Solar Capital Ltd. (NASDAQ: SLRC) (the “Company” or “Solar
Capital”), today reported net investment income of $14.9
million, or $0.35 per share, for the fourth quarter of 2020. For
the fiscal year ended December 31, 2020, the Company reported net
investment income of $59.2 million, or $1.40 per share.
At December 31, 2020, net asset value (NAV)
increased slightly to $20.16 per share. At year end, Solar
Capital’s investment portfolio was 100% performing.
The Company’s Board of Directors declared a
first quarter 2021 distribution of $0.41 per share,
payable on April 2, 2021, to stockholders of record
on March 18, 2021. The specific tax characteristics will be
reported to stockholders on Form 1099 after the end of the calendar
year.
HIGHLIGHTS:
At December 31, 2020:
Comprehensive Investment portfolio*
fair value: $2.0 billionNumber of unique issuers: >600Net
assets: $852.0 millionNet asset value per share: $20.16Net
debt-to-equity: 0.78xAvailable capital**: $737 million, subject to
borrowing base availability
Comprehensive Investment Portfolio Activity*** for the
Quarter Ended December 31, 2020:
Investments made during the quarter:
$721.1 millionInvestments prepaid and sold during the quarter:
$147.2 million
Comprehensive Investment Portfolio Activity** for the
Year Ended December 31, 2020:
Investments made during the year:
$974.5 million Investments prepaid and sold during the year: $680.9
million
Operating Results for the Quarter Ended December 31,
2020:
Net investment income: $14.9
millionNet investment income per share: $0.35Net realized and
unrealized gain: $3.4 million Net increase in net assets from
operations: $18.3 millionEarnings per share: $0.43
Operating Results for the Year Ended December 31,
2020:
Net investment income: $59.2
millionNet investment income per share: $1.40Net realized and
unrealized loss: $43.8 million Net increase in net assets from
operations: $15.5 millionEarnings per share: $0.37
* The Comprehensive Investment Portfolio for the
quarter ended December 31, 2020 is comprised of Solar Capital
Ltd.’s investment portfolio, Crystal Financial’s (“Crystal”) full
portfolio, NEF Holdings, LLC (“NEF”) full portfolio and Kingsbridge
Holdings, LLC (“KBH”) full portfolio, and excludes the fair value
of the equity interests in Crystal, NEF and KBH and also excludes a
loan to KBH.
** Please see Liquidity and Capital
Resources.
*** Comprehensive Portfolio Activity for the
year ended December 31, 2020 includes gross originations through
Crystal, NEF and KBH.
“We are pleased with how Solar Capital’s
portfolio navigated the challenging environment of 2020. Our
conservative underwriting and diversified lending strategies have
resulted in a portfolio that is 100% performing, enabling our team
to focus on originating new assets across all of our investment
verticals,” said Michael Gross, Co-CEO. “The strength of our
underwriting was further demonstrated by the $681 million of
repayments which occurred during 2020, all at or above par.”
“During 2020, access to Solar Capital’s
specialty finance lending verticals allowed our portfolio to grow
despite a slowdown in M&A activity. Including the impact of our
acquisition of Kingsbridge, the size of our comprehensive portfolio
increased by 37% in Q4 to over $2 billion,” said Bruce Spohler,
Co-CEO. “With $700+ million of low cost capital available, we
believe shareholders will benefit as the portfolio scales and we
increase our portfolio leverage.”
Conference Call and Webcast
The Company will host an earnings conference
call and audio webcast at 10:00 a.m. (Eastern Time) on Thursday,
February 25, 2021. 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 5479705 when prompted. A telephone replay
will be available until March 11, 2021 and can be accessed by
dialing (855) 859-2056 and using the passcode 5479705.
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, 2020,
Solar Capital had total originations of $721.1 million and
repayments of $147.2 million across the Company’s five core
business units: cash flow, asset-based, life science lending,
equipment finance, and corporate leasing.
