Solar Capital Ltd. (NASDAQ:SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $18.6
million, or $0.44 per share, for the fourth quarter 2017. For the
fiscal year ended December 31, 2017, the Company reported net
investment income of $68.4 million, or $1.62 per share.
At December 31, 2017, net asset value (NAV) was
$21.81 per share, an increase of $0.01 per share from the prior
quarter and an increase of $0.07 per share from December 31, 2016.
At year end, Solar Capital’s investment portfolio remained
100% performing.
As a reminder, the Company’s Board of Directors
recently approved a voluntary 25 basis point permanent reduction in
the investment advisor’s management fee, effective January 1, 2018
and declared a first quarter 2018 increased distribution
of $0.41 per share, payable on April 3,
2018, to stockholders of record on March 22, 2018.
The specific tax characteristics will be reported to
stockholders on Form 1099 after the end of the calendar year.
HIGHLIGHTS:
At December 31, 2017:
Comprehensive Investment portfolio* fair value: $1.66
billionNumber of portfolio companies: 93Net assets: $921.6
millionNet asset value per share: $21.81
Comprehensive Investment Portfolio Activity** for the
Quarter Ended December 31, 2017:
Investments made during the quarter: $158.1 million Investments
prepaid and sold during the quarter: $180.4 million
Operating Results for the Quarter Ended December 31,
2017:
Net investment income: $18.6 millionNet investment income per
share: $0.44Net realized and unrealized loss: $1.3 million Net
increase in net assets from operations: $17.3 millionEarnings per
share: $0.41
Operating Results for the Year Ended December 31,
2017:
Net investment income: $68.4 millionNet investment income per
share: $1.62Net realized and unrealized gain: $2.1 million Net
increase in net assets from operations: $70.4 millionEarnings per
share: $1.67
* 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.
“Solar Capital Ltd. had a strong 2017. Our strategy of senior
secured investing and developing diversified investment channels
continues to drive superior results in credit quality, NAV
preservation, and earnings power,” said Michael Gross, Chairman and
CEO. “At December 31, 2017, over 55% of the Company’s
comprehensive investment portfolio is invested in commercial
finance loans, reflecting our ongoing transition to a diversified
specialty finance business focused on senior secured lending. Our
diversification efforts have enhanced the Company’s ability to
generate sustainable net investment income above our historical
dividend level, all while remaining relatively under-levered. With
significant dry powder across our verticals, we believe we are well
positioned for earnings growth in 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, February 23, 2018. 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 2088056 when prompted. A telephone replay will be
available until March 10, 2018 and can be accessed by
dialing (855) 859-2056 and using the passcode 2088056.
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 December 31, 2017,
Solar Capital had total originations of $158.1 million and
repayments of $180.4 million across its four core business units:
cash flow, asset-based, equipment finance, and life science
lending.
Comprehensive Investment Portfolio
Activity(1) Q4 2017 (in millions) |
Asset Class |
Cash Flow Loans(2) |
Asset-based Loans / Crystal
Financial(3) |
Equipment Financings / NEF(4) |
Life Science Loans |
TotalPortfolio
Activity |
Q4 2017 Originations |
$108.0 |
$24.4 |
$14.2 |
$11.5 |
$158.1 |
Q4 2017Repayments / Amortization |
$35.9 |
$102.0 |
$30.8 |
$11.7 |
$180.4 |
|
|
|
|
|
|
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit, attributable to
SLRC.(2) Includes cash flow loans on the Company’s balance sheet
and in the SSLP’s.(3) Includes Crystal Financial’s full portfolio
and asset-based loans on the Company’s balance sheet.(4) Includes
NEF’s full portfolio and NEF equipment financings on the Company’s
balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at December 31, 2017 was as follows:
Comprehensive Investment Portfolio
Composition (at fair value) |
Amount |
Weighted Average Asset
Yield |
($mm) |
% |
Cash Flow Senior
Secured Loans(1) |
$ |
713.8 |
43.0 |
% |
9.1% |
Asset-Based Senior
Secured Loans / Crystal Financial(2) |
$ |
394.0 |
23.8 |
% |
12.2% |
Equipment Senior
Secured Financings / NEF(3) |
$ |
308.2 |
18.6 |
% |
11.1% |
Life
Science Senior Secured Loans |
$ |
212.9 |
12.8 |
% |
11.3%(6) |
Total Senior
Secured Loans |
$ |
1,628.9 |
98.2 |
% |
|
Equity
and Equity-like Securities(4) |
$ |
29.8 |
1.8 |
% |
|
Total Comprehensive Investment Portfolio |
$ |
1,658.7 |
100 |
% |
|
Floating Rate
Investments(5) |
$ |
1,312.9 |
80.0 |
% |
|
(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 with average hold periods of 2.5 years.
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 203 unique issuers across 93 industries and with an average
exposure of $8.2 million or 0.5% per issuer.
At 12/31/17, 98.2% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans of which approximately 76.8% is in first lien senior secured
loans and approximately 21.4% is in senior secured second lien
loans. Year over year, second lien loan exposure of the
Comprehensive Investment Portfolio declined by approximately 40%,
as the Company has focused its origination efforts on underwriting
first lien and stretch first lien loans to upper middle market
sponsor-owned companies as well as commercial finance
investments.
