Capitala Finance Corp. (Nasdaq:CPTA) (“Capitala,” the “Company,”
“we,” “us,” or “our”) today announced its financial results for the
third quarter of 2017.
Third Quarter Highlights
- Net investment income of $4.4 million,
or $0.28 per share, for the third quarter of 2017
- Net asset value per share of $14.21 at
September 30, 2017
- Reduced non-performing investments from
18.0% at June 30, 2017 to 12.6% at September 30, 2017, on a cost
basis
Management Commentary
Commenting on the Company’s third quarter report, Joseph B.
Alala, III, Chairman and Chief Executive Officer, stated, “Our
management team and board of directors remain focused on lowering
the balance of non-accrual loans, closing on high-quality, directly
originated, lower middle market investments, and growing net asset
value per share. Collectively, we believe these efforts should
generate a future net investment income in excess of our quarterly
distributions.”
Third Quarter 2017 Financial Results
Total investment income was $12.3 million for the third quarter
of 2017, compared to $17.4 million for the comparable period in
2016. Interest and fee income was collectively $5.5 million lower
for the third quarter of 2017 as compared to 2016, approximately
half of which was related to a decrease in average debt investment
balances during the third quarter of 2017 as compared to 2016, and
the remainder attributable to an increase in the impact of
non-accrual loans, a slight decrease in the cash yield on our debt
portfolio, and lower fee income.
Total expenses for the third quarter of 2017 were $7.9 million,
compared to $9.9 million for the comparable period in 2016. The
decrease of $2.0 million is attributable to a decrease of $1.5
million in incentive fees (incentive fees were not earned during
the third quarter of 2017) and a decrease of $0.4 million in
interest and financing expenses, related to the recent refinancing
of our baby bonds coupled with a lower average balance on our
senior secured line of credit.
Net investment income for the third quarter of 2017 was $4.4
million, or $0.28 per share, compared to $7.4 million, or $0.47 per
share, for the same period in 2016.
Net realized losses totaled $10.3 million, or $0.65 per share,
for the third quarter of 2017, compared to net losses of $17.0
million, or $1.08 per share, for the same period in 2016. During
the quarter, the Company realized losses on Sierra Hamilton, LLC
($7.1 million), CSM Bakery Solutions, LLC ($1.3 million) and
Kelle’s Transport Service, LLC ($3.5 million), partially offset by
a $1.5 million gain related to B&W Quality Growers, LLC and
$0.1 million in other realized gains. The losses realized on Sierra
Hamilton, LLC and Kelle’s Transport Service, LLC were related to
restructurings during the third quarter of 2017, did not negatively
impact our net asset value, and enabled us to reduce non-accrual
balances. The realized loss on CSM Bakery Solutions, LLC did not
impact on our net asset value, as the investment was exited at our
June 30, 2017 fair value.
Net unrealized appreciation, inclusive of the written call
option, totaled $2.8 million, or $0.17 per share, for the third
quarter of 2017, compared to appreciation of $7.6 million, or $0.48
per share, for the third quarter of 2016.
For the third quarter of 2017, the Company recorded $2.7 million
of deferred tax expense related to appreciation of two equity
investments in limited liability companies held within blocker
corporations. There was no income tax expense for the comparable
period in 2016.
The net decrease in net assets resulting from operations was
$5.8 million for the third quarter of 2017, or $0.36 per share,
compared to a net decrease of $2.0 million, or $0.13 per share, for
the same period in 2016.
Investment Activity
During the third quarter of 2017, the Company invested $11.4
million in one new portfolio company and four add-on investments
for existing portfolio companies. Of this amount, $10.4 million
were first lien debt investments, while $1.0 million were equity
investments. In addition, the company received $22.4 million in
repayments during the period, including $10.5 million in repayment
of our second lien debt of CSM Bakery Solutions, LLC, and $6.0
million in repayment of our subordinated debt of B&W Quality
Growers, LLC.
