Solar Capital Ltd. (NASDAQ:SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $17.3
million, or $0.41 per share, and net income of $17.2 million, or
$0.41 per share, for the third quarter.
At September 30, 2017, net asset value (NAV) was $21.80 per
share, up $0.01 per share from the prior quarter. At quarter end,
the investment portfolio was 100% performing. At September 30, the
fair value of the Company’s Comprehensive Investment Portfolio* was
$1.67 billion.
On November 2, 2017, the Company’s board of directors (the
“Board”) amended the First Amended and Restated Investment Advisory
and Management Agreement Between Solar Capital Ltd. and Solar
Capital Partners, LLC, lowering the base management fee payable
thereunder from 2.0% per annum to 1.75% per annum, effective as of
January 1, 2018.
Also on November 2, 2017, the Board declared a
fourth quarter distribution of $0.40 per share payable
on January 4, 2018 to stockholders of record as
of December 21, 2017.
Additionally, the Board declared an increased
first quarter 2018 distribution of $0.41 per share payable on April
3, 2018 to stockholders of record as of March 22, 2018.
The specific tax characteristics for both
distributions will be reported to stockholders on Form 1099 after
the end of the calendar year.
HIGHLIGHTS:
At September 30, 2017:
Comprehensive Investment Portfolio* fair value: $1.67 billionNet
assets: $921.2 millionNet asset value per share: $21.80
Comprehensive Investment Portfolio Activity** for the
Quarter Ended September 30, 2017:
Investments made during the quarter: $412.9 million Investments
prepaid and sold during the quarter: $123.7 million
Operating Results for the Quarter Ended September 30,
2017:
Net investment income: $17.3 millionNet realized and unrealized
gain (loss): ($0.2) million Net increase in net assets from
operations: $17.2 millionNet income per share: $0.41Net investment
income per share: $0.41
* The Comprehensive Investment Portfolio is comprised of Solar
Capital Ltd.’s investment portfolio, Crystal Financial’s full
portfolio, NEF Holdings, LLC (“NEF”) full portfolio and the senior
secured loans held by Senior Secured Unitranche Loan Program LLC
(“SSLP”) and Senior Secured Unitranche Loan Program II LLC (“SSLP
II”) attributable to the Company (and excludes the fair value of
the equity interests in Crystal Financial, NEF, SSLP and SSLP
II).
** Includes investment activity through Crystal Financial, NEF,
and SSLP and SSLP II, attributable to the Company.
“With our recent acquisition of NEF Holdings, we furthered our
strategic objective of becoming a diversified finance company
focused on less competitive lending niches. At September 30th,
approximately 60% of the investments in our comprehensive portfolio
were invested in our specialty finance businesses, and 100% of our
investments were senior secured. Importantly, because of our
multiple sourcing channels, we’re not solely reliant on the middle
market cash flow segment for portfolio growth,” said Michael Gross,
Chairman and CEO of Solar Capital Ltd. “Despite the heated
conditions in that market, we’ve increased the earnings power of
our portfolio, which is reflected both in our Q3 net investment
income of $0.41 per share and our NII per share expectations for
the coming quarters. As a result of the strong earnings of our 100%
performing portfolio, coupled with our decision to reduce the base
management fee, we expect to over-earn our current $0.40 quarterly
distribution. Our Board of Directors therefore approved a
distribution increase to $0.41 per share, effective for Q1
2018.”
Conference Call and Webcast
The Company will host an earnings conference
call and audio webcast at 10:00 a.m. (Eastern
Time) on Friday, November 3, 2017. All interested parties
may participate in the conference call by dialing (844) 889-7786
approximately 5-10 minutes prior to the call, international callers
should dial (661) 378-9930. Participants should
reference Solar Capital Ltd. and the participant passcode
of 94097825 when prompted. A telephone replay will be available
until November 17, 2017 and can be accessed by dialing
(855) 859-2056 and using the passcode 94097825. 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 Capital’s
website, www.solarcapltd.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 three months ended September 30,
2017, Solar Capital had total originations of $412.9 million and
repayments of $123.7 million across its four core business units:
cash flow, asset-based, equipment finance, and life science
lending, resulting in net comprehensive portfolio growth of $289.2
million.
