Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $18.5
million, or $0.44 per share, for the fourth quarter of 2018. For
the fiscal year ended December 31, 2018, the Company reported net
investment income of $74.9 million, or $1.77 per share, an
increase of 9.5%. Net investment income for the year ended December
31, 2017 was $68.4 million.
At December 31, 2018, net asset value (NAV) was
$21.75 per share. At year end, Solar Capital’s investment portfolio
remained 100% performing.
The Company’s Board of Directors declared a
first quarter 2019 distribution of $0.41 per share,
payable on April 3, 2019, to stockholders of record
on March 21, 2019. The specific tax characteristics will
be reported to stockholders on Form 1099 after the end of the
calendar year.
HIGHLIGHTS:
At December 31, 2018:
Comprehensive Investment portfolio* fair value: $1.7
billionNumber of portfolio companies: 222Net assets: $919.2
millionNet asset value per share: $21.75
Comprehensive Investment Portfolio Activity* for the
Quarter Ended December 31, 2018:
Investments made during the quarter: $284.0 millionInvestments
prepaid and sold during the quarter: $273.1 million
Comprehensive Investment Portfolio Activity** for the
Year Ended December 31, 2018:
Investments made during the year: $959.5 million Investments
prepaid and sold during the year: $998.6 million
Operating Results for the Quarter Ended December 31,
2018:
Net investment income: $18.5 millionNet investment income per
share: $0.44Net realized and unrealized loss: $9.5 million Net
increase in net assets from operations: $8.9 millionEarnings per
share: $0.21
Operating Results for the Year Ended December 31,
2018:
Net investment income: $74.9 millionNet investment income per
share: $1.77Net realized and unrealized loss: $8.0 million Net
increase in net assets from operations: $66.9 millionEarnings per
share: $1.58
* The Comprehensive Investment Portfolio for the
quarter ended December 31, 2018 is comprised of Solar Capital
Ltd.’s investment portfolio, Crystal Financial’s (“Crystal”) full
portfolio and NEF Holdings, LLC (“NEF”) full portfolio, and
excludes the fair value of the equity interests in Crystal and
NEF.
** Comprehensive Portfolio Activity for the year
ended December 31, 2018 includes gross originations through Crystal
and NEF, and includes investment activity through the Senior
Secured Unitranche Loan Program LLC (“SSLP”) and Senior Secured
Unitranche Loan Program II (“SSLP II”), prior to the date of
consolidation, attributable to the Company.
“Our strategy of investing in senior secured
loans and developing diversified specialty finance verticals
continues to drive strong results in credit quality, NAV
preservation, and earnings power. At year end, 100% of the
portfolio was performing, NAV is stable and FY 2018 net investment
income increased 9.5% over the prior year,” said Michael Gross,
Chairman and CEO. “Over 72% of the Company’s Comprehensive
Investment Portfolio was invested in commercial finance loans,
reflecting our ongoing transition to a diversified specialty
finance platform. These businesses have enhanced the Company’s
ability to generate sustainable net investment income above our
dividend level, while remaining under-levered. With significant dry
powder across our verticals, we believe we are well positioned for
continued earnings growth in 2019.”
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 22, 2019. 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 9278405 when prompted. A telephone replay will be
available until March 8, 2019 and can be accessed by
dialing (855) 859-2056 and using the passcode 9278405.
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, 2018,
Solar Capital had total originations of $284.0 million and
repayments of $273.1 million across the Company’s four core
business units: cash flow, asset-based, equipment finance, and life
science lending.
The investment activity of our Comprehensive
Investment Portfolio for the quarter ended December 31, 2018 was as
follows:
|
Total Portfolio
Activity (1) – Q4 2018(in
millions) |
Asset Class |
Cash Flow Loans |
Asset-based Loans / Crystal Financial(2) |
Equipment Financings / NEF(3) |
Life Science Loans |
TotalPortfolio Activity |
Originations |
$51.4 |
$133.3 |
$36.0 |
$63.3 |
$284.0 |
Repayments /Amortization |
$106.9 |
$113.5 |
$35.2 |
$17.5 |
$273.1 |
Net PortfolioActivity |
($55.5) |
$19.8 |
$0.8 |
$45.8 |
$10.9 |
- Total Portfolio Activity includes gross originations/repayments
across each business unit.
