hill ($1.7mm) and XGS ($0.8mm) for approximately a $7.4 million decrease.

Portfolio and Investment Activities

As of June 30, 2018, the fair value of our investment portfolio totaled $246.2 million and consisted of 35 investments including 27 companies, 5 broadly syndicated loans, and 3 rated debt securities in CLOs. The average portfolio investment size on a cost basis was $7.1 million and equity investments constituted 10.0% of the portfolio. We received proceeds from repayments, amortizations on investments and a loan refinancing of $30.9 million during the three months ended June 30, 2018. This included the sale of Red Ventures, Inc., the repayment of debt from Lugano Diamonds, Superior Controls and Cirrus Medical Staffing, the assignment of 25% of Healthcare Associates of Texas and the refinancing of Pharmalogic Holding.

New and add-on investments including one loan re-financing totaled $19.6 million during the quarter ended June 30, 2018 included the following:

Manna Pro Products, Inc. - $1.3 million in L+6.00% 1st lien secured debt
Healthcare Associates of Texas (HCAT) - $1.0 million of the delayed draw commitment
NTI - $1.2 million of the delayed draw commitment
Pharmalogic Holdings - refinance $16.1 million subordinated fixed debt (12%) to floating 2^nd lien debt (L + 8.0%)

As of June 30, 2018, Alcentra had three debt investments, Show Media, Inc., Southern Technical Institute, Inc., 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 June 30, 2018 filed with the SEC.

Liquidity and Capital Resources

At June 30, 2018, Alcentra had $12.7 million in cash and cash equivalents, $58.6 million of borrowings outstanding on its $135 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.

Subsequent Events

On July 5, 2018, Alcentra paid a dividend to shareholders of record as of June 29, 2018 of $0.18 per share
On July 10, 2018, a $6.0 million 2^nd Lien investment was made into Value Based Care Solutions ("VBC") at L + 8.125%
On August 6, 2018 the Company's Board of Directors declared a dividend of $0.18 per share for the third quarter of 2018, which is payable on October 4, 2018 to stockholders of record as of September 28, 2018
As of August 6, 2018, $0.3 million of common stock had been repurchased by the Company through its $5.0 million share repurchase program.

Second 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 August 7, 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 8777017.

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 August 7, 2019.

ABOUT ALCENTRA CAPITAL CORPORATION

Alcentra Capital Corporation provides customized debt and equity financing solutions to middle-market companies, which the Company generally defines as U.S. based companies having between $15.0 million and $75.0 million of EBITDA. 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 June 30, 2018 (Unaudited)		As of December 31, 2017
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $222,388,011 and $265,675,598, respectively)	$	212,917,961	$	252,325,403
Non-controlled, affiliated investments, at fair value (cost of $40,536,590 and $51,734,635, respectively)		17,987,393		19,972,905
Controlled, affiliated investments, at fair value (cost $15,583,666 and $15,806,301, respectively)		15,254,506		15,256,237
Cash		12,704,301		13,882,956
Dividends and interest receivable		2,715,171		1,942,300
Receivable for investments sold		669,733		669,733
Deferred financing costs		419,191		514,241
Deferred tax asset		5,955,112		4,934,962
Income tax asset		644,319		748,408
Prepaid expenses and other assets		208,562		79,005
Total Assets	$	269,476,249	$	310,326,150

Liabilities
Credit facility payable	$	58,553,273	$	89,703,273
Notes payable (net of deferred note offering costs of $1,036,205 and $1,252,165, respectively)		53,963,795		53,747,835
Other accrued expenses and liabilities		523,720		447,589
Directors' fees payable		36,125		68,917
Professional fees payable		643,322		548,455
Interest and credit facility expense payable		1,158,173		1,248,791
Management fee payable		926,841		1,265,172
Income-based incentive fees payable		1,294,985		1,294,985
Distributions payable		2,449,591		3,561,305
Unearned structuring fee revenue		331,680		725,653
Total Liabilities	$	119,881,505	$	152,611,975

Commitments and Contingencies (Note 12)

Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,582,751 and 14,222,945 shares outstanding, respectively)		13,583		14,223
Additional paid-in capital		202,161,682		206,570,701
Accumulated net realized loss		(31,726,764)		(11,436,155)
Undistributed net investment income		6,699,149		4,449,122
Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $4,795,501 and $3,778,273 as of June 30, 2018 and December 31, 2017, respectively		(27,552,906)		(41,883,716)
Total Net Assets		149,594,744		157,714,175
Total Liabilities and Net Assets	$	269,476,249	$	310,326,150

Net Asset Value Per Share	$	11.01	$	11.09

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Operations

	For the three months ended June 30, 2018 (Unaudited)		For the three months ended June 30, 2017 (Unaudited)		For the six months ended June 30, 2018 (Unaudited)		For the six months ended June 30, 2017 (Unaudited)
Investment Income:
From non-controlled, non-affiliated investments:
Interest income from portfolio investments	$	5,865,711	$	6,187,702	$	11,608,097	$	13,192,379
Paid-in-kind interest income from portfolio investments		45,481		302,190		245,131		650,382
Other income from portfolio investments		611,812		587,782		2,119,116		1,197,747
Dividend income from portfolio investments		30,756		29,049		61,512		56,569
From non-controlled, affiliated investments:
Interest income from portfolio investments		129,080		594,972		206,533		846,750
Paid in-kind income from portfolio investments		90,004		63,345		213,130		450,381
From controlled, affiliated investments:
Interest income from portfolio investments		481,106		573,069		981,996		978,904
Paid in-kind income from portfolio investments		—		—		—		166,445
Total investment income		7,253,950		8,338,109		15,435,515		17,539,557

Expenses:
Management fees		1,036,122		1,229,648		2,270,985		2,479,217
Income-based incentive fees		—		—		—		653,911
Professional fees		379,082		226,849		733,152		493,188
Valuation services		(10,038)		68,345		53,933		169,741
Interest and credit facility expense		1,745,485		1,513,067		3,440,372		3,039,974
Amortization of deferred financing costs		103,570		288,048		207,551		573,611
Directors' fees		116,826		74,344		213,028		142,480
Insurance expense		56,519		60,102		112,507		124,583
Amortization of deferred note offering costs		119,267		105,418		245,961		203,828
Consulting fees		176,702		—		481,740		—
Other expenses		156,108		98,437		525,819		392,557
Total expenses		3,879,643		3,664,258		8,285,048		8,273,090
Waiver of management fees		(109,281)		(169,524)		(109,281)		(169,524)
Net expenses		3,770,362		3,494,734		8,175,767		8,103,566
Net investment income		3,483,588		4,843,375		7,259,748		9,435,991

Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		(10,108,277)		30,002		(10,123,092)		(1,019,237)
Non-controlled, affiliated investments		(10,167,517)		—		(10,167,517)		—
Controlled, affiliated investments		—		—		—		—
Net realized gain (loss) from portfolio investments		(20,275,794)		30,002		(20,290,609)		(1,019,237)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		4,213,571		(8,084,209)		3,880,145		(9,200,410)
Non-controlled, affiliated investments		9,319,907		(2,168,452)		9,212,533		(2,986,733)
Controlled, affiliated investments		—		328,527		220,904		475,526
Net change in unrealized appreciation (depreciation) from portfolio investments		13,533,478		(9,924,134)		13,313,582		(11,711,617)
Benefit (Provision) for income taxes on unrealized gain (loss) on investments		1,019,717		(102,309)		1,017,228		(827,125)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments		(5,722,599)		(9,996,441)		(5,959,799)		(13,557,979)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	(2,239,011)	$	(5,153,066)	$	1,299,949	$	(4,121,988)

Basic and diluted:
Net investment income per share	$	0.25	$	0.36	$	0.52	$	0.68
Earnings (loss) per share	$	(0.16)	$	(0.38)	$	0.09	$	(0.30)
Weighted Average Shares of Common Stock Outstanding		13,725,423		13,612,059		13,960,729		13,783,414
Dividends declared per common share	$	0.180	$	0.340	$	0.360	$	0.710

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