Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $14.3
million, or $0.34 per share, for the third quarter 2020.
At September 30, 2020, net asset value (NAV) was
$20.14 per share, a slight increase from June 30, 2020.
As of September 30, 2020, the Company’s
portfolio was 100% performing.
The Board declared a fourth quarter distribution
of $0.41 per share payable on January 5, 2021 to
stockholders of record as of December 17, 2020. The specific
tax characteristics will be reported to stockholders on Form 1099
after the end of the calendar year.
HIGHLIGHTS:
At September 30,
2020:
Comprehensive Investment portfolio*
fair value: $1.49 billionNumber of portfolio companies: 174Net
assets: $851.1 millionNet asset value per share: $20.14Net
debt-to-equity: 0.56xAvailable capital**: $912 million, subject to
borrowing base availability
Comprehensive Investment Portfolio
Activity***
for the Quarter Ended September
30, 2020:
Investments made during the quarter:
$66.4 millionInvestments prepaid and sold during the quarter:
$159.2 million
Operating Results for the Quarter Ended
September 30,
2020:
Net investment income: $14.3
millionNet investment income per share: $0.34Net realized and
unrealized gain: $4.4 millionNet increase in net assets from
operations: $18.6 millionEarnings per share: $0.44
* 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.
** Please see Liquidity and Capital
Resources.
*** Includes investment activity through Crystal Financial
(including its ownership of its SBIC), and NEF.
“I am pleased to report that our investment
portfolio remains 100% performing, and we are confident in our
borrowers’ ability to continue to weather the current economic
challenges. We attribute our strong positioning to our focus on
investing in first lien senior secured loans to companies in
defensive industries, as well as our efforts to build a commercial
finance platform consisting of diverse niche asset based financing
strategies. Our specialty finance businesses have demonstrated
resiliency during this crisis, and they are currently seeing an
increase in new investment opportunities,” said Michael Gross,
Co-CEO of Solar Capital.
“With the acquisition of Kingsbridge Holdings,
announced today, we expanded our commercial finance platform and
suite of financing capabilities. Kingsbridge, a lessor of
essential-use equipment to predominantly investment grade
counterparties, provides Solar Capital with both an additional
asset-based asset class as well as increased exposure to high
quality obligors,” said Bruce Spohler, Co-CEO of Solar Capital. “We
expect our debt and equity investments in Kingsbridge to generate
approximately $20 million of gross income in 2021."
Conference Call and Webcast
The Company will host an earnings conference
call and audio webcast at 10:00 a.m. (Eastern Time) on Friday,
November 6, 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 7796857 when prompted. A telephone replay
will be available until November 20, 2020 and can be accessed by
dialing (855) 859-2056 and using the passcode 7796857.
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,
2020, Solar Capital had total originations of $66.4 million and
repayments and amortization of $159.2 million across its four core
business units: cash flow, asset-based, equipment finance, and life
science lending, resulting in a net portfolio reduction of $92.8
million to the comprehensive portfolio.
