Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $18.4
million, or $0.44 per share, for the third quarter 2018.
At September 30, 2018, net asset value (NAV) was
$21.95 per share, an increase from the prior quarter. In addition,
the Company’s portfolio was 100% performing at September 30,
2018.
The Board declared a fourth quarter distribution
of $0.41 per share payable January 4, 2019 to
stockholders of record as of December 20, 2018. The specific
tax characteristics will be reported to stockholders on Form 1099
after the end of the calendar year.
HIGHLIGHTS:
At September 30, 2018:
Comprehensive Investment portfolio* fair value: $1.70
billion Number of portfolio companies: 230
Net assets: $927.6 million Net
asset value per share: $21.95
Comprehensive Investment Portfolio Activity** for the
Quarter Ended September 30, 2018:
Investments made during the quarter: $202.8
million Investments prepaid and sold during the
quarter: $283.7 million
Operating Results for the Quarter Ended September 30,
2018:
Net investment income: $18.4 million
Net investment income per share: $0.44
Net realized and unrealized gain: ($0.3) million
Net increase in net assets from operations: $18.1
million Earnings per share: $0.43
* The Comprehensive Investment Portfolio is
comprised of Solar Capital Ltd.’s investment portfolio, Crystal
Financial’s full portfolio (including its ownership of its SBIC),
and NEF Holdings, LLC’s (“NEF”) full portfolio and excludes the
fair value of the equity interests in Crystal Financial and
NEF.
** Includes investment activity through Crystal Financial and
NEF, as well as the investment activity attributable to the Company
through SSLP and SSLP II prior to their consolidation.
“We are pleased with our third quarter's
results, as well as the strong foundation we’ve built,” said
Michael Gross, Chairman and CEO. “Our portfolio is one hundred
percent performing, and, year-to-date, our NII per share has
exceeded distributions by 9%. At September 30, 2018, approximately
69% 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 lending niches.
The reduction of our asset coverage requirement provides increased
flexibility and capacity to expand our asset-based loan portfolio
and positions us for net investment income growth.”
Conference Call and WebcastThe
Company will host an earnings conference call and audio webcast
at 10:00 a.m. (Eastern Time) on Tuesday, November 6,
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 7598613 when prompted. A telephone replay
will be available until November 20, 2018 and can be accessed by
dialing (855) 859-2056 and using the passcode 7598613.
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,
2018, Solar Capital had total originations of $202.8 million and
repayments of $283.7 million across its four core business units:
cash flow, asset-based, equipment finance, and life science
lending.
Comprehensive
Investment Portfolio Activity(1) Q3 2018
(in millions) |
Asset Class |
Cash Flow
Loans |
Asset-based Loans /
CrystalFinancial(2) |
Equipment Financings
/NEF(3) |
Life Science
Loans |
TotalPortfolio Activity |
Q3 2018 Originations |
$45.4 |
$63.1 |
$61.5 |
$32.8 |
$202.8 |
Q3 2018Repayments / Amortization |
$165.2 |
$40.3 |
$44.0 |
$34.2 |
$283.7 |
Net Portfolio Activity |
($119.8) |
$22.8 |
$17.5 |
($1.4) |
($80.9) |
|
|
|
|
|
|
- Portfolio activity includes gross originations/repayments
across each business unit, including investment activity
attributable to the Company through SSLP and SSLP II prior to their
consolidation.
- Includes Crystal Financial’s full portfolio (and its ownership
of its SBIC) and asset-based loans on the Company’s balance
sheet.
