Solar Capital Ltd. (NASDAQ:SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $18.9
million, or $0.45 per share, for the first quarter 2018.
At March 31, 2018, net asset value (NAV) was
$21.87 per share, an increase of $0.06 per share from the prior
quarter.
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.
On May 7, the Board declared a second quarter
distribution of $0.41 per share payable on July 3,
2018 to stockholders of record as of June 21, 2018. The
specific tax characteristics will be reported to stockholders on
Form 1099 after the end of the calendar year.
HIGHLIGHTS:
At March 31, 2018:
Comprehensive Investment portfolio* fair value: $1.80
billionNumber of portfolio companies: 238Net assets: $924.3
millionNet asset value per share: $21.87
Comprehensive Investment Portfolio Activity** for the
Quarter Ended March 31, 2018:
Investments made during the quarter: $221.1 million Investments
prepaid and sold during the quarter: $161.8 million
Operating Results for the Quarter Ended March 31,
2018:
Net investment income: $18.9 millionNet investment income per
share: $0.45Net realized and unrealized gain: $1.2 million Net
increase in net assets from operations: $20.0 millionEarnings per
share: $0.47
* The Comprehensive Investment Portfolio is
comprised of Solar Capital Ltd.’s investment portfolio, Crystal
Financial’s full portfolio (including its ownership of its SBIC),
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 as
well as intracompany transfers.
** Includes investment activity through Crystal Financial, NEF,
and SSLP and SSLP II, attributable to the Company.
“Our first quarter results continue our history of delivering
strong credit quality, NAV preservation, and earnings power,” said
Michael Gross, Chairman and CEO. “At March 31, 2018,
approximately 62% of the Company’s gross investment income was
generated by investments in Solar Capital’s commercial finance
verticals, reflecting our successful transition to a diversified
specialty finance business focused on senior secured lending across
a number of middle market lending niches. The flexibility and
competitive advantages afforded by our multi-product origination
platform, coupled with our management fee reduction, have enhanced
Solar Capital’s ability to generate sustainable net investment
income above our increased dividend level.”
Conference Call and Webcast;
Postponement of Annual Stockholder Meeting
The Company will host an earnings conference
call and audio webcast at 10:00 a.m. (Eastern
Time) on Tuesday, May 8, 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 6089719 when prompted. A telephone replay will be available
until May 23, 2018 and can be accessed by dialing (855)
859-2056 and using the passcode 6089719. 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.
The Company’s board of directors has also
postponed the date of the Company’s 2018 Annual Meeting of
Stockholders to later in 2018 from the date (May 22, 2018) that was
previously disclosed in a preliminary proxy statement that the
Company filed with the Securities and Exchange Commission on March
12, 2018. A new date for the Company’s 2018 Annual Meeting of
Stockholders will be disclosed in the Company’s definitive proxy
statement relating to such meeting.
Comprehensive Investment
Portfolio
Investment Activity
During the three months ended March 31, 2018,
Solar Capital had total originations of $221.1 million and
repayments of $161.8 million across its four core business units:
cash flow, asset-based, equipment finance, and life science
lending.
Comprehensive Investment Portfolio
Activity(1) Q1 2018 (in millions) |
Asset Class |
Cash Flow Loans(2) |
Asset-based Loans / Crystal
Financial(3) |
Equipment Financings / NEF(4) |
Life Science Loans |
TotalPortfolio
Activity |
Q1
2018 Originations |
$30.1 |
$69.7 |
$35.4 |
$85.9 |
$221.1 |
Q1 2018Repayments / Amortization |
$64.4 |
$15.3 |
$21.3 |
$60.8 |
$161.8 |
Net Portfolio Activity |
($34.3) |
$54.4 |
$14.1 |
$25.1 |
$59.3 |
|
|
|
|
|
|
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit, attributable to
SLRC.(2) Includes cash flow loans on the Company’s balance
sheet and in the SSLP’s.(3) Includes Crystal Financial’s full
portfolio (and its ownership of its SBIC) and asset-based loans on
the Company’s balance sheet.(4) Includes NEF’s full portfolio
and NEF equipment financings on the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at March 31, 2018 was as follows:
Comprehensive Investment Portfolio
Composition (at fair value) |
Amount |
Weighted Average Asset
Yield |
($mm) |
% |
Cash Flow Senior
Secured Loans(1) |
$680.6 |
37.9% |
9.7% |
Asset-Based Senior
Secured Loans / Crystal Financial(2) |
$525.3 |
29.2% |
12.1% |
Equipment Senior
Secured Financings / NEF(3) |
$321.9 |
17.9% |
10.6% |
Life
Science Senior Secured Loans |
$238.2 |
13.2% |
11.5%(6) |
Total Senior
Secured Loans |
$1,766.0 |
98.2% |
|
Equity
and Equity-like Securities(4) |
$31.8 |
1.8% |
|
Total Comprehensive Investment Portfolio |
$1,797.8 |
100% |
|
Floating
Rate Investments(5) |
$1,431.1 |
80.5% |
|
First
Lien Senior Secured Loans |
$1,419.4 |
78.9% |
|
Second
Lien Senior Secured Loans |
$346.6 |
19.3% |
|
(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 237 unique issuers across approximately 80
industries and with an average exposure of $7.6 million or 0.4% per
issuer.