The investment activity of our Comprehensive
Investment Portfolio for the quarter ended September 30, 2020 was
as follows:
|
Comprehensive Investment Portfolio
Activity(1)
Q3 2020 (in
millions) |
Asset Class |
Cash FlowLoans |
Asset-basedLoans / Crystal
Financial(2) |
EquipmentFinancings /
NEF(3) |
Life Science Loans |
TotalPortfolioActivity |
Originations |
$19.4 |
$30.1 |
$11.8 |
$5.1 |
$66.4 |
Repayments / Amortization |
$33.6 |
$86.7 |
$37.4 |
$1.5 |
$159.2 |
Net Portfolio Activity |
($14.2) |
($56.6) |
($25.6) |
$3.6 |
($92.8) |
|
|
|
|
|
|
(1) |
Portfolio activity includes gross originations/repayments across
each business unit. |
(2) |
Includes Crystal Financial’s full portfolio (and its ownership of
its SBIC) and asset-based loans on the Company’s balance
sheet. |
(3) |
Includes NEF’s full portfolio and NEF equipment financings on the
Company’s balance sheet. |
|
|
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at September 30, 2020 was as follows:
Comprehensive Investment Portfolio Composition(at
fair value) |
Amount |
Weighted Average |
($mm) |
% |
Asset Yield |
Cash Flow
Senior Secured Loans |
$294.4 |
19.7% |
8.5%(5) |
Asset-Based
Senior Secured Loans / Crystal Financial(1) |
$530.4 |
35.5% |
11.0%(6) |
Equipment
Senior Secured Financings / NEF(2) |
$328.2 |
22.0% |
10.3%(7) |
Life Science Senior Secured Loans |
$323.0 |
21.7% |
9.7%(8) |
Total Senior Secured Loans |
$1,476.0 |
98.9% |
10.1% |
Equity and Equity-like Securities(3) |
$15.7 |
1.1% |
|
Total Comprehensive Investment Portfolio |
$1,491.7 |
100.0% |
|
Floating Rate Investments(4) |
$1,143.8 |
77.1% |
|
First Lien Senior Secured Loans |
$1,357.4 |
91.0% |
|
Second Lien Senior Secured Cash Flow Loans |
$62.6 |
4.2% |
|
Second Lien Senior Secured Asset-Based Loans |
$56.0 |
3.8% |
|
|
|
|
|
(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. |
(2) |
Includes NEF’s full portfolio and NEF equipment financings on the
Company’s balance sheet. |
(3) |
Excludes Crystal and NEF, which distribute quarterly cash dividends
to the Company. |
(4) |
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. |
(5) |
Represents the weighted average of each individual loan’s yield to
maturity based on fair market value at September 30, 2020. |
(6) |
Represents the weighted average of each individual loan’s internal
rate of return for loans held at Crystal Financial and yield to
maturity for loans held by SLRC. |
(7) |
Represents the weighted average of each individual loan’s yield to
maturity (excluding residual upside on tax leases). Loans held on
SLRC’s balance sheet based on fair value and loans owned within NEF
Holdings based on fair value. |
(8) |
Represents the weighted average of each individual loan’s yield to
maturity based on fair value at September 30, 2020 (excluding exit
fees and warrants). |
|
|
The Comprehensive Investment Portfolio is diversified across
approximately 174 unique borrowers in nearly 80 industries and with
an average exposure of $8.6 million, or 0.6% per issuer.
At September 30, 2020, 99.0% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans, comprised of 91.0% first lien senior secured loans and
approximately 8% second lien senior secured loans of which 4.2%
were second lien cash flow loans and 3.8% were second lien
asset-based loans.
The weighted average yield at fair value of all
income-producing investments in the Comprehensive Portfolio was
10.1% at September 30, 2020.
Solar Capital Ltd.
Portfolio
Asset Quality
As of September 30, 2020, 100% on a fair value
basis and cost basis of the Company’s portfolio was performing,
with no investments on non-accrual status at quarter end.
The Company puts its greatest emphasis on risk
mitigation and credit performance. On a quarterly basis, or more
frequently if deemed necessary, the Company formally rates each
portfolio investment on a scale of one to four, with one
representing the least amount of risk.
As of September 30, 2020, the composition of our
portfolio, on a risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value
($mm) |
% of Total Portfolio |
1 |
$221.0 |
16.3% |
2 |
$1,068.3 |
79.0% |
3 |
$61.6 |
4.6% |
4 |
$1.0 |
0.1% |
Investment Income Contribution by Business
Unit
Business Unit Contribution to Gross Investment
IncomeQ3
2020(in millions) |
For thePeriod: |
Cash
FlowLending(1) |
Asset-basedLending / Crystal
Financial(2) |
EquipmentFinancing /
NEF(3) |
Life ScienceLending |
Total |
Q3 2020 |
$6.8 |
$8.9 |
$4.5 |
$8.7 |
$28.9 |
% Contribution |
23.4% |
30.9% |
15.5% |
30.2% |
100% |
|
|
|
|
|
|
(1) |
Includes interest income/fees from cash flow loans on balance
sheet. |
(2) |
Includes interest income/fees from asset based loans on balance
sheet and distributions from Crystal Financial. |
(3) |
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, 2020
compared to the Quarter
Ended September
30,
2019.
Investment Income
For the fiscal quarters ended September 30, 2020
and 2019, gross investment income totaled $28.9 million and $39.7
million, respectively. The decrease in gross investment income for
the year over year period was generally due to a decrease in the
size of the income-producing portfolio and the decline in the base
reference rate.