- Includes NEF’s full portfolio and NEF equipment financings on
the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at September 30, 2018 was as follows:
Comprehensive Investment Portfolio
Composition (at fair value) |
Amount |
|
|
WeightedAverage Asset
Yield |
($mm) |
% |
Cash Flow Senior
Secured Loans |
$499.4 |
29.4% |
9.8%(5) |
Asset-Based Senior
Secured Loans / Crystal Financial(1) |
$588.8 |
34.6% |
12.3%(6) |
Equipment Senior
Secured Financings / NEF(2) |
$376.3 |
22.2% |
11.2%(7) |
Life
Science Senior Secured Loans |
$204.8 |
12.0% |
11.6%(8) |
Total Senior
Secured Loans |
$1,669.3 |
98.2% |
11.2% |
Equity
and Equity-like Securities(3) |
$29.8 |
1.8% |
|
Total Comprehensive Investment Portfolio |
$1,699.1 |
100% |
|
Floating
Rate Investments(4) |
$1,254.5 |
74.7% |
|
First
Lien Senior Secured Loans |
$1,418.9 |
83.5% |
|
Second
Lien Senior Secured Loans |
$250.4 |
14.7% |
|
- 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.
- Includes NEF’s full portfolio and NEF equipment financings on
the Company’s balance sheet.
- Excludes Crystal and NEF, which distribute quarterly cash
dividends to the Company.
- 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.
- Represents the weighted average of each individual loan’s yield
to maturity based on fair market value at September 30, 2018.
- Represents the weighted average of each individual loan’s
underwritten yield to expected repayment date, which is based on a
historical average realized investment duration.
- Represents the weighted average of each individual loan’s yield
to maturity (excluding residual upside on tax leases).
- Represents the weighted average of each individual loan’s yield
to maturity based on fair value at September 30, 2018 (excluding
exit fees or warrants).
The Comprehensive Investment Portfolio is
diversified across approximately 230 unique issuers across
approximately 92 industries and with an average exposure of $7.4
million or 0.4% per issuer.
At September 30, 2018, 98.2% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans, comprised of 83.5% first lien senior secured loans and
approximately 14.7% second lien senior secured loans. Year to date,
as of September 30, 2018, second lien loan exposure of the
Comprehensive Investment Portfolio has declined by approximately
$260 million, as the Company has focused its origination efforts on
first lien and stretch first lien cash flow loans to upper middle
market companies as well as commercial finance investments.
The weighted average yield at fair value of all
income-producing investments in the Comprehensive Portfolio was
11.2% at September 30, 2018 compared to 10.9% at June 30, 2018.
Solar Capital Ltd.
Portfolio
Asset Quality
As of September 30, 2018, 100% of the Company’s
portfolio was performing.
The Company puts its greatest emphasis on risk
mitigation 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, 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 |
$144.5 |
10.2% |
2 |
$1,221.5 |
86.6% |
3 |
$43.9 |
3.1% |
4 |
$0.9 |
0.1% |
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
Income Q3 2018(in millions) |
For
thePeriod: |
Cash Flow Lending(1) |
Asset-based Lending /Crystal Financial(2) |
Equipment Financing /NEF(3) |
Life Science Lending |
Total |
Q3 2018 |
$13.6 |
$10.1 |
$5.5 |
$7.9 |
$37.1 |
% Contribution |
36.7% |
27.2% |
14.9% |
21.2% |
100% |
|
|
|
|
|
|
- Includes interest income/fees from cash flow loans on balance
sheet and distributions from SSLP and SSLP II prior to their
consolidation.
- Includes interest income/fees from asset based loans on balance
sheet and distributions from Crystal Financial.
- Includes interest income/fees from equipment financings on
balance sheet and distributions from NEF Holdings.
Solar Capital Ltd.’s Results of Operations for the
Quarter Ended September 30, 2018 compared to the Quarter Ended
September 30, 2017.
Investment Income
For the fiscal quarters ended September 30, 2018
and 2017, gross investment income totaled $37.1 million and $36.1
million, respectively. The increase in gross investment income from
Q3 2017 to Q3 2018 was primarily due to an increase in the average
size of the income-producing investment portfolio.
Expenses
Net expenses totaled $18.7 million and $18.8
million, respectively, for the fiscal quarters ended September 30,
2018 and 2017.
Net Investment Income
The Company’s net investment income totaled $18.4 million and
$17.3 million, or $0.44 and $0.41 per average share, respectively,
for the fiscal quarters ended September 30, 2018 and 2017.