At March 31, 2018, 98.2% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans, comprised of 78.9% first lien senior secured loans and
approximately 19.3% second lien senior secured 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 March 31, 2018, 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, consistent with
the weighted average yield at December 31, 2017.
Asset Quality
As of March 31, 2018, 100% of the Company’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 March 31, 2018, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value |
% of Total Portfolio |
1 |
$224.7 |
15.3% |
2 |
$1,217.1 |
82.7% |
3 |
$29.2 |
2.0% |
4 |
$0.9 |
<0.1% |
Investment Income
For the quarters ended March 31, 2018 and 2017,
gross investment income totaled $39.0 million and $34.4 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 March 31,
2018 is broken out below.
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
Income(1) Q1 2018(in millions) |
For thePeriod: |
Cash Flow Lending |
Asset-based Lending / Crystal
Financial |
Equipment Financing / NEF |
Life Science Lending |
Total |
Q1 2018 |
$14.9 |
$10.3 |
$5.2 |
$8.6 |
$39.0 |
% Contribution |
38.1% |
26.5% |
13.5% |
21.9% |
100% |
|
|
|
|
|
|
(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
Quarter Ended March 31, 2018 compared to the Quarter Ended March
31, 2017.
Investment Income
For the fiscal quarters ended March 31, 2018 and
2017, gross investment income totaled $39.0 million and $34.4
million, respectively. The increase in gross investment income from
Q1 2017 to Q1 2018 was primarily due to an increase in the size of
the income-producing portfolio and increased portfolio yield.
Expenses
Net expenses totaled $20.1 million and $18.1
million, respectively, for the fiscal quarters ended March 31, 2018
and 2017. The increase in expenses from Q1 2017 to Q1 2018 is
primarily due to higher incentive fees resulting from higher
income, higher interest expense resulting from an increase in
borrowings to support a larger income producing investment
portfolio, partially offset by the reduction in the base management
fee.
Net Investment Income
The Company’s net investment income totaled $18.9 million and
$16.3 million, or $0.45 and $0.39 per average share, respectively,
for the fiscal quarters ended March 31, 2018 and 2017.
Net Realized and Unrealized Gain
Net realized and unrealized gains for the fiscal
quarters ended March 31, 2018 and 2017 totaled approximately $1.2
million and $0.8 million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the fiscal quarters ended March 31, 2018 and
2017, the Company had a net increase in net assets resulting from
operations of $20.0 million and $17.2 million, respectively. For
the fiscal quarters ended March 31, 2018 and 2017, earnings per
average share were $0.47 and $0.41, respectively.
Liquidity and Capital Resources
As of March 31, 2018, we had a total of $145.5
million of unused borrowing capacity under the Company’s revolving
credit facility, subject to borrowing base limits.
On April 30, 2018, the Company expanded
commitments under its revolving credit facility by $50 million to
$445 million.