For the quarter ended September 30, 2020 cash
interest and dividends represented over 96% of the Company’s $28.9
million Q3 2020 gross investment income.
Expenses
Expenses totaled $14.6 million and $21.3
million, respectively, for the quarters ended September 30, 2020
and 2019. The decrease in expenses for the year over year period
was primarily due to lower management and incentive fees resulting
from a reduction in portfolio yield on a smaller income producing
investment portfolio on average.
Net Investment Income
The Company’s net investment income totaled $14.3 million and
$18.4 million, or $0.34 and $0.44 per average share, respectively,
for the fiscal quarters ended September 30, 2020 and 2019.
Net Realized and Unrealized
Gain (Loss)
Net realized and unrealized gains (losses) for the fiscal
quarters ended September 30, 2020 and 2019 totaled $4.4 million and
($4.7) million, respectively.
Net Increase in Net Assets Resulting
From Operations
For the quarters ended September 30, 2020 and
2019, the Company had a net increase in net assets resulting from
operations of $18.6 million and $13.7 million, respectively. For
the quarters ended September 30, 2020 and 2019, earnings per
average share were $0.44 and $0.32, respectively.
Liquidity and Capital
Resources
Unsecured Debt
At September 30, 2020, approximately 86% of the
Company’s funded debt, or $446 million, was comprised of fixed rate
unsecured notes.
Credit Facilities and Available Capital
At September 30, 2020, the Company had no
borrowings under its $545 million and $50 million revolving credit
facilities and had approximately $47.5 million in cash on hand.
When including undrawn capital on the Crystal and NEF Holdings, LLC
non-recourse credit facilities, total available capital is $912
million, subject to borrowing base availability at September 30,
2020.
Leverage
On September 30, 2020, the Company’s net
debt-to-equity was 0.56x. Pro forma for the Kingsbridge
acquisition, the Company’s net debt-to-equity was 0.77x at
September 30, 2020. Solar Capital’s current leverage provides a
significant cushion to its regulatory asset coverage limit of 2.0x
debt-to-equity as well as its target leverage ratio of 0.9x –
1.25x.
Unfunded Revolver Commitments
At September 30, 2020, Solar Capital had
unfunded revolver commitments of approximately $16.5 million that
can be fully drawn by the borrowers.
Financial Statements
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands,
except share
amounts)
|
September
30,2020(unaudited) |
|
December 31,2019 |
Assets |
|
|
Investments at fair value: |
|
|
Companies less than 5% owned (cost: $869,749 and $989,564,
respectively) |
$ |
853,984 |
|
|
$ |
970,821 |
|
Companies more than 25% owned (cost: $513,098 and $513,119,
respectively) |
|
497,921 |
|
|
|
524,003 |
|
Cash |
|
47,473 |
|
|
|
16,783 |
|
Cash equivalents (cost: $539,959
and $419,571, respectively) |
|
539,959 |
|
|
|
419,571 |
|
Dividends receivable |
|
6,006 |
|
|
|
10,488 |
|
Interest receivable |
|
6,814 |
|
|
|
5,401 |
|
Receivable for investments
sold |
|
2,130 |
|
|
|
2,207 |
|
Prepaid expenses and other
assets |
|
663 |
|
|
|
615 |
|
|
|
|
Total assets |
$ |
1,954,950 |
|
|
$ |
1,949,889 |
|
|
|
|
Liabilities |
|
|
Debt ($521,000 and $593,900 face
amounts, respectively, reported net of unamortized debt issuance
costs of $5,942 and $6,783, respectively) |
$ |
514,058 |
|
|
$ |
587,117 |
|
Payable for investments and cash
equivalents purchased |
|
556,108 |
|
|
|
419,662 |
|
Distributions payable |
|
17,327 |
|
|
|
17,327 |
|
Management fee payable |
|
6,176 |
|
|
|
6,747 |
|
Performance-based incentive fee
payable |
|
— |
|
|
|
4,281 |
|
Interest payable |
|
6,310 |
|
|
|
3,678 |
|
Administrative services
payable |
|
2,018 |
|
|
|
2,757 |
|
Other liabilities and accrued
expenses |
|
1,860 |
|
|
|
2,440 |
|
|
|
|
Total liabilities |
$ |
1,103,857 |
|
|
$ |
1,044,009 |
|
|
|
|
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 |