Solar Capital Ltd.
Portfolio
Weighted Average Yield
At December 31, 2017, the weighted average yield
on our income-producing investments, inclusive of our equity
interests in Crystal Financial, NEF, SSLP and SSLP II, was 10.1%
measured at fair value, and 10.6%, measured at amortized cost,
consistent with the weighted average yield at December 31,
2016.
Asset Quality
As of December 31, 2017, 100% of SLRC’s
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 December 31, 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 |
$138.6 |
9.5% |
2 |
$1,272.7 |
87.1% |
3 |
$48.9 |
3.3% |
4 |
$1.0 |
0.1% |
Investment Income
For the quarters ended December 31, 2017 and
2016, gross investment income totaled $38.9 million and $36.6
million, respectively. The increase in gross investment income for
the year over year three month periods was primarily due to an
increase in the size of the income-producing portfolio. Our gross
investment income by business unit for the quarterly period ended
12/31/17 is broken out below.
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
Income(1) Q4 2017(in millions) |
For thePeriod: |
Cash Flow Lending |
Asset-based Lending / Crystal
Financial |
Equipment Financing / NEF |
Life Science Lending |
Total |
Q4 2017 |
$14.6 |
$10.8 |
$5.3 |
$8.2 |
$38.9 |
% Contribution |
37.4% |
27.9% |
13.6% |
21.1% |
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.
Solar Capital Ltd.’s Results of Operations for the
Fiscal Year Ended December 31, 2017 compared to the Fiscal Year
Ended December 31, 2016.
Investment Income
For the fiscal years ended December 31, 2017 and
2016, gross investment income totaled $143.3 million and $151.8
million, respectively. The decrease in gross investment income from
2016 to 2017 was primarily due to an increase in the volume of
prepayments and other exits, which reduced the average size of the
income-producing portfolio.
Expenses
Net expenses totaled $75.0 million and $80.7
million, respectively, for the fiscal years ended December 31, 2017
and 2016. The decrease in expenses from 2016 to 2017 is primarily
due to fewer one-time credit facility costs associated with
amendments and new debt issuances, as well as lower general and
administrative expenses.
Net Investment Income
SLRC’s net investment income totaled $68.4 million and $71.1
million, or $1.62 and $1.68, per average share, respectively, for
the fiscal years ended December 31, 2017 and 2016.
Net Realized and Unrealized Gain (Loss)
Net realized and unrealized gains for the fiscal
years ended December 31, 2017 and 2016 totaled approximately $2.1
million and $35.7 million, respectively. The net realized and
unrealized gain for the fiscal year ended December 31, 2017 was
primarily due to unrealized appreciation in the value of select
investments and a reversal of unrealized depreciation on an
investment exited, partially offset by a realized loss on an exited
investment, a realized loss incurred in the extinguishment of debt,
and unrealized depreciation in the value of select investments.
Net Increase in Net Assets Resulting From
Operations
For the fiscal years ended December 31, 2017 and
2016, SLRC had a net increase in net assets resulting from
operations of $70.4 million and $106.8 million, respectively. For
the fiscal years ended December 31, 2017 and 2016, earnings per
average share were $1.67 and $2.53, respectively.
Liquidity and Capital Resources
As of December 31, 2017, we had a total of
$149.4 million of unused borrowing capacity under SLRC’s revolving
credit facility, subject to borrowing base limits.
In Q4 2017, the Company redeemed the remaining
outstanding amount of its $100 million of 6.75% Senior Unsecured
Notes due 2042. The Company refinanced the notes with a combination
of an offering of $75 million of 4.5% publicly-registered unsecured
senior notes due in January 2023 and the private placement of $21
million of 4.5% unsecured tranche c notes due in December 2022.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
December 31, 2017 |
December 31, 2016 |
Assets |
|
|
Investments at fair
value: |
|
|
Companies
less than 5% owned (cost: $835,041 and $815,955, respectively) |
$ |
834,410 |
|
$ |
804,783 |
|
Companies
5% to 25% owned (cost: $0 and $8,511, respectively) |
|
— |
|
|
777 |
|
Companies
more than 25% owned (cost: $609,226 and $477,491,
respectively) |
|
626,760 |
|
|
499,218 |
|
Cash |
|
5,963 |
|
|
2,152 |
|
Cash equivalents (cost:
$144,826 and $309,894, respectively) |
|
144,826 |
|
|
309,894 |
|
Receivable for
