Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $17.1
million, or $0.41 per share, for the fourth quarter of 2019. For
the fiscal year ended December 31, 2019, the Company reported net
investment income of $72.4 million, or $1.71 per share.
At December 31, 2019, net asset value (NAV) was
$21.44 per share. At year end, Solar Capital’s investment portfolio
was 98.4% performing at cost.
The Company’s Board of Directors declared a
first quarter 2020 distribution of $0.41 per share,
payable on April 3, 2020, to stockholders of record
on March 19, 2020. The specific tax characteristics will
be reported to stockholders on Form 1099 after the end of the
calendar year.
HIGHLIGHTS:
At December 31, 2019:
Comprehensive Investment portfolio* fair value: $1.8
billion Number of portfolio companies: 209
Net assets: $905.9 million Net
asset value per share: $21.44
Comprehensive Investment Portfolio Activity* for the
Quarter Ended December 31, 2019:
Investments made during the quarter: $165.4 million
Investments prepaid and sold during the quarter:
$165.0 million
Comprehensive Investment Portfolio Activity** for the
Year Ended December 31, 2019:
Investments made during the year: $735.7 million
Investments prepaid and sold during the year: $645.0
million
Operating Results for the Quarter Ended December 31,
2019: Net investment income: $17.1
million Net investment income per share:
$0.41 Net realized and unrealized loss: $19.3
million Net decrease in net assets from
operations: $2.2 million Loss per share:
$0.05
Operating Results for the Year Ended December 31,
2019: Net investment income: $72.4
million Net investment income per share:
$1.71 Net realized and unrealized loss: $16.4
million Net increase in net assets from
operations: $56.0 million Earnings per share:
$1.33
* The Comprehensive Investment Portfolio for the
quarter ended December 31, 2019 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, 2019 includes gross originations through Crystal
and NEF.
“We are pleased to report Solar Capital produced
solid operating results for fiscal year 2019 with net investment
income exceeding distributions. Our strategy of investing in senior
secured loans and developing diversified specialty finance
verticals continues to drive strong results in credit quality and
earnings power,“ said Michael Gross, Co-CEO. “Earlier this month,
we marked the 10th anniversary of the initial public offering of
Solar Capital. Over this period, the company delivered nearly a 12%
internal rate of return to our shareholders while growing net asset
value.”
“As a result of our differentiated sourcing
platform, 88% of our 2019 originations consisted of specialty
finance loans in our niche lending businesses, which we believe
today offer more attractive risk-adjusted returns than cash flow
lending. Additionally, our new cash flow loan investments were
primarily first lien add-on investments in existing portfolio
companies with strong fundamental performance,” said Bruce Spohler,
Co-CEO. “We believe having a diversified origination capability
with deep asset class specialization and expertise, maintaining a
defensive portfolio, and having available capital to take advantage
of market dislocations when underwriting conditions improve
continues to be a competitive advantage.”
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 21, 2020. 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 3191875 when prompted. A telephone replay
will be available until March 6, 2020 and can be accessed by
dialing (855) 859-2056 and using the passcode 3191875.
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, 2019,
Solar Capital had total originations of $165.4 million and
repayments of $165.0 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, 2019 was as
follows:
Total Portfolio Activity (1) – Q4 2019(in
millions) |
Asset Class |
Cash Flow Loans |
Asset-based Loans / Crystal Financial(2) |
Equipment Financings / NEF(3) |
Life Science Loans |
TotalPortfolio Activity |
Originations |
$42.4 |
$56.9 |
$25.5 |
$40.6 |
$165.4 |
Repayments /Amortization |
$3.3 |
$76.6 |
$40.2 |
$44.9 |
$165.0 |
Net PortfolioActivity |
$39.1 |
($19.7) |
($14.7) |
($4.3) |
$0.4 |
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit.(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.
During the year ended December 31, 2019, Solar
Capital had originations of $735.7 million and repayments of $645.0
million. Net originations of asset-based lending / specialty
finance businesses were $67.2 million while net originations of
cash flow loans were $23.5 million. Approximately 88% of
originations in 2019 were in asset-based and specialty finance
businesses and 12% in cash flow senior secured loans.
