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 second quarter 2019.
At June 30, 2019, net asset value (NAV) was
$21.98 per share, an increase from $21.93 the prior quarter. In
addition, the Company’s portfolio was 100% performing at June 30,
2019.
The Board declared a third quarter distribution
of $0.41 per share payable on October 2, 2019 to
stockholders of record as of September 19, 2019. The specific
tax characteristics will be reported to stockholders on Form 1099
after the end of the calendar year.
HIGHLIGHTS:
At June 30, 2019:
- Comprehensive Investment portfolio* fair value: $1.75
billion
- Number of portfolio companies: 226
- Net assets: $929.0 million
- Net asset value per share: $21.98
Comprehensive Investment Portfolio Activity** for the
Quarter Ended June 30, 2019:
- Investments made during the quarter: $120.4 million
- Investments prepaid and sold during the quarter: $162.1
million
Operating Results for the Quarter Ended June 30,
2019:
- Net investment income: $18.4 million
- Net investment income per share: $0.44
- Net realized and unrealized gain: $1.2 million
- Net increase in net assets from operations: $19.6 million
- Earnings per share: $0.46
* 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
(including its ownership of its SBIC), and NEF.
“We are pleased with our second quarter results,
during which our NII per share continued to exceed distributions,
NAV increased and our portfolio is one hundred percent performing,”
said Michael Gross, Co-CEO. “At June 30, 2019, over 75% of the
Company’s assets were investments in Solar Capital’s commercial
finance verticals, reflecting our successful transition to a
specialty finance platform focused on senior secured lending across
a number of middle market niches.”
“Given the frothy credit markets, Solar Capital
continues to take a conservative investment approach with a focus
on first lien senior secured transactions which now represent over
88% of our portfolio,” said Bruce Spohler, Co-CEO. “With our
available capital to grow our portfolio, we believe Solar Capital
is positioned for net investment income growth over the balance of
2019.”
Conference Call and WebcastThe
Company will host an earnings conference call and audio webcast at
10:00 a.m. (Eastern Time) on Tuesday, August 6, 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 1987781 when prompted. A telephone replay
will be available until August 20, 2019 and can be accessed by
dialing (855) 859-2056 and using the passcode 1987781.
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, 2019,
Solar Capital had total originations of $120.4 million and
repayments and amortization of $162.1 million across its four core
business units: cash flow, asset-based, equipment finance, and life
science lending.
|
Comprehensive Investment Portfolio Activity(1)
Q2 2019 (in millions) |
Asset Class |
Cash Flow Loans |
Asset-based Loans / CrystalFinancial(2) |
Equipment Financings / NEF(3) |
Life Science Loans |
TotalPortfolio Activity |
Originations |
$4.9 |
$47.5 |
$37.6 |
$30.4 |
$120.4 |
Repayments / Amortization |
$23.9 |
$93.5 |
$39.1 |
$5.6 |
$162.1 |
Net Portfolio Activity |
($19.0) |
($46.0) |
($1.5) |
$24.8 |
($41.7) |
|
|
|
|
|
|
|
|
|
|
|
|
- Portfolio activity includes gross originations/repayments
across each business unit.
- Includes Crystal Financial’s full portfolio (and its ownership
of its SBIC) and asset-based loans on the Company’s balance
sheet.
- Includes NEF’s full portfolio and NEF equipment financings on
the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at June 30, 2019 was as follows:
|
|
|
Comprehensive Investment Portfolio Composition (at
fair value) |
Amount |
Weighted Average Asset Yield |
($mm) |
% |
Cash Flow
Senior Secured Loans |
$404.0 |
23.1% |
9.8%(5) |
Asset-Based Senior Secured Loans / Crystal Financial(1) |
$595.0 |
34.1% |
11.5%(6) |
Equipment Senior Secured Financings / NEF(2) |
$396.1 |
22.7% |
10.4%(7) |
Life Science Senior
Secured Loans |
$320.7 |
18.4% |
11.1%(8) |
Total Senior Secured Loans |
$1,715.8 |
98.3% |
10.8% |
Equity and Equity-like
Securities(3) |
$30.3 |
1.7% |
|
Total
Comprehensive Investment Portfolio |
$1,746.1 |
100% |
|
Floating Rate
Investments(4) |
$1,314.6 |
75.9% |
|
First Lien Senior
Secured Loans |
$1,542.9 |
88.4% |
|
Second Lien Senior
Secured Cash Flow Loans |
$100.6 |
5.8% |
|
Second Lien Senior
Secured Asset-Based Loans |
$72.3 |
4.1% |
|
|
|
|
|
- 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 June 30, 2019.