investments sold |
|
6,160 |
|
|
13,602 |
|
Interest
receivable |
|
7,336 |
|
|
8,079 |
|
Dividends
receivable |
|
15,013 |
|
|
10,952 |
|
Other receivable |
|
58 |
|
|
54 |
|
Prepaid expenses and
other assets |
|
1,039 |
|
|
1,036 |
|
Total assets |
$ |
1,641,565 |
|
$ |
1,650,547 |
|
|
|
|
Liabilities |
|
|
Revolving credit
facility |
$ |
245,600 |
|
$ |
115,200 |
|
Unsecured senior notes
due 2022 |
|
150,000 |
|
|
50,000 |
|
Unsecured tranche c
senior notes due 2022 ($21,000 and $0 face amounts, respectively,
reported net of unamortized debt issuance costs of $316 and $0,
respectively.) |
|
20,684 |
|
|
— |
|
Unsecured senior notes
due 2023 ($75,000 and $0 face amounts, respectively, reported net
of unamortized debt issuance costs of $1,813 and $0,
respectively.) |
|
73,187 |
|
|
— |
|
Unsecured senior notes
due 2042 ($0 and $100,000 face amounts, respectively, reported net
of unamortized debt issuance costs of $0 and $2,886,
respectively.) |
|
— |
|
|
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 |
|
145,118 |
|
|
309,894 |
|
Management fee
payable |
|
7,373 |
|
|
6,870 |
|
Performance-based
incentive fee payable |
|
4,660 |
|
|
4,412 |
|
Interest payable |
|
2,485 |
|
|
2,225 |
|
Administrative services
expense payable |
|
2,756 |
|
|
3,289 |
|
Other liabilities and
accrued expenses |
|
1,193 |
|
|
1,137 |
|
Total liabilities |
$ |
719,960 |
|
$ |
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 |
|
991,340 |
|
|
989,732 |
|
Distributions in excess
of net investment income |
|
(13,319 |
) |
|
(11,847 |
) |
Accumulated net
realized loss |
|
(73,742 |
) |
|
(62,621 |
) |
Net unrealized
appreciation |
|
16,903 |
|
|
2,821 |
|
|
|
|
Total net assets |
$ |
921,605 |
|
$ |
918,507 |
|
|
|
|
Net Asset Value
Per Share |
$ |
21.81 |
|
$ |
21.74 |
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
Year ended December 31, |
|
|
2017 |
|
|
2016 |
|
INVESTMENT
INCOME: |
|
|
Interest: |
|
|
Companies
less than 5% owned |
$ |
88,014 |
|
$ |
108,386 |
|
Companies
more than 25% owned |
|
1,222 |
|
|
1,835 |
|
Dividends: |
|
|
Companies
less than 5% owned |
|
26 |
|
|
11 |
|
Companies
more than 25% owned |
|
52,496 |
|
|
40,649 |
|
Other income: |
|
|
Companies
less than 5% owned |
|
1,334 |
|
|
828 |
|
Companies
more than 25% owned |
|
246 |
|
|
130 |
|
|
|
|
Total
investment income |
|
143,338 |
|
|
151,839 |
|
|
|
|
EXPENSES: |
|
|
Management fees
|
|
27,409 |
|
|
28,115 |
|
Performance-based
incentive fees |
|
17,055 |
|
|
17,775 |
|
Interest and other
credit facility expenses |
|
21,666 |
|
|
24,571 |
|
Administrative services
expense |
|
5,215 |
|
|
5,990 |
|
Other general and
administrative expenses |
|
3,630 |
|
|
4,287 |
|
|
|
|
Total
Expenses |
|
74,975 |
|
|
80,738 |
|
Performance-based
incentive fees waived |
|
— |
|
|
— |
|
Net
expenses |
|
74,975 |
|
|
80,738 |
|
|
|
|
Net
investment income |
$ |
68,363 |
|
$ |
71,101 |
|
|
|
|
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 |
$ |
310 |
|
$ |
609 |
|
Companies
5% to 25% owned |
|
(8,104 |
) |
|
197 |
|
Companies
more than 25% owned |
|
(6 |
) |
|
(30 |
) |
|
|
|
Net
realized gain (loss) on investments and cash equivalents |
|
(7,800 |
) |
|
776 |
|
Net realized loss on
extinguishment of debt: |
|
(2,782 |
) |
|
— |
|
Net realized gain
(loss) on foreign currencies: |
|
(1,433 |
) |
|
— |
|
|
|
|
Net
realized gain (loss) |
|
(12,015 |
) |
|
776 |
|
|
|
|
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
Companies less than 5% owned |
|
10,541 |
|
|
28,093 |
|
Companies 5% to 25% owned |
|
7,734 |
|
|
(456 |
) |
Companies more than 25% owned |
|
(4,193 |
) |
|
7,301 |
|
|
|
|
Net
change in unrealized gain (loss) on investments and cash
equivalents |
|
14,082 |
|
|
34,938 |
|
Net change in
unrealized gain (loss) on foreign currencies |
|
— |
|
|
— |
|
|
|
|
Net change in unrealized gain (loss) |
|
14,082 |
|
|
34,938 |
|
|
|
|
Net realized and unrealized gain (loss) on
investments, cash equivalents and foreign currencies |
|
2,067 |
|
|
35,714 |
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
70,430 |
|
$ |
106,815 |
|
|
|
|
EARNINGS PER
SHARE |
$ |
1.67 |
|
$ |
2.53 |
|
|
|
|
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 in leveraged, U. S. middle market
companies in the form of senior secured cash flow and asset-based
investments.
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, unless required
to do so by applicable law.
ContactSolar Capital Ltd.Investor
Relations(646) 308-8770
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