Total Portfolio Activity(1) - Q3 2017
(in millions) |
Asset Class |
Cash Flow Loans(2) |
Asset-based Loans / Crystal
Financial(3) |
Equipment Financings / NEF(4) |
Life Science Loans |
Total Portfolio Activity |
Originations |
$18.3 |
|
$59.2 |
|
$331.7 |
$3.7 |
|
$412.9 |
Repayments / Amortization |
$29.6 |
|
$64.1 |
|
$17.9 |
$12.1 |
|
$123.7 |
Net Originations |
($11.3 |
) |
($4.9 |
) |
$313.8 |
($8.4 |
) |
$289.2 |
|
|
|
|
|
|
|
|
|
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit, attributable to
SLRC.(2) Includes cash flow loans on the Company’s balance sheet
and in the SSLP’s.(3) Includes Crystal Financial’s full portfolio
and asset-based loans on the Company’s balance sheet.(4) Includes
NEF’s full portfolio and NEF equipment financings on the Company’s
balance sheet. Represents investment activity from July 31, 2017,
the closing of the Company’s acquisition of NEF, through September
30, 2017.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at September 30, 2017 was as follows:
Comprehensive Investment Portfolio
Composition (at fair value) |
Amount |
Weighted Average Asset
Yield |
($mm) |
% |
Cash Flow Senior
Secured Loans(1) |
$ |
640.6 |
38.3 |
% |
9.0 |
% |
Asset-Based Senior
Secured Loans / Crystal Financial(2) |
$ |
470.3 |
28.1 |
% |
12.0 |
% |
Equipment Senior
Secured Financings / NEF(3) |
$ |
323.0 |
19.3 |
% |
11.3 |
% |
Life
Science Senior Secured Loans |
$ |
208.2 |
12.5 |
% |
11.5 |
%(6) |
Total Senior
Secured Loans |
$ |
1,642.1 |
98.2 |
% |
|
Equity
and Equity-like Securities(4) |
$ |
30.5 |
1.8 |
% |
|
Total Comprehensive Investment Portfolio |
$ |
1,672.6 |
100 |
% |
|
Floating Rate
Investments(5) |
$ |
1,309.6 |
79.1 |
% |
|
|
|
|
|
|
|
(1) Includes cash flow loans on the Company’s balance sheet and
in the SSLP’s.(2) Includes Crystal Financial’s full portfolio and
asset-based loans on the Company’s balance sheet.(3) Includes NEF’s
full portfolio and NEF equipment financings on the Company’s
balance sheet.(4) Excludes Crystal, NEF, SSLP and SSLP II
membership interests, which distribute quarterly dividends to the
Company.(5) Floating rate investments calculated as a percent of
the Company’s income-producing Comprehensive Investment Portfolio.
The majority of fixed rate loans are associated with NEF and are
short in duration. Additionally, NEF seeks to match-fund its fixed
rate assets with fixed rate liabilities.(6) Excludes the impact of
success fees and/or warrants.
The Comprehensive Investment Portfolio is
diversified across over 225 unique issuers across 93 industries and
with an average exposure of $7.4 million or 0.4% per issuer.
Solar Capital Ltd.
Portfolio
Weighted Average Yield
At September 30, 2017, the weighted average
yield on our income-producing investments, inclusive of our equity
interests in Crystal Financial, NEF, SSLP and SSLP II, was 10.2%
measured at fair value, and 10.6%, measured at amortized cost, up
slightly from the prior quarter.
Asset Quality
As of September 30, 2017, 100% of the portfolio
was performing.
The Company puts its largest emphasis on risk
control 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, 2017, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value |
% of Total Portfolio |
1 |
$149.4 |
10.7 |
% |
2 |
$1,193.6 |
85.8 |
% |
3 |
$48.0 |
3.4 |
% |
4 |
$1.0 |
0.1 |
% |
|
|
|
|
Solar Capital Ltd.’s Results of
Operations for the Quarter Ended September 30, 2017 compared to the
Quarter Ended September 30, 2016.
Investment Income
For the quarters ended September 30, 2017 and
2016, gross investment income totaled $36.1 million and $39.8
million, respectively. The decrease in gross investment income for
the year over year three month periods was primarily due to an
increase in the volume of prepayments which reduced the size of the
income-producing portfolio. Our gross investment income by business
unit is broken out below.