The investment activity of our Comprehensive
Investment Portfolio for the quarter ended December 31, 2020 was as
follows:
Total Portfolio Activity (1)
– Q4 2020(in millions) |
Asset Class |
Cash FlowLoans |
Asset-based Loans /
Crystal Financial(2) |
EquipmentFinancings /
NEF(3) |
Life Science Loans |
CorporateLeasing(4) |
TotalPortfolioActivity |
Originations |
$7.5 |
$126.7 |
$13.4 |
$2.7 |
$570.8 |
$721.1 |
Repayments /Amortization |
$25.8 |
$95.7 |
$25.0 |
$0.7 |
$0.0 |
$147.2 |
Net PortfolioActivity |
($18.3) |
$31.0 |
($11.6) |
$2.0 |
$570.8 |
$573.9 |
(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.
(4) Includes gross origination and
repayment activity for KBH’s portfolio.
During the year ended December 31, 2020, Solar
Capital had originations of $974.5 million and repayments of $680.9
million. Net originations of asset-based lending / specialty
finance businesses were $453.9 million while net originations of
cash flow loans were ($160.3) million. Approximately 93.3% of
originations in 2020 were in asset-based and specialty finance
businesses and 6.7% in cash flow senior secured loans.
Total Portfolio Activity
(1) –
For the Year Ended 2020(in millions) |
AssetClasses |
Cash FlowLoans |
Asset-based Loans / Crystal
Financial(2) |
EquipmentFinancings /
NEF(3) |
Life Science Loans |
CorporateLeasing(4) |
TotalPortfolioActivity |
Originations |
$65.7 |
$224.9 |
$52.4 |
$60.7 |
$570.8 |
$974.5 |
Repayments /Amortization |
$226.0 |
$308.2 |
$118.7 |
$28.0 |
$0.0 |
$680.9 |
Net PortfolioActivity |
($160.3) |
($83.3) |
($66.3) |
$32.7 |
$570.8 |
$293.6 |
(1) Total
Portfolio Activity includes gross originations/repayments across
each business unit.
(2) Includes Crystal’s full portfolio and
asset-based loans on the Company’s balance sheet.
(3) Includes NEF’s full portfolio and NEF
equipment financings on the Company’s balance sheet.
(4) Includes gross origination and
repayment activity for KBH’s full portfolio.
Portfolio Composition
Our Comprehensive Investment Portfolio composition by business
unit at December 31, 2020 was as follows:
Comprehensive Investment Portfolio Composition(at
fair value) |
Amount |
WeightedAverageAsset
Yield(5) |
($mm) |
% |
|
Cash Flow Senior Secured Loans |
$281.3 |
13.8% |
8.7% |
Asset-Based Senior Secured
Loans / Crystal Financial(1) |
$529.2 |
25.9% |
10.7% |
Equipment Senior Secured
Financings / NEF(2) |
$318.6 |
15.6% |
10.2% |
Life Science Senior Secured
Loans |
$327.0 |
16.0% |
9.5%(6) |
Corporate Leasing / KBH(3) |
$570.8 |
27.9% |
10.0%(7) |
Total Senior Secured Loans |
$2,026.9 |
99.2% |
10.0% |
Equity
and Equity-like Securities |
$15.7 |
0.8% |
|
Total Comprehensive Investment Portfolio |
$2,042.6 |
100% |
|
Floating Rate Investments(4) |
$1,141.1 |
56.1% |
|
First Lien Senior Secured Loans |
$1,929.1 |
94.4% |
|
Second Lien Senior Secured Cash Flow Loans |
$41.9 |
2.1% |
|
Second Lien Senior Secured Asset-Based Loans |
$55.9 |
2.7% |
|
|
|
|
|
(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) Includes KBH’s full portfolio and excludes
the Company’s equity and debt investments in
KBH.(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 leases associated with KBH. Additionally, NEF and KBH seeks to
match-fund their fixed rate assets with fixed rate
liabilities.(5) 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.(6) Life Science yields exclude the
impact of success fees and/or
warrants.(7) Represents expected return on equity
during 2021.
The Comprehensive Investment Portfolio is diversified across
over 600 unique issuers across nearly 80 industries and with an
average exposure of $3.3 million or 0.2% per issuer.
At year end, 99.2% of the Company’s
Comprehensive Investment Portfolio was invested in senior secured
loans of