Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $19.2
million, or $0.45 per share, for the second quarter 2018.
At June 30, 2018, net asset value (NAV) was
$21.93 per share, an increase of $0.06 per share from the prior
quarter. In addition, the Company’s portfolio was 100% performing
at June 30, 2018.
On August 2, 2018, the Board declared a third
quarter distribution of $0.41 per share payable
on October 2, 2018 to stockholders of record as
of September 20, 2018. The specific tax characteristics will
be reported to stockholders on Form 1099 after the end of the
calendar year.
HIGHLIGHTS:
At
June 30, 2018: |
|
Comprehensive Investment portfolio* fair value: $1.76 billion |
|
Number of
portfolio companies: 230 |
|
Net
assets: $926.8 million |
|
Net asset
value per share: $21.93 |
|
|
Comprehensive Investment Portfolio Activity** for the
Quarter Ended June 30, 2018: |
|
Investments made during the quarter: $260.0 million |
|
Investments prepaid and sold during the quarter: $295.1
million |
|
|
Operating Results for the Quarter Ended June 30,
2018: |
|
Net
investment income: $19.2 million |
|
Net
investment income per share: $0.45 |
|
Net
realized and unrealized gain: $0.6 million |
|
Net
increase in net assets from operations: $19.8 million |
|
Earnings
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 second quarter results continue our history
of delivering strong credit quality, NAV preservation, and earnings
power,” said Michael Gross, Chairman and CEO. “At June 30,
2018, approximately 65% of the Company’s assets were 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
asset-based lending niches. The flexibility and competitive
advantages afforded by our multi-product platform have enhanced
Solar Capital’s ability to generate net investment income above our
increased dividend level.”
Conference Call and Webcast
The Company will host an earnings conference
call and audio webcast at 10:00 a.m. (Eastern
Time) on Tuesday, August 7, 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 8498206 when prompted.
A telephone replay will be available until August 21, 2018 and can
be accessed by dialing (855) 859-2056 and using the passcode
8498206. 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 June 30, 2018,
Solar Capital had total originations of $260.0 million and
repayments of $295.1 million across its four core business units:
cash flow, asset-based, equipment finance, and life science
lending.
Comprehensive Investment Portfolio
Activity(1) Q2 2018 (in millions) |
Asset Class |
Cash Flow Loans(2) |
Asset-based Loans / Crystal
Financial(3) |
Equipment Financings / NEF(4) |
Life Science Loans |
TotalPortfolio
Activity |
Q2
2018 Originations |
$44.7 |
$108.4 |
$59.5 |
$47.4 |
$260.0 |
Q2 2018Repayments / Amortization |
$121.9 |
$66.8 |
$25.4 |
$81.0 |
$295.1 |
Net Portfolio Activity |
($77.1) |
$41.6 |
$34.1 |
($33.6) |
($34.9) |
|
|
|
|
|
|
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit, attributable to
SLRC.(2) Includes cash flow loans on the Company’s balance sheet
and in the SSLP’s.(3) Includes Crystal Financial’s full portfolio
(and its ownership of its SBIC) and asset-based loans on the
Company’s balance sheet.(4) Includes NEF’s full portfolio and NEF
equipment financings on the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at June 30, 2018 was as follows:
Comprehensive Investment Portfolio
Composition (at fair value) |
Amount |
WeightedAverage Asset
Yield |
($mm) |
% |
Cash Flow Senior
Secured Loans(1) |
$604.5 |
34.4% |
9.6% |
Asset-Based Senior
Secured Loans / Crystal Financial(2) |
$566.9 |
32.3% |
12.3% |
Equipment Senior
Secured Financings / NEF(3) |
$348.4 |
19.8% |
10.5% |
Life
Science Senior Secured Loans |
$204.3 |
11.6% |
11.9%(6) |
Total Senior
Secured Loans |
$1,724.1 |
98.1% |
10.9% |
Equity
and Equity-like Securities(4) |
$33.0 |
1.9% |
|
Total Comprehensive Investment Portfolio |
$1,757.1 |
100% |
|
Floating
Rate Investments(5) |
$1,357.3 |
78.2% |
|
First
Lien Senior Secured Loans |
$1,465.1 |
83.4% |
|
Second
Lien Senior Secured Loans |
$259.0 |
14.7% |
|
(1) Includes cash flow loans on the Company’s balance sheet and
in the SSLP’s.(2) Includes Crystal Financial’s full portfolio,
including the Company’s pro rata ownership of Crystal’s SBIC, 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 230 unique issuers across approximately 97
industries and with an average exposure of $7.6 million or 0.4% per
issuer.