|
|
|
988,792 |
|
Accumulated distributable net
loss |
|
(138,122 |
) |
|
|
(83,335 |
) |
|
|
|
Total net assets |
$ |
851,093 |
|
|
$ |
905,880 |
|
|
|
|
Net Asset Value Per
Share |
$ |
20.14 |
|
|
$ |
21.44 |
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(in
thousands, except share amounts)
|
|
|
|
|
|
|
Three months ended |
|
|
September 30,2020 |
|
|
September 30,2019 |
|
INVESTMENT
INCOME: |
|
|
|
|
|
Interest: |
|
|
|
|
|
Companies less than 5% owned |
$ |
20,922 |
|
|
$ |
27,019 |
|
Companies more than 25% owned |
1,355 |
|
|
1,523 |
|
Dividends: |
|
|
|
|
|
Companies less than 5% owned |
14 |
|
|
19 |
|
Companies more than 25% owned |
6,094 |
|
|
10,145 |
|
Other income: |
|
|
|
|
|
Companies less than 5% owned |
462 |
|
|
1,000 |
|
Companies more than 25% owned |
4 |
|
|
5 |
|
|
|
|
|
|
|
Total investment income |
28,851 |
|
|
39,711 |
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
Management fees |
$ |
6,176 |
|
|
$ |
6,738 |
|
Performance-based incentive
fees |
— |
|
|
4,606 |
|
Interest and other credit
facility expenses |
6,510 |
|
|
7,529 |
|
Administrative services
expense |
1,572 |
|
|
1,352 |
|
Other general and administrative
expenses |
326 |
|
|
1,060 |
|
|
|
|
|
|
|
Total expenses |
14,584 |
|
|
21,285 |
|
|
|
|
|
|
|
|
Net investment income |
$ |
14,267 |
|
|
$ |
18,426 |
|
|
|
|
|
|
|
|
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND
DEBT: |
|
|
|
|
|
Net realized loss on investments
and cash equivalents: |
|
|
|
|
|
Companies less than 5% owned |
$ |
(278 |
) |
|
$ |
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments, cash equivalents and debt |
|
(278 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
Net change in unrealized gain
(loss) on investments and cash equivalents: |
|
|
|
|
|
Companies less than 5% owned |
2,903 |
|
|
|
(2,451 |
) |
Companies more than 25% owned |
3,225 |
|
|
|
(2,206 |
) |
Debt |
|
(1,500 |
) |
|
— |
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss) on investments, cash
equivalents and debt |
4,628 |
|
|
|
(4,657 |
) |
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) on investments, cash
equivalents and debt |
4,350 |
|
|
|
(4,709 |
) |
|
|
|
|
|
|
NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS |
$ |
18,617 |
|
|
$ |
13,717 |
|
|
|
|
|
|
|
EARNINGS PER
SHARE |
$ |
0.44 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
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 the
Company’s or Kingsbridge’s future performance or financial
condition. These statements are not guarantees of the Company’s or
Kingsbridge’s future performance, financial condition or results
and involve a number of risks and uncertainties, including the
impact of COVID-19 and related changes in base interest rates and
significant market volatility on the Company’s or Kingsbridge’s
business, portfolio companies and the global economy. Solar Capital
and Kingsbridge operate in a very competitive and rapidly changing
environment, in which new risks emerge from time to time. Some of
the factors that could cause actual results to differ materially
from the forward-looking statements contained herein include,
without limitation: (i) Kingsbridge’s ability to maintain its
historical financial performance, (ii) departures of key members of
the Kingsbridge management team following closing, and (iii)
material adverse changes to the portfolio of assets held by
Kingsbridge as of or following the closing. For a more detailed
discussion of factors related to Solar Capital's business, see the
information under the caption "Risk Factors" in Solar Capital's
most recent annual report on Form 10-K and its subsequent quarterly
reports on Form 10-Q filed with the Securities and Exchange
Commission. Given these risks and uncertainties, you should not
place undue reliance on these forward-looking statements. Solar
Capital 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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