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
Income(1) (in millions) |
For the Period Ended: |
Cash Flow Lending |
Asset-based Lending / Crystal
Financial |
Equipment Financing / NEF(2) |
Life Science Lending |
Total |
9/30/2017 |
$14.1 |
|
$10.9 |
|
$4.0 |
$7.1 |
$36.1 |
%
Contribution |
|
39.1% |
|
30.1% |
|
11.1% |
19.7% |
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes income/fees from cash flow loans on balance sheet
and distributions from the SSLP’s, income/fees from asset based
loans on balance sheet and distributions from Crystal Financial,
income/fees from equipment financings and distributions from NEF,
and income/fees from life science loans.(2) Reflects contribution
since July 31, 2017 when NEF was acquired by the Company.
Expenses
Expenses totaled $18.8 million and $22.8
million, respectively, for the quarters ended September 30, 2017
and 2016. The decrease in expenses for the three months ended
September 30, 2017 versus the three months ended September 30, 2016
was primarily due to lower management fees on a smaller average
portfolio and lower interest expense.
Net Investment Income
Net investment income totaled $17.3 million and
$17.0 million, or $0.41 and $0.40 per average share, respectively,
for the quarters ended September 30, 2017 and 2016.
Net Realized and Unrealized Gain (Loss)
Net realized and unrealized gain (loss) for the
quarters ended September 30, 2017 and 2016 totaled approximately
($0.2) million and $8.6 million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the quarters ended September 30, 2017 and
2016, the Company had a net increase in net assets resulting from
operations of $17.2 million and $25.6 million, respectively. For
the quarters ended September 30, 2017 and 2016, earnings per
average share were $0.41 and $0.61, respectively.
Liquidity and Capital Resources
As of September 30, 2017, we had a total of
$220.0 million of unused borrowing capacity under the Company’s
revolving credit facility, subject to borrowing base limits.
On October 24, 2017, the Company issued notice of its intent to
redeem $25 million of the 6.75%, 2042 Unsecured Notes on November
24, 2017. The Company expects to effectively fund the partial
repayment through a new issuance of $21 million of senior unsecured
notes with a fixed interest rate of 4.50% and a maturity of
December 28, 2023.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
September 30, 2017 (unaudited) |
December 31, 2016 |
Assets |
|
|
Investments at fair
value: |
|
|
Companies
less than 5% owned (cost: $769,203 and $815,955, respectively) |
$ |
764,354 |
|
$ |
804,783 |
|
Companies
5% to 25% owned (cost: $0 and $8,511, respectively) |
|
— |
|
|
777 |
|
Companies
more than 25% owned (cost: $608,496 and $477,491,
respectively) |
|
627,609 |
|
|
499,218 |
|
Cash |
|
5,765 |
|
|
2,152 |
|
Cash equivalents (cost:
$199,679 and $309,894, respectively) |
|
199,679 |
|
|
309,894 |
|
Receivable for
investments sold |
|
7,925 |
|
|
13,602 |
|
Interest
receivable |
|
7,497 |
|
|
8,079 |
|
Dividends
receivable |
|
13,650 |
|
|
10,952 |
|
Other receivable |
|
390 |
|
|
54 |
|
Prepaid expenses and
other assets |
|
1,193 |
|
|
1,036 |
|
|
|
|
Total assets |
$ |
1,628,062 |
|
$ |
1,650,547 |
|
|
|
|
Liabilities |
|
|
Revolving credit
facility |
$ |
175,000 |
|
$ |
115,200 |
|
Unsecured senior notes
due 2022 |
|
150,000 |
|
|
50,000 |
|
Unsecured senior notes
due 2042 ($100,000 and $100,000 face amounts, respectively,
reported net of unamortized debt issuance costs of $2,804 and
$2,886, respectively.) |
|
97,196 |
|
|
97,114 |
|
Senior secured
notes |
|
— |
|
|
75,000 |
|
Term loan |
|
50,000 |
|
|
50,000 |
|
Distributions
payable |
|
16,904 |
|
|
16,899 |
|
Payable for investments
and cash equivalents purchased |
|
199,680 |
|
|
309,894 |