Total Portfolio Activity (1) – For the Year Ended
2019(in millions) |
AssetClasses |
Cash Flow Loans |
Asset-based Loans / Crystal Financial(2) |
Equipment Financings / NEF(3) |
Life Science Loans |
TotalPortfolio Activity |
Originations |
$90.7 |
$314.5 |
$148.8 |
$181.7 |
$735.7 |
Repayments /Amortization |
$67.2 |
$278.5 |
$142.2 |
$157.1 |
$645.0 |
Net PortfolioActivity |
$23.5 |
$36.0 |
$6.6 |
$24.6 |
$90.7 |
(1) Total Portfolio Activity includes gross
originations/repayments across each business unit.(2) Includes
Crystal’s full portfolio and asset-based loans on the Company’s
balance sheet.(3) Includes NEF’s full portfolio and NEF equipment
financings on the Company’s balance sheet.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at December 31, 2019 was as follows:
Comprehensive Investment Portfolio Composition (at
fair value) |
Amount |
Weighted Average Asset Yield(4) |
($mm) |
% |
Cash Flow
Senior Secured Loans |
$450.2 |
25.0% |
8.7% |
Asset-Based Senior Secured Loans / Crystal Financial(1) |
$644.1 |
35.7% |
12.7% |
Equipment Senior Secured Financings / NEF(2) |
$396.9 |
22.0% |
10.0% |
Life Science Senior
Secured Loans |
$287.5 |
15.9% |
10.5%(5) |
Total Senior Secured Loans |
$1,778.7 |
98.6% |
10.7% |
Equity and Equity-like
Securities |
$25.3 |
1.4% |
|
Total
Comprehensive Investment Portfolio |
$1,804.0 |
100% |
|
Floating Rate
Investments(3) |
$1,376.9 |
76.9% |
|
First Lien Senior
Secured Loans |
$1,636.4 |
90.7% |
|
Second Lien Senior
Secured Cash Flow Loans |
$86.1 |
4.8% |
|
Second Lien Senior
Secured Asset-Based Loans |
$56.1 |
3.1% |
|
(1) 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.(2) Includes NEF’s full
portfolio and NEF equipment financings on the Company’s balance
sheet and excludes the Company’s equity investments in NEF.(3)
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.(4) 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.(5) Life Science yields exclude the impact of success fees
and/or warrants.
The Comprehensive Investment Portfolio is diversified across 209
unique issuers across over 90 industries and with an average
exposure of $8.6 million or 0.48% per issuer.
At year end, 98.6% of the Company’s Comprehensive Investment
Portfolio was invested in senior secured loans of which 92.0% is
held in first lien senior secured loans and 8.0% is held in senior
secured second lien loans. Second lien cash flow exposure is 4.8%
of the Comprehensive Portfolio at December 31, 2019 with the
remainder in second lien asset-based loans.
Solar Capital Ltd.’s Results of Operations for the
Fiscal Year Ended December 31, 2019 compared to the Fiscal Year
Ended December 31, 2018.
Investment Income
For the fiscal years ended December 31, 2019 and
2018, gross investment income totaled $154.7 million and $153.5
million, respectively.
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 |
12/31/2019 |
$42.1 |
$50.1 |
$21.7 |
$40.8 |
$154.7 |
% Contribution |
27.2% |
32.4% |
14.0% |
26.4% |
100.0% |
(1) 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 $82.3 million and $78.6
million, respectively, for the fiscal years ended December 31, 2019
and 2018. The increase in expenses from 2018 to 2019 was primarily
due to higher interest expense resulting from generally higher
average 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 $72.4 million and $74.9
million, or $1.71 and $1.77, per average share, respectively, for
the fiscal years ended December 31, 2019 and 2018.
Net Realized and Unrealized Gain (Loss)
Net realized and unrealized loss for the fiscal
years ended December 31, 2019 and 2018 totaled approximately $16.4
million and $8.0 million, respectively. The net realized and
unrealized loss for the fiscal year ended December 31, 2019 was
primarily due to a combination of the extinguishment of debt and
unrealized depreciation in the value of select investments,
partially offset by unrealized appreciation of 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, 2019 and
2018, SLRC had a net increase in net assets resulting from
operations of $56.0 million and $66.9 million, respectively. For
the fiscal years ended December 31, 2019 and 2018, earnings per
average share were $1.33 and $1.58, respectively.
Liquidity and Capital Resources
On December 18, 2019, the Company announced it
had issued $200 million in aggregate of unsecured notes in a
private placement comprised of $125 million principal amount of
five-year, 4.2% unsecured notes due December 15, 2024 as well as
$75 million principal amount of seven-year, 4.375% unsecured notes
due December 15, 2026 (the “Notes”). The Interest on the Notes will
be payable semi-annually.
As of December 31, 2019, the Company had a total
of approximately $450 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
$5881 million of unused borrowing capacity under its credit
facilities, subject to borrowing base limits at December 31,
2019.
Subsequent Events
On February 12, 2020, the Company received an
additional $75.0 million commitment under the accordion feature of
its credit facility bringing total commitments to $620 million
under its credit facility.