At June 30, 2018, 98.1% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans, comprised of 83.4% first lien senior secured loans and
approximately 14.7% second lien senior secured loans. Second lien
loan exposure of the Comprehensive Investment Portfolio declined by
approximately 25% compared to the prior quarter, 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.
The weighted average yield at fair value of all
debt investments in the Comprehensive Portfolio was 10.9% at June
30, 2018 compared to 10.8% at March 31, 2018.
Solar Capital Ltd.
Portfolio
Asset Quality
As of June 30, 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 June 30, 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 |
$96.9 |
6.9% |
2 |
$1,289.8 |
91.9% |
3 |
$15.0 |
1.1% |
4 |
$1.1 |
0.1% |
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
Income(1) Q2 2018(in millions) |
For thePeriod: |
Cash Flow Lending |
Asset-based Lending /CrystalFinancial |
Equipment Financing /NEF |
Life Science Lending |
Total |
Q2 2018 |
$14.8 |
$10.3 |
$5.2 |
$8.9 |
$39.2 |
% Contribution |
37.9% |
26.3% |
13.2% |
22.6% |
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 on balance sheet
and distributions from NEF Holdings, and income/fees from life
science loans.
Solar Capital Ltd.’s Results of Operations for the
Quarter Ended June 30, 2018 compared to the Quarter Ended June 30,
2017.
Investment Income
For the fiscal quarters ended June 30, 2018 and
2017, gross investment income totaled $39.2 million and $33.9
million, respectively. The increase in gross investment income from
Q2 2017 to Q2 2018 was primarily due to an increase in the size of
the income-producing portfolio and increased portfolio yield.
Expenses
Net expenses totaled $20.0 million and $17.8
million, respectively, for the fiscal quarters ended June 30, 2018
and 2017. The increase in expenses from Q2 2017 to Q2 2018 is
primarily due to higher interest expense resulting from an increase
in borrowings to support a larger income producing investment
portfolio resulting in higher income and incentive fees, partially
offset by the reduction in the base management fee.
Net Investment Income
The Company’s net investment income totaled $19.2 million and
$16.1 million, or $0.45 and $0.38 per average share, respectively,
for the fiscal quarters ended June 30, 2018 and 2017.
Net Realized and Unrealized Gain
Net realized and unrealized gains for the fiscal
quarters ended June 30, 2018 and 2017 totaled approximately $0.6
million and $2.7 million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the fiscal quarters ended June 30, 2018 and
2017, the Company had a net increase in net assets resulting from
operations of $19.8 million and $18.8 million, respectively. For
the fiscal quarters ended June 30, 2018 and 2017, earnings per
average share were $0.47 and $0.44, respectively.
Liquidity and Capital Resources
On April 30, 2018, the Company expanded
commitments under its revolving credit facility by $50 million to
$445 million. As of June 30, 2018, we had a total of $267.4 million
of unused borrowing capacity under the Company’s revolving credit
facility, subject to borrowing base limits.
Subsequent to quarter end, the Company again
utilized the accordion feature under its revolving credit facility
and expanded commitments by $35 million to $480 million. When
including SSLP, SSLP II, Crystal Financial, NEF, and the $35
million of expanded commitments post quarter end, the Company had a
total of approximately $625 million unused borrowing capacity under
its revolving credit facilities, subject to borrowing base
limits.