- Includes Crystal Financial’s full portfolio 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.
During the year ended December 31, 2018, Solar
Capital had originations of $959.5 million and repayments of $998.6
million. Net originations of asset-based lending / specialty
finance businesses were approximately $250 million while net
originations of cash flow loans declined by approximately $290
million. Approximately $165 million of the decline in cash flow net
originations was attributed to the repayment of second lien loans
all at par or higher.
|
Total
Portfolio Activity (1) – For the Year Ended 2018(in
millions) |
AssetClasses |
Cash Flow Loans(2) |
Asset-based Loans / Crystal Financial(3) |
Equipment Financings / NEF(4) |
Life Science Loans |
TotalPortfolio Activity |
Originations |
$171.6 |
$374.5 |
$183.9 |
$229.5 |
$959.5 |
Repayments /Amortization |
$458.4 |
$235.9 |
$110.8 |
$193.5 |
$998.6 |
Net PortfolioActivity |
($286.8) |
$138.6 |
$73.1 |
$36.0 |
$(39.1) |
- Total Portfolio Activity includes gross originations/repayments
across each business unit, including investment activity in SSLP
and SSLP II
- Includes cash flow loan activity on the Company’s balance sheet
and in SSLP and SSLP II’s, prior to the date of consolidation,
attributable to the Company.
- Includes Crystal’s full portfolio and asset-based loans on the
Company’s balance sheet.
- Includes NEF’s full portfolio and NEF equipment financings on
the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at December 31, 2018 was as follows:
Comprehensive Investment Portfolio Composition
(at fair value) |
Amount |
Weighted Average Asset Yield(4) |
($mm) |
% |
Cash Flow Senior Secured Loans |
$444.3 |
25.9% |
9.9% |
Asset-Based Senior Secured Loans / Crystal
Financial(1) |
$609.5 |
35.5% |
12.3% |
Equipment Senior Secured Financings / NEF(2) |
$380.9 |
22.2% |
11.0% |
Life Science Senior
Secured Loans |
$249.9 |
14.6% |
11.7%(5) |
Total Senior Secured Loans |
$1,684.6 |
98.2% |
|
Equity and Equity-like
Securities |
$30.0 |
1.8% |
|
Total
Comprehensive Investment Portfolio |
$1,714.6 |
100% |
|
Floating Rate Investments(3) |
$1,276.3 |
75.0% |
|
- Includes Crystal’s full portfolio and asset-based and lender
finance loans on the Company’s balance sheet and excludes the
Company’s equity investment in Crystal.
- Includes NEF’s full portfolio and NEF equipment financings on
the Company’s balance sheet and excludes the Company’s equity
investments in NEF.
- 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.
- The weighted average asset yield for cash flow, asset-based and
life science loans on balance sheet is based on a yield to maturity
calculation. The weighted average yield for equipment financing and
Crystal asset-based loans is calculated based on the expected
average life of a loan for each asset class.
- Life Science yields exclude the impact of success fees and/or
warrants.
The Comprehensive Investment Portfolio is
diversified across over 222 unique issuers across over 90
industries and with an average exposure of $7.8 million or 0.45%
per issuer.
At year end, 98.2% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans of which 88.6% is in first lien senior secured loans and
11.4% is in senior secured second lien loans.
Solar Capital Ltd.’s Results of Operations for the
Fiscal Year Ended December 31, 2018 compared to the Fiscal Year
Ended December 31, 2017.
Investment Income
For the fiscal years ended December 31, 2018 and
2017, gross investment income totaled $153.5 million and $143.3
million, respectively. The increase in gross investment income from
2017 to 2018 was primarily due to growth of the average income
producing portfolio.