Net Realized and Unrealized Gain / (Loss)
Net realized and unrealized losses for the
fiscal quarters ended September 30, 2018 and 2017 totaled
approximately ($0.3) million and ($0.2) million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the fiscal quarters ended September 30, 2018
and 2017, the Company had a net increase in net assets resulting
from operations of $18.1 million and $17.2 million, respectively.
For the fiscal quarters ended September 30, 2018 and 2017, earnings
per average share were $0.43 and $0.41, respectively.
Senior Secured Unitranche Loan Program LLC and Senior
Secured Unitranche Loan Program II LLC
On September 18, 2018, SSLP became a wholly owned investment
subsidiary of the Company. As a result, the Company has
consolidated SSLP on its balance sheet at quarter end.
On September 14, 2018, SSLP II became a wholly owned investment
subsidiary of the Company. As a result, the Company has
consolidated SSLP II on its balance sheet at quarter end.
Liquidity and Capital Resources
As of September 30, 2018, the Company had a
total of $636.8 million of unused borrowing capacity under the
Company’s credit facilities, subject to borrowing base limits.
When including Crystal Financial and NEF
Holdings, the Company had a total of approximately $730 million of
unused borrowing capacity under its revolving credit facilities,
subject to borrowing base limits.
Subsequent Event
The Small Business Credit Availability Act
permits BDCs to reduce the required minimum asset coverage ratio
applicable to a BDC from 200% to 150%, subject to certain
requirements therein. At the Company’s Annual Stockholder Meeting
held on October 11, 2018, the Company’s stockholders approved the
proposal to authorize the Company to become subject to a minimum
asset coverage ratio of at least 150% effective as of October 12,
2018. The Company previously announced that its board of directors,
including a “required majority” approved the Reduced Asset Coverage
Ratio, which would have become effective August 2, 2019. However,
as a result of the stockholder approval at the Company’s Annual
Meeting, the asset coverage ratio will be decreased to the new
requirement permitting the Company to incur additional leverage as
of October 12, 2018.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
September 30,2018 (unaudited)
|
|
December 31,2017 |
Assets |
|
|
Investments at fair
value: |
|
|
Companies less than 5%
owned (cost: $894,050 and $835,041, respectively) |
$ |
893,481 |
|
|
$ |
834,410 |
|
Companies
more than 25% owned (cost: $499,089 and $609,226,
respectively) |
|
517,299 |
|
|
|
626,760 |
|
Cash |
|
10,182 |
|
|
|
5,963 |
|
Cash equivalents (cost:
$199,806 and $144,826, respectively) |
|
199,806 |
|
|
|
144,826 |
|
Receivable for
investments sold |
|
25,864 |
|
|
|
6,160 |
|
Dividends
receivable |
|
9,745 |
|
|
|
15,013 |
|
Interest
receivable |
|
8,134 |
|
|
|
7,336 |
|
Other receivable |
|
— |
|
|
|
58 |
|
Prepaid expenses and
other assets |
|
781 |
|
|
|
1,039 |
|
|
|
|
Total assets |
$ |
1,665,292 |
|
|
$ |
1,641,565 |
|
|
|
|
Liabilities |
|
|
Revolving credit
facility |
$ |
114,000 |
|
|
$ |
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 $274 and $316, respectively.) |
|
20,726 |
|
|
|
20,684 |
|
Unsecured senior notes
due 2023 ($75,000 and $75,000 face amounts, respectively, reported
net of unamortized debt issuance costs of $1,537 and
$1,813, respectively.) |
|
73,463 |
|
|
|
73,187 |
|
Term loans |
|
50,000 |
|
|
|