Credit Rating
On February 3, 2020, FitchRatings, Inc. affirmed
the Company’s investment grade rating of BBB- 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, 2019, 98.4% of SLRC’s
portfolio was performing at cost.
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, 2019, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value |
% of Total Portfolio |
1 |
$308.0 |
20.6% |
2 |
$1,151.7 |
77.0% |
3 |
$26.7 |
1.8% |
4 |
$8.4 |
0.6% |
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
Assets |
|
|
Investments at fair value: |
|
|
Companies less than 5% owned (cost: $989,564 and $948,478,
respectively) |
$ |
970,821 |
|
|
$ |
944,597 |
|
Companies more than 25% owned (cost: $513,119 and $500,792,
respectively) |
|
524,003 |
|
|
|
511,483 |
|
Cash |
|
16,783 |
|
|
|
7,570 |
|
Cash equivalents (cost: $419,571
and $199,646, respectively) |
|
419,571 |
|
|
|
199,646 |
|
Dividends receivable |
|
10,488 |
|
|
|
9,065 |
|
Interest receivable |
|
5,401 |
|
|
|
7,619 |
|
Receivable for investments
sold |
|
2,207 |
|
|
|
2,073 |
|
Other receivables |
|
— |
|
|
|
593 |
|
Prepaid expenses and other
assets |
|
615 |
|
|
|
783 |
|
Total assets |
$ |
1,949,889 |
|
|
$ |
1,683,429 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
Debt ($593,900 and $476,185 face
amounts, respectively, reported net of unamortized debt issuance
costs of $6,783 and $2,647, respectively.) |
$ |
587,117 |
|
|
$ |
473,538 |
|
Payable for investments and cash
equivalents purchased |
|
419,662 |
|
|
|
251,391 |
|
Distributions payable |
|
17,327 |
|
|
|
17,327 |
|
Management fee payable |
|
6,747 |
|
|
|
6,504 |
|
Performance-based incentive fee
payable |
|
4,281 |
|
|
|
4,613 |
|
Interest payable |
|
3,678 |
|
|
|
4,714 |
|
Administrative services
payable |
|
2,757 |
|
|
|
2,716 |
|
Other liabilities and accrued
expenses |
|
2,440 |
|
|
|
3,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
$ |
1,044,009 |
|
|
$ |
764,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
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 |
|
988,792 |
|
|
|
992,438 |
|
Accumulated distributable net
loss |
|
(83,335 |
) |
|
|
(73,690 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net assets |
$ |
905,880 |
|
|
$ |
919,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value Per
Share |
$ |
21.44 |
|
|
$ |
21.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
INVESTMENT
INCOME: |
|
|
Interest: |
|
|
Companies less than 5% owned |
$ |
106,099 |
|
$ |
98,172 |
|
Companies more than 25% owned |
|
5,429 |
|
|
2,827 |
|
Dividends: |
|
|
Companies less than 5% owned |
|
56 |
|
|
28 |
|
Companies more than 25% owned |
|
39,382 |
|
|
50,953 |
|
Other income: |
|
|
Companies less than 5% owned |
|
3,727 |
|
|
1,367 |
|
Companies more than 25% owned |
|
18 |
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
154,711 |
|
|
153,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
Management fees |
|
26,774 |
|
|
25,789 |
|
Performance-based incentive
fees |
|
18,111 |
|
|
18,722 |
|
Interest and other credit
facility expenses |
|
28,901 |
|
|
24,728 |
|
Administrative services
expense |
|
5,265 |
|
|
5,247 |
|
Other general and administrative
expenses |
|
3,215 |
|
|
4,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
82,266 |
|
|
78,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
$ |
72,445 |
|
$ |
74,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
$ |
754 |
|
$ |
1,857 |
|
Companies 5% to 25% owned |
|
— |
|
|
246 |
|
Companies more than 25% owned |
|
(661 |
) |
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments and cash equivalents |
|
93 |
|
|
2,078 |
|
Net realized loss on
extinguishment of debt: |
|
(1,853 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain (loss) |
|
(1,760 |
) |
|
2,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain
(loss) on investments and cash equivalents: |
|
|
Companies less than 5% owned |
|
(14,861 |
) |
|
(2,805 |
) |
Companies 5% to 25% owned |
|
— |
|
|
— |
|
Companies more than 25% owned |
|
192 |
|
|
(7,288 |
) |
Net change in unrealized gain (loss) |
|
(14,669 |
) |
|
(10,093 |
) |
Net
realized and unrealized gain (loss) on investments, cash
equivalents and foreign currencies |
|
(16,429 |
) |
|
(8,015 |
) |
|
|
|
|
|
|
|
NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS |
$ |
56,016 |
|
$ |
66,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE |
$ |
1.33 |
|
$ |
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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