Investment Portfolio
As of September 30, 2017, our portfolio consisted of 46
companies with a fair market value of $471.1 million and a cost
basis of $454.7 million. First lien debt investments represented
47.0% of the portfolio, second lien debt investments represented
6.5% of the portfolio, subordinated debt investments represented
22.5% of the portfolio, and equity/warrant investments represented
24.0% of the portfolio, based on fair values at September 30, 2017.
On a cost basis, equity investments comprised 12.3% of the
portfolio at September 30, 2017. The debt portfolio has a weighted
average yield, exclusive of the impact of our non-accrual debt
investments, of 12.9% at September 30, 2017.
At September 30, 2017, we had debt investments in four portfolio
companies on non-accrual status with a fair value and cost basis of
$26.8 million and $57.2 million, respectively. At December 31,
2016, the fair value of the non-accrual investments was $17.4
million, with a cost basis of $29.5 million.
Liquidity and Capital Resources
At September 30, 2017, the Company had $52.3 million in cash and
cash equivalents. In addition, the Company had SBA debentures
outstanding totaling $170.7 million with a weighted average annual
interest rate of 3.29%, $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, 2017, the
Company had $114.5 million available under its senior secured
revolving credit facility, which is priced at LIBOR plus 3.0%.
Subsequent Events
On October 31, 2017, the Company funded $2.0 million of its
unfunded commitment to CIS Secure Computing, Inc.
Third Quarter 2017 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 7, 2017. 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.
The Company will post a pre-recorded podcast on the investor
relations section of its website at 5:00 p.m. on November 6,
2017.
About Capitala Finance Corp.
Capitala Finance Corp. is a business development company that
invests primarily in first and second liens, subordinated debt and,
to a 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 leading provider of capital to lower and
traditional middle market companies, through its family of credit
focused funds. Since 1998, Capitala Group’s managed funds have
participated in over 138 transactions, representing over $1.3
billion of investments in a variety of industries throughout North
America. Capitala Group manages both public capital (Capitala
Finance Corp.) (Nasdaq:CPTA) and private capital (Capitala Private
Credit Fund V, L.P. and CapitalSouth SBIC Fund IV, L.P.) for
institutional and individual investors, and seeks to partner with
strong management teams to create value and serve as long term
partners. For more information, please visit
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.
Capitala Finance Corp.
Consolidated Statements of Assets and Liabilities (in
thousands, except share and per share data) As of
September 30, 2017 December 31, 2016
(unaudited) ASSETS Investments at fair value
Non-control/non-affiliate investments (amortized cost of $276,221
and $391,706, respectively) $ 274,795 $ 393,525 Affiliate
investments (amortized cost of $76,414 and $39,279, respectively)
98,101 61,464 Control investments (amortized cost of $102,079 and
$82,791, respectively) 98,210 86,650
Total investments at fair value (amortized cost of $454,714 and
$513,776, respectively) 471,106 541,639 Cash and cash equivalents
52,307 36,281 Interest and dividend receivable 4,246 5,735 Due from
related parties 74 182 Prepaid expenses 409 506 Other assets
82 72 Total assets $ 528,224 $ 584,415
LIABILITIES SBA debentures (net of deferred financing
costs of $2,454 and $2,911, respectively) $ 168,246 $ 167,789 2021
Notes (net of deferred financing costs of $0 and $3,025,
respectively) - 110,413 2022 Notes (net of deferred financing costs
of $2,618 and $0, respectively) 72,382 - 2022 Convertible Notes
(net of deferred financing costs of $1,658 and $0, respectively)