Subsequent Event
On August 2, 2018 our Board approved a reduction
in the minimum asset coverage ratio from 200% to 150%. This
reduction will automatically apply to the Company effective as of
August 2, 2019, unless approved earlier by the Company’s
stockholders. In addition, the Board approved an amendment to the
Investment Advisory Agreement reducing the Investment Advisor’s
annual base management fee to 1.00% on assets financed using
leverage over 1.0x debt-to-equity.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
June 30, 2018(unaudited) |
|
December 31,2017 |
Assets |
|
|
|
|
|
Investments at fair
value: |
|
|
|
|
|
Companies
less than 5% owned (cost: $740,438 and $835,041, respectively) |
$ |
739,338 |
|
|
$ |
834,410 |
|
Companies
more than 25% owned (cost: $644,152 and $609,226,
respectively) |
|
663,414 |
|
|
|
626,760 |
|
Cash |
|
9,157 |
|
|
|
5,963 |
|
Cash equivalents (cost:
$214,756 and $144,826, respectively) |
|
214,756 |
|
|
|
144,826 |
|
Receivable for
investments sold |
|
4,772 |
|
|
|
6,160 |
|
Dividends
receivable |
|
12,772 |
|
|
|
15,013 |
|
Interest
receivable |
|
5,706 |
|
|
|
7,336 |
|
Other receivable |
|
59 |
|
|
|
58 |
|
Prepaid expenses and
other assets |
|
809 |
|
|
|
1,039 |
|
Total assets |
$ |
1,650,783 |
|
|
$ |
1,641,565 |
|
|
|
|
Liabilities |
|
|
Revolving credit
facility |
$ |
177,600 |
|
|
$ |
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
$288 and $316, respectively) |
|
20,712 |
|
|
|
20,684 |
|
Unsecured senior notes
due 2023 ($75,000 and $75,000 face amounts, respectively, reported
net of unamortized debt issuance costs of $1,654 and $1,813,
respectively) |
|
73,346 |
|
|
|
73,187 |
|
Term loans |
|
50,000 |
|
|
|
50,000 |
|
Payable for investments
and cash equivalents purchased |
|
215,572 |
|
|
|
145,118 |
|
Distributions
payable |
|
17,327 |
|
|
|
16,904 |
|
Management fee
payable |
|
6,413 |
|
|
|
7,373 |
|
Performance-based
incentive fee payable |
|
4,791 |
|
|
|
4,660 |
|
Interest payable |
|
3,217 |
|
|
|
2,485 |
|
Administrative services
expense payable |
|
1,664 |
|
|
|
2,756 |
|
Other liabilities and
accrued expenses |
|
3,352 |
|
|
|
1,193 |
|
Total liabilities |
$ |
723,994 |
|
|
$ |
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 |
|
(9,951 |
) |
|
|
(13,319 |
) |
Accumulated net
realized loss |
|
(73,185 |
) |
|
|
(73,742 |
) |
Net unrealized
appreciation |
|
18,162 |
|
|
|
16,903 |
|
Total net assets |
$ |
926,789 |
|
|
$ |
921,605 |
|
Net Asset Value
Per Share |
$ |
21.93 |
|
|
$ |
21.81 |
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
June 30, 2018 |
|
June 30, 2017 |
INVESTMENT
INCOME: |
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
$ |
24,664 |
|
|
$ |
21,599 |
|
Companies
more than 25% owned |
|
673 |
|
|
|
308 |
|
Dividends: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
4 |
|
|
|
6 |
|
Companies
more than 25% owned |
|
12,828 |
|
|
|
11,676 |
|
Other income: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
956 |
|
|
|
237 |
|
Companies
more than 25% owned |
|
63 |
|
|
|
62 |
|
Total
investment income |
|
39,188 |
|
|
|
33,888 |
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
Management fees |
$ |
6,413 |
|
|
$ |
6,567 |
|
Performance-based
incentive fees |
|
4,791 |
|
|
|
3,983 |
|
Interest and other
credit facility expenses |
|
6,092 |
|
|
|
4,957 |
|
Administrative services
expense |
|
1,406 |
|
|
|
1,313 |
|
Other general and
administrative expenses |
|
1,321 |
|
|
|
989 |
|
Total
expenses |
|
20,023 |
|
|
|
17,809 |
|
Net
investment income |
$ |
19,165 |
|
|
$ |
16,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
190 |
|
|
$ |
(90 |
) |
Companies
5% to 25% owned |
|
— |
|
|
|
(4 |
) |
Companies
more than 25% owned |
|
— |
|
|
|
— |
|
Net
realized gain (loss) on investments and cash equivalents |
|
190 |
|
|
|
(94 |
) |
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
|
|
|
|
|
Companies
less than 5% owned |
|
(3,116 |
) |
|
|
4,441 |
|
Companies
5% to 25% owned |
|
— |
|
|
|
— |
|
Companies
more than 25% owned |
|
3,551 |
|
|
|
(1,643 |
) |
Net
change in unrealized gain |
|
435 |
|
|
|
2,798 |
|
Net
realized and unrealized gain on investments, cash equivalents and
foreign currencies |
|
625 |
|
|
|
2,704 |
|
|
|
|
|
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
19,790 |
|
|
$ |
18,783 |
|
EARNINGS PER
SHARE |
$ |
0.47 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
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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