50,000 |
|
SSLP 2016-1, LLC
revolving credit facility |
|
22,998 |
|
|
|
— |
|
SSLP II 2016-1, LLC
revolving credit facility |
|
26,168 |
|
|
|
— |
|
NEFPASS SPV LLC credit
facility ($30,000 and $0 face amounts, respectively, reported net
of unamortized debt issuance costs of $1,129 and $0,
respectively.) |
|
28,871 |
|
|
|
— |
|
Payable for investments
and cash equivalents purchased |
|
210,221 |
|
|
|
145,118 |
|
Distributions
payable |
|
18,007 |
|
|
|
16,904 |
|
Management fee
payable |
|
6,399 |
|
|
|
7,373 |
|
Performance-based
incentive fee payable |
|
4,604 |
|
|
|
4,660 |
|
Interest payable |
|
6,768 |
|
|
|
2,485 |
|
Administrative services
expense payable |
|
2,067 |
|
|
|
2,756 |
|
Other liabilities and
accrued expenses |
|
3,408 |
|
|
|
1,193 |
|
Total liabilities |
$ |
737,700 |
|
|
$ |
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 |
|
(8,862 |
) |
|
|
(13,319 |
) |
Accumulated net
realized loss |
|
(72,505 |
) |
|
|
(73,742 |
) |
Net unrealized
appreciation |
|
17,196 |
|
|
|
16,903 |
|
Total net assets |
$ |
927,592 |
|
|
$ |
921,605 |
|
Net Asset Value
Per Share |
$ |
21.95 |
|
|
$ |
21.81 |
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
|
|
|
|
Three months ended |
|
September 30, 2018 |
|
September 30, 2017 |
INVESTMENT
INCOME: |
|
|
Interest: |
|
|
Companies less than 5%
owned |
$ |
21,859 |
|
|
$ |
21,465 |
|
Companies
more than 25% owned |
|
884 |
|
|
|
293 |
|
Dividends: |
|
|
Companies
less than 5% owned |
|
12 |
|
|
|
5 |
|
Companies
more than 25% owned |
|
14,255 |
|
|
|
13,726 |
|
Other income: |
|
|
Companies
less than 5% owned |
|
83 |
|
|
|
264 |
|
Companies
more than 25% owned |
|
49 |
|
|
|
394 |
|
|
|
|
Total
investment income |
|
37,142 |
|
|
|
36,147 |
|
|
|
|
EXPENSES: |
|
|
Management fees |
$ |
6,399 |
|
|
$ |
6,751 |
|
Performance-based
incentive fees |
|
4,604 |
|
|
|
4,329 |
|
Interest and other
credit facility expenses |
|
5,521 |
|
|
|
5,348 |
|
Administrative services
expense |
|
1,459 |
|
|
|
1,346 |
|
Other general and
administrative expenses |
|
743 |
|
|
|
1,058 |
|
|
|
|
Total
expenses |
|
18,726 |
|
|
|
18,832 |
|
|
|
|
Net investment income |
$ |
18,416 |
|
|
$ |
17,315 |
|
|
|
|
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 |
$ |
687 |
|
|
$ |
(28 |
) |
Companies
5% to 25% owned |
|
(7 |
) |
|
|
(8,515 |
) |
Companies
more than 25% owned |
|
— |
|
|
|
— |
|
|
|
|
Net
realized gain (loss) on investments and cash equivalents |
|
680 |
|
|
|
(8,543 |
) |
Net realized gain
(loss) on foreign currencies |
|
— |
|
|
|
2 |
|
|
|
|
Net realized gain (loss) |
|
680 |
|
|
|
(8,541 |
) |
|
|
|
Net change in
unrealized gain (loss) on investments and cash equivalents: |
|
|
Companies less
than 5% owned |
|
530 |
|
|
|
1,061 |
|
Companies 5% to
25% owned |
|
— |
|
|
|
8,511 |
|
Companies more
than 25% owned |
|
(1,496 |
) |
|
|
(1,182 |
) |
|
|
|
|
|
|
Net
change in unrealized gain (loss) on investments and
cash equivalents |
|
(966 |
) |
|
|
8,390 |
|
Net change in
unrealized loss on foreign currencies |
|
— |
|
|
|
(1 |
) |
|
|
|
Net
change in unrealized gain (loss) |
|
(966 |
) |
|
|
8,389 |
|
|
|
|
Net
realized and unrealized gain (loss) on investments,
cash equivalents and foreign currencies |
|
(286 |
) |
|
|
(152 |
) |
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ |
18,130 |
|
|
$ |
17,163 |
|
|
|
|
EARNINGS PER
SHARE |
$ |
0.43 |
|
|
$ |
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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