- 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 June 30, 2019 (excluding exit
fees or warrants).
The Comprehensive Investment Portfolio is
diversified across approximately 226 unique issuers across
approximately 97 industries and with an average exposure of $7.7
million or 0.4% per issuer.
At June 30, 2019, 98.3% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans, comprised of 88.4% first lien senior secured loans and
approximately 9.9% second lien senior secured loans of which 5.8%
were second lien cash flow loans and 4.1% were second lien
asset-based loans.
The weighted average yield at fair value of all
income-producing investments in the Comprehensive Portfolio was
10.8% at June 30, 2019.
Solar Capital Ltd.
Portfolio
Asset Quality
As of June 30, 2019, 100% of the Company’s
portfolio was performing.
The Company puts its greatest emphasis on risk
mitigation and credit performance. On a quarterly basis, or more
frequently if deemed necessary, the Company formally rates each
portfolio investment on a scale of one to four, with one
representing the least amount of risk.
As of June 30, 2019, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value ($mm) |
% of Total Portfolio |
1 |
$201.6 |
13.5% |
2 |
$1,218.5 |
81.4% |
3 |
$75.7 |
5.1% |
4 |
$0.8 |
>0.0% |
|
|
|
Investment Income Contribution by Business
Unit
|
Business Unit Contribution to Gross Investment Income Q2
2019(in millions) |
For thePeriod: |
Cash Flow Lending(1) |
Asset-based Lending / CrystalFinancial(2) |
Equipment Financing / NEF(3) |
Life Science Lending |
Total |
Q2
2019 |
$10.9 |
$10.9 |
$5.5 |
$11.4 |
$38.7 |
% Contribution |
28.1% |
28.1% |
14.2% |
29.6% |
100% |
|
|
|
|
|
|
- Includes interest income/fees from cash flow loans on balance
sheet.
- 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 June 30, 2019 compared to the Quarter Ended June 30,
2018.
Investment Income
For the fiscal quarters ended June 30, 2019 and
2018, gross investment income totaled $38.7 million and $39.2
million, respectively. The change in gross investment income for
the year over year periods was generally flat as the income
producing portfolio increased in size year over year but the yield
on the portfolio decreased slightly.
Expenses
Net expenses totaled $20.3 million and $20.0
million, respectively, for the fiscal quarters ended June 30, 2019
and 2018.
Net Investment Income
The Company’s net investment income totaled $18.4 million and
$19.2 million, or $0.44 and $0.45 per average share, respectively,
for the fiscal quarters ended June 30, 2019 and 2018.
Net Realized and Unrealized Gain
Net realized and unrealized gains for the fiscal
quarters ended June 30, 2019 and 2018 totaled approximately $1.2
million and $0.6 million, respectively.
Net Increase in Net Assets Resulting From
Operations
For the fiscal quarters ended June 30, 2019 and
2018, the Company had a net increase in net assets resulting from
operations of $19.6 million and $19.8 million, respectively. For
the fiscal quarters ended June 30, 2019 and 2018, earnings per
average share were $0.46 and $0.47, respectively.