Investment Income Contribution by Business Unit (1) (in
millions) |
For the YearEnded: |
Cash Flow Lending |
Asset-based Lending / Crystal Financial |
Equipment Financing / NEF |
Life Science Lending |
Total |
12/31/2018 |
$56.6 |
$41.2 |
$21.9 |
$33.8 |
$153.5 |
% Contribution |
36.9% |
26.8% |
14.3% |
22.0% |
100.0% |
- Investment Income Contribution by Business Unit includes
interest income/fees from cash flow loans on balance sheet,
income/fees from asset based loans on balance sheet and
distributions from Crystal, income/fees from equipment financings
and distributions from NEF, and income/fees from life science
loans.
Expenses
Net expenses totaled $78.6 million and $75.0
million, respectively, for the fiscal years ended December 31, 2018
and 2017. The increase in expenses from 2017 to 2018 was primarily
due to higher interest expense resulting from generally higher
LIBOR and an increase in average borrowings to support a larger
average income producing investment portfolio.
Net Investment Income
SLRC’s net investment income totaled $74.9 million and $68.4
million, or $1.77 and $1.62, per average share, respectively, for
the fiscal years ended December 31, 2018 and 2017.
Net Realized and Unrealized Gain (Loss)
Net realized and unrealized gains (loss) for the
fiscal years ended December 31, 2018 and 2017 totaled approximately
$(8.0) million and $2.1 million, respectively. The net realized and
unrealized loss for the fiscal year ended December 31, 2018 was
primarily due to unrealized depreciation in the value of select
investments, partially offset by unrealized appreciation of in the
value of select investments and realized gains related to the sale
of select assets and the redemption of warrants.
Net Increase in Net Assets Resulting From
Operations
For the fiscal years ended December 31, 2018 and
2017, SLRC had a net increase in net assets resulting from
operations of $66.9 million and $70.4 million, respectively. For
the fiscal years ended December 31, 2018 and 2017, earnings per
average share were $1.58 and $1.67, respectively.
Modified Minimum Asset Coverage Ratio Shareholder
Authorization
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 was decreased to the new
requirement permitting the Company to incur additional leverage as
of October 12, 2018.
Liquidity and Capital Resources
On November 21, 2018, the Company amended its
Credit Facility which, among other things, reduced the asset
coverage covenant from 200% to 150% and made certain related
changes to the borrowing base calculations.
As of December 31, 2018, the Company had a total
of approximately $550 million of unused borrowing capacity under
its revolving credit facilities, subject to borrowing base limits.
When including the unused borrowing capacity of the non-recourse
credit facilities of Crystal and NEF, the Company had approximately
$700 million of unused borrowing capacity under its credit
facilities, subject to borrowing base limits at December 31,
2018.
Credit Rating
On November 28, 2018, Moody’s Investors Service
assigned an investment grade rating of Baa3, with a stable outlook
to Solar Capital. The Company is rated investment grade by both
Moody’s Investor Service and Fitch Ratings, Inc.
Solar Capital Ltd.
Portfolio
Asset Quality
As of December 31, 2018, 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, 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 |
$75.9 |
5.2% |
2 |
$1,307.3 |
89.8% |
3 |
$72.3 |
5.0% |
4 |
$0.6 |
0.0% |
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
December
31, 2018 |
|
December
31, 2017 |
Assets |
|
|
|
Investments at fair
value: |
|
|
|
Companies
less than 5% owned (cost: $948,478 and $835,041, respectively) |
$
944,597 |
|
$
834,410 |
Companies
more than 25% owned (cost: $500,792 and $609,226,
respectively) |