When including SSLP, SSLP II, Crystal Financial,
NEF, and the $50 million of expanded commitments post quarter end,
the Company had a total of approximately $565 million unused
borrowing capacity under its revolving credit facilities, subject
to borrowing base limits.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
March 31, 2018 (unaudited) |
|
December 31, 2017 |
Assets |
|
|
|
|
|
|
|
Investments at fair
value: |
|
|
|
|
|
|
|
Companies
less than 5% owned (cost: $835,765 and $835,041, respectively) |
$ |
837,782 |
|
|
$ |
834,410 |
|
Companies
more than 25% owned (cost: $618,425 and $609,226,
respectively) |
|
634,135 |
|
|
|
626,760 |
|
Cash |
|
4,847 |
|
|
|
5,963 |
|
Cash equivalents (cost:
$139,853 and $144,826, respectively) |
|
139,853 |
|
|
|
144,826 |
|
Receivable for
investments sold |
|
4,836 |
|
|
|
6,160 |
|
Interest
receivable |
|
6,670 |
|
|
|
7,336 |
|
Dividends
receivable |
|
14,309 |
|
|
|
15,013 |
|
Other receivable |
|
58 |
|
|
|
58 |
|
Prepaid expenses and
other assets |
|
840 |
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
Total assets |
$ |
1,643,330 |
|
|
$ |
1,641,565 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Revolving credit
facility |
$ |
249,500 |
|
|
$ |
245,600 |
|
Unsecured senior notes
due 2022 |
|
150,000 |
|
|
|
150,000 |
|
Unsecured tranche c
senior notes due 2022 ($21,000 and $21,000 face amounts,
respectively, reported net of unamortized debt issuance costs of
$302 and $316, respectively |
|
20,698 |
|
|
|
20,684 |
|
Unsecured senior notes
due 2023 ($75,000 and $75,000 face amounts, respectively, reported
net of unamortized debt issuance costs of $1,735 and $1,813,
respectively |
|
73,265 |
|
|
|
73,187 |
|
Term loans |
|
50,000 |
|
|
|
50,000 |
|
Distributions
payable |
|
17,327 |
|
|
|
16,904 |
|
Payable for investments
and cash equivalents purchased. |
|
140,245 |
|
|
|
145,118 |
|
Management fee
payable |
|
6,473 |
|
|
|
7,373 |
|
Performance-based
incentive fee payable |
|
4,714 |
|
|
|
4,660 |
|
Interest payable |
|
4,511 |
|
|
|
2,485 |
|
Administrative services
expense payable |
|
296 |
|
|
|
2,756 |
|
Other liabilities and
accrued expenses |
|
1,975 |
|
|
|
1,193 |
|
|
|
|
|
|
|
|
|
Total liabilities |
$ |
719,004 |
|
|
$ |
719,960 |
|
|
|
|
|
|
|
|
|
|
|
|
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 42,260,826 shares
issued and outstanding, respectively |
$ |
423 |
|
|
$ |
423 |
|
Paid-in capital in
excess of par |
|
991,340 |
|
|
|
991,340 |
|
Distributions in excess
of net investment income |
|
(11,789 |
) |
|
|
(13,319 |
) |
Accumulated net
realized loss |
|
(73,375 |
) |
|
|
(73,742 |
) |
Net unrealized
appreciation |
|
17,727 |
|
|
|
16,903 |
|
|
|
|
|
|
|
|
|
Total net assets |
$ |
924,326 |
|
|
$ |
921,605 |
|
|
|
|
|
|
|
|
|
Net Asset Value
Per Share |
$ |
21.87 |
|
|
$ |
21.81 |
|
|
|
|
|
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
|
|
|
Three months ended |
|
March 31, 2018 |
|
March 31, 2017 |
INVESTMENT
INCOME: |
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
$ |
24,181 |
|
|
$ |
21,818 |
|
Companies
more than 25% owned |
|
285 |
|
|
|
334 |
|
Dividends: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
6 |
|
|
|
10 |
|
Companies
more than 25% owned |
|
14,363 |
|
|
|
11,678 |
|
Other income: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
62 |
|
|
|
492 |
|
Companies
more than 25% owned |
|
63 |
|
|
|
60 |
|
Total
investment income |
|
38,960 |
|
|
|
34,392 |
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
Management fees |
$ |
6,473 |
|
|
$ |
6,719 |
|
Performance-based
incentive fees |
|
4,714 |
|
|
|
4,083 |
|
Interest and other
credit facility expenses |
|
5,909 |
|
|
|
5,669 |
|
Administrative services
expense |
|
1,286 |
|
|
|
1,335 |
|
Other general and
administrative expenses |
|
1,721 |
|
|
|
256 |
|
Total
expenses |
|
20,103 |
|
|
|
18,062 |
|
Net
investment income |
$ |
18,857 |
|
|
$ |
16,330 |
|
|
|
|
|
|
|
|
|
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 |
$ |
197 |
|
|
$ |
588 |
|
Companies
5% to 25% owned |
|
175 |
|
|
|
(15 |
) |
Companies
more than 25% owned |
|
(5 |
) |
|
|
— |
|
Net
realized gain on investments and cash equivalents |
|
367 |
|
|
|
573 |
|
Net realized gain
(loss) on foreign currencies |
|
— |
|
|
|
(1 |
) |
Net
realized gain |
|
367 |
|
|
|
572 |
|
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
2,648 |
|
|
|
821 |
|
Companies
5% to 25% owned |
|
— |
|
|
|
(777 |
) |
Companies
more than 25% owned |
|
(1,824 |
) |
|
|
212 |
|
Net
change in unrealized gain |
|
824 |
|
|
|
256 |
|
Net
realized and unrealized gain on investments, cash equivalents and
foreign currencies |
|
1,191 |
|
|
|
828 |
|
|
|
|
|
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
20,048 |
|
|
$ |
17,158 |
|
EARNINGS PER
SHARE |
$ |
0.47 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
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 loans including first lien and second lien debt instruments
and asset-based loans including senior secured loans collateralized
on a first lien basis primarily by current assets.
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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