Liquidity and Capital Resources
As of June 30, 2019 the Company had a total of
$463 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
$600 million of 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) |
|
|
|
|
June 30, 2019(unaudited) |
|
December 31,2018 |
Assets |
|
|
|
|
|
|
|
Investments at fair value: |
|
|
Companies less than 5% owned (cost: $965,219 and $948,478,
respectively) |
$ |
959,020 |
|
|
$ |
944,597 |
|
Companies more than 25% owned (cost: $516,612 and $500,792,
respectively) |
|
537,618 |
|
|
|
511,483 |
|
Cash |
|
11,066 |
|
|
|
7,570 |
|
Cash equivalents (cost: $199,488
and $199,646, respectively)... |
|
199,488 |
|
|
|
199,646 |
|
Dividends receivable |
|
8,715 |
|
|
|
9,065 |
|
Interest receivable |
|
6,511 |
|
|
|
7,619 |
|
Receivable for investments
sold |
|
1,720 |
|
|
|
2,073 |
|
Other receivables |
|
552 |
|
|
|
593 |
|
Prepaid expenses and other
assets |
|
860 |
|
|
|
783 |
|
|
|
|
|
|
|
|
|
Total assets |
$ |
1,725,550 |
|
|
$ |
1,683,429 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Debt ($563,186 and $476,185 face
amounts, respectively, reported net of unamortized debt issuance
costs of $4,343 and $2,647, respectively |
$ |
558,843 |
|
|
$ |
473,538 |
|
Payable for investments and cash
equivalents purchased |
|
199,603 |
|
|
|
251,391 |
|
Distributions payable |
|
17,327 |
|
|
|
17,327 |
|
Management fee payable |
|
6,727 |
|
|
|
6,504 |
|
Performance-based incentive fee
payable |
|
4,608 |
|
|
|
4,613 |
|
Interest payable |
|
4,715 |
|
|
|
4,714 |
|
Administrative services expense
payable |
|
1,441 |
|
|
|
2,716 |
|
Other liabilities and accrued
expenses |
|
3,306 |
|
|
|
3,455 |
|
|
|
|
|
|
|
|
|
Total liabilities |
$ |
796,570 |
|
|
$ |
764,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
992,438 |
|
Accumulated distributable net
loss |
|
(63,881 |
) |
|
|
(73,690 |
) |
|
|
|
|
|
|
|
|
Total net assets |
$ |
928,980 |
|
|
$ |
919,171 |
|
|
|
|
|
|
|
|
|
Net Asset Value Per
Share |
$ |
21.98 |
|
|
$ |
21.75 |
|
|
|
|
|
|
|
|
|
|
SOLAR CAPITAL LTD. CONSOLIDATED STATEMENTS
OF OPERATIONS(in thousands, except share
amounts) |
|
|
|
Three months ended |
|
June 30, 2019 |
|
June 30, 2018 |
INVESTMENT
INCOME: |
|
|
|
|
|
|
|
Interest: |
|
|
Companies less than 5% owned |
$ |
26,848 |
|
|
$ |
24,664 |
|
Companies more than 25% owned |
|
1,342 |
|
|
|
673 |
|
Dividends: |
|
|
Companies less than 5% owned |
|
10 |
|
|
|
4 |
|
Companies more than 25% owned |
|
8,747 |
|
|
|
12,828 |
|
Other income: |
|
|
Companies less than 5% owned |
|
1,731 |
|
|
|
956 |
|
Companies more than 25% owned |
|
4 |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
Total investment income |
|
38,682 |
|
|
|
39,188 |
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
Management fees |
$ |
6,727 |
|
|
$ |
6,413 |
|
Performance-based incentive
fees |
|
4,608 |
|
|
|
4,791 |
|
Interest and other credit
facility expenses |
|
7,101 |
|
|
|
6,092 |
|
Administrative services
expense |
|
1,293 |
|
|
|
1,406 |
|
Other general and administrative
expenses |
|
521 |
|
|
|
1,321 |
|
|
|
|
|
|
|
|
|
Total expenses |
|
20,250 |
|
|
|
20,023 |
|
|
|
|
|
|
|
|
|
Net investment income |
$ |
18,432 |
|
|
$ |
19,165 |
|
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH
EQUIVALENTS: |
|
|
Net realized gain (loss) on
investments and cash equivalents: |
|
|
Companies less than 5% owned |
$ |
202 |
|
|
$ |
190 |
|
Companies 5% to 25% owned |
|
— |
|
|
|
— |
|
Companies more than 25% owned |
|
(98 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
Net realized gain on investments and cash equivalents |
|
104 |
|
|
|
190 |
|
|
|
|
|
|
|
|
|
Net change in unrealized gain
(loss) on investments and cash equivalents: |
|
|
Companies less than 5% owned |
|
(2,356 |
) |
|
|
(3,116 |
) |
Companies more than 25% owned |
|
3,451 |
|
|
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain on investments and cash
equivalents |
|
1,095 |
|
|
|
435 |
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on investments and cash
equivalents |
|
1,199 |
|
|
|
625 |
|
|
|
|
|
|
|
|
|
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS |
$ |
19,631 |
|
|
$ |
19,790 |
|
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE |
$ |
0.46 |
|
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
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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