511,483 |
|
626,760 |
Cash |
7,570 |
|
5,963 |
Cash equivalents (cost:
$199,646 and $144,826, respectively) |
199,646 |
|
144,826 |
Dividends receivable |
9,065 |
|
15,013 |
Interest receivable |
7,619 |
|
7,336 |
Receivable for investments
sold |
2,073 |
|
6,160 |
Other receivable |
593 |
|
58 |
Prepaid expenses and other
assets |
783 |
|
1,039 |
|
|
|
|
Total assets. |
$ 1,683,429 |
|
$ 1,641,565 |
|
|
|
|
Liabilities |
|
|
|
Revolving credit
facility |
$
96,400 |
|
$
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 $123 and $316,
respectively |
20,877 |
|
20,684 |
Unsecured senior notes due
2023 ($75,000 and $75,000 face amounts, respectively, reported net
of unamortized debt issuance costs of $1,457 and $1,813,
respectively |
73,543 |
|
73,187 |
Term loans |
50,000 |
|
50,000 |
SSLP 2016-1, LLC revolving
credit facility (the “SSLP Facility”) |
53,785 |
|
— |
NEFPASS SPV LLC credit
facility ($30,000 and $0 face amounts, respectively, reported net
of unamortized debt issuance costs of $1,067 and $0,
respectively |
28,933 |
|
— |
Payable for investments
and cash equivalents purchased |
251,391 |
|
145,118 |
Distributions payable |
17,542 |
|
16,904 |
Management fee
payable |
6,504 |
|
7,373 |
Performance-based
incentive fee payable |
4,613 |
|
4,660 |
Interest payable |
4,714 |
|
2,485 |
Administrative services
expense payable |
2,716 |
|
2,756 |
Other liabilities and
accrued expenses |
3,240 |
|
1,193 |
|
|
|
|
Total liabilities |
$ 764,258 |
|
$ 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 |
992,438 |
|
991,340 |
Accumulated distributable
net loss |
(73,690) |
|
(70,158) |
|
|
|
|
Total net assets |
$ 919,171 |
|
$ 921,605 |
|
|
|
|
Net Asset Value
Per Share |
$ 21.75 |
|
$ 21.81 |
|
|
|
|
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
|
|
|
|
2018 |
|
2017 |
INVESTMENT
INCOME: |
|
|
|
Interest: |
|
|
|
Companies
less than 5% owned |
$ 98,172 |
|
$
88,014 |
Companies
more than 25% owned |
2,827 |
|
1,222 |
Dividends: |
|
|
|
Companies
less than 5% owned |
28 |
|
26 |
Companies
more than 25% owned |
50,953 |
|
52,496 |
Other income: |
|
|
|
Companies
less than 5% owned |
1,367 |
|
1,334 |
Companies
more than 25% owned |
179 |
|
246 |
|
|
|
|
Total
investment income |
153,526 |
|
143,338 |
|
|
|
|
EXPENSES: |
|
|
|
Management fees |
25,789 |
|
27,409 |
Performance-based
incentive fees |
18,722 |
|
17,055 |
Interest and other credit
facility expenses |
24,728 |
|
21,666 |
Administrative services
expense |
5,247 |
|
5,215 |
Other general and
administrative expenses |
4,151 |
|
3,630 |
|
|
|
|
Total
expenses |
78,637 |
|
74,975 |
|
|
|
|
Net
investment income |
$ 74,889 |
|
$ 68,363 |
|
|
|
|
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 |
$ 1,857 |
|
$
310 |
Companies 5%
to 25% owned |
246 |
|
(8,104) |
Companies
more than 25% owned |
(25) |
|
(6) |
|
|
|
|
Net realized
gain (loss) on investments and cash equivalents |
2,078 |
|
(7,800) |
Net realized loss on
extinguishment of debt: |
— |
|
(2,782) |
Net realized gain (loss)
on foreign currencies: |
— |
|
(1,433) |
|
|
|
|
Net realized
gain (loss) |
2,078 |
|
(12,015) |
|
|
|
|
Net change in unrealized
gain (loss) on investments and cash equivalents: |
|
|
|
Companies
less than 5% owned |
(2,805) |
|
10,541 |
Companies 5%
to 25% owned |
— |
|
7,734 |
Companies
more than 25% owned |
(7,288) |
|
(4,193) |
|
|
|
|
Net change
in unrealized gain (loss) |
(10,093) |
|
14,082 |
|
|
|
|
Net realized
and unrealized gain (loss) on investments, cash
equivalents and foreign currencies |
(8,015) |
|
2,067 |
|
|
|
|
NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS |
$ 66,874 |
|
$ 70,430 |
|
|
|
|
EARNINGS PER
SHARE |
$ 1.58 |
|
$ 1.67 |
|
|
|
|
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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