50,430 - Credit Facility (net of deferred financing costs of $1,096
and $759, respectively) (1,096 ) 43,241 Due to related parties - 35
Management and incentive fee payable 2,228 6,426 Interest and
financing fees payable 1,512 2,657 Accounts payable and accrued
expenses - 536 Deferred tax liability 2,660 - Written call option
at fair value (proceeds of $20 and $20, respectively) 5,555
2,736 Total liabilities $ 301,917 $
333,833 Commitments and contingencies NET
ASSETS
Common stock, par value $.01, 100,000,000
common shares authorized, 15,930,631 and 15,868,045 common shares
issued and outstanding, respectively
$ 159 $ 159 Additional paid in capital 240,897 240,184
Undistributed net investment income 15,684 22,973 Accumulated net
realized losses from investments (38,630 ) (37,881 ) Net unrealized
appreciation on investments, net of deferred taxes 13,732 27,863
Net unrealized depreciation on written call option (5,535 )
(2,716 ) Total net assets $ 226,307 $ 250,582
Total liabilities and net assets $ 528,224 $ 584,415
Net asset value per share $ 14.21 $ 15.79
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
2017 2016 2017 2016 INVESTMENT
INCOME Interest and fee income: Non-control/Non-affiliate
investments $ 6,935 $ 10,520 $ 23,978 $ 31,870 Affiliate
investments 1,187 1,150 3,344 4,754 Control investments
1,639 3,545 5,209 8,681
Total interest and fee income 9,761
15,215 32,531 45,305
Payment-in-kind interest and dividend income:
Non-control/Non-affiliate investments 1,103 1,176 3,810 2,966
Affiliate investments 611 101 1,254 293 Control investments
166 241 574 707
Total payment-in-kind interest and dividend income 1,880
1,518 5,638 3,966
Dividend income: Non-control/Non-affiliate investments - - 168 206
Affiliate investments 555 29 612 86 Control investments 25
545 330 2,135
Total dividend income 580 574
1,110 2,427 Other Income 48
42 125 85 Interest income
from cash and cash equivalents 43 8
85 15 Total investment income
12,312 17,357 39,489
51,798 EXPENSES Interest and financing expenses 4,585
4,938 14,726 14,990 Loss on extinguishment of debt - - 2,732 - Base
management fee 2,417 2,619 7,436 8,049 Incentive fees - 1,782 1,308
5,155 General and administrative expenses 900
889 2,941 2,984 Expenses before
incentive fee waiver 7,902 10,228 29,143 31,178 Incentive fee
waiver - (312 ) (958 ) (1,673 )
Total expenses, net of incentive fee waiver 7,902
9,916 28,185 29,505
NET INVESTMENT INCOME 4,410 7,441
11,304 22,293 REALIZED
AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss)
from investments: Non-control/Non-affiliate investments (10,381 )
1,192 (5,336 ) 1,261 Affiliate investments 98 (18,222 ) 4,587
(26,303 ) Control investments - -
- 145 Total realized gain (loss) from
investments (10,283 ) (17,030 ) (749 ) (24,897 ) Net unrealized
appreciation (depreciation) on investments:
Non-control/non-affiliate investments 9,605 (8,217 ) (3,245 )
(6,915 ) Affiliate investments (1,472 ) 15,230 (498 ) 3,060 Control
investments (4,946 ) 1,461 (7,728 )
8,412 Total unrealized gain (loss) from investments
3,187 8,474 (11,471 )
4,557 Net unrealized depreciation on written call option
(407 ) (898 ) (2,819 ) (898 ) Change in provision for deferred
taxes on unrealized appreciation on investments (2,660 )
(2,660 ) Net gain (loss) on investments
(10,163 ) (9,454 ) (17,699 ) (21,238 )
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $
(5,753 ) $ (2,013 ) $ (6,395 ) $ 1,055 NET INCREASE
IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND
DILUTED $ (0.36 ) $ (0.13 ) $ (0.40 ) $ 0.07 WEIGHTED
AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED 15,911,160
15,829,878 15,891,636 15,807,801 DISTRIBUTIONS PAID PER
SHARE $ 0.39 $ 0.47 $ 0.78 $ 1.41
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version on businesswire.com: http://www.businesswire.com/news/home/20171106005095/en/
Capitala Finance Corp.Stephen Arnall, 704-376-5502Chief
Financial Officersarnall@capitalagroup.com
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