|
Management fee
payable |
|
6,751 |
|
|
6,870 |
|
Performance-based
incentive fee payable |
|
4,329 |
|
|
4,412 |
|
Interest payable |
|
4,390 |
|
|
2,225 |
|
Administrative services
expense payable |
|
2,092 |
|
|
3,289 |
|
Other liabilities and
accrued expenses |
|
537 |
|
|
1,137 |
|
|
|
|
Total liabilities |
$ |
706,879 |
|
$ |
732,040 |
|
|
|
|
|
|
|
Net
Assets |
|
|
Common stock, par value
$0.01 per share, 200,000,000 and 200,000,000 common shares
authorized, respectively, and 42,260,826 and 42,248,525 shares
issued and outstanding, respectively |
$ |
423 |
|
$ |
422 |
|
Paid-in capital in
excess of par |
|
990,011 |
|
|
989,732 |
|
Distributions in excess
of net investment income |
|
(12,831 |
) |
|
(11,847 |
) |
Accumulated net
realized loss |
|
(70,684 |
) |
|
(62,621 |
) |
Net unrealized
appreciation |
|
14,264 |
|
|
2,821 |
|
|
|
|
Total net assets |
$ |
921,183 |
|
$ |
918,507 |
|
|
|
|
Net Asset Value
Per Share |
$ |
21.80 |
|
$ |
21.74 |
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(in thousands, except share
amounts)
|
Three months ended |
|
September 30, 2017 |
September 30, 2016 |
INVESTMENT
INCOME: |
|
|
Interest: |
|
|
Companies
less than 5% owned |
$ |
21,465 |
|
$ |
29,076 |
|
Companies
more than 25% owned |
|
293 |
|
|
429 |
|
Dividends: |
|
|
Companies
less than 5% owned |
|
5 |
|
|
1 |
|
Companies
more than 25% owned |
|
13,726 |
|
|
9,852 |
|
Other income: |
|
|
Companies
less than 5% owned |
|
264 |
|
|
403 |
|
Companies
more than 25% owned |
|
394 |
|
|
37 |
|
|
|
|
Total investment income |
|
36,147 |
|
|
39,798 |
|
|
|
|
EXPENSES: |
|
|
Management fees |
$ |
6,751 |
|
$ |
7,318 |
|
Performance-based
incentive fees |
|
4,329 |
|
|
4,251 |
|
Interest and other
credit facility expenses |
|
5,348 |
|
|
8,519 |
|
Administrative services
expense |
|
1,346 |
|
|
1,617 |
|
Other general and
administrative expenses |
|
1,058 |
|
|
1,089 |
|
|
|
|
Total
expenses |
|
18,832 |
|
|
22,794 |
|
|
|
|
Net investment income |
$ |
17,315 |
|
$ |
17,004 |
|
|
|
|
REALIZED AND
UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN
CURRENCIES: |
|
|
Net realized gain
(loss) on investments and cash equivalents: |
|
|
Companies
less than 5% owned |
$ |
(28 |
) |
$ |
469 |
|
Companies
5% to 25% owned |
|
(8,515 |
) |
|
301 |
|
|
|
|
Net realized gain (loss) on investments and cash
equivalents |
|
(8,543 |
) |
|
770 |
|
Net realized gain
(loss) on foreign currencies |
|
2 |
|
|
(1 |
) |
|
|
|
Net realized gain (loss) |
|
(8,541 |
) |
|
769 |
|
|
|
|
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
Companies
less than 5% owned |
|
1,061 |
|
|
6,615 |
|
Companies
5% to 25% owned |
|
8,511 |
|
|
(67 |
) |
Companies
more than 25% owned |
|
(1,182 |
) |
|
1,298 |
|
|
|
|
Net change in unrealized gain (loss) on investments
and cash equivalents |
|
8,390 |
|
|
7,846 |
|
Net change in
unrealized loss on foreign currencies |
|
(1 |
) |
|
— |
|
|
|
|
Net
change in unrealized gain (loss) |
|
8,389 |
|
|
7,846 |
|
|
|
|
Net realized and unrealized gain (loss) on investments, cash
equivalents and foreign currencies |
|
(152 |
) |
|
8,615 |
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
17,163 |
|
$ |
25,619 |
|
|
|
|
EARNINGS PER
SHARE |
$ |
0.41 |
|
$ |
0.61 |
|
|
|
|
About Solar Capital Ltd.
Solar 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 in the form of cash flow senior secured
investments including first lien and second lien debt instruments
and asset-based investments including senior secured loans.
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, conditions 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
Capital Ltd. undertakes no duty to update any forward-looking
statements made herein.
ContactInvestor Relations(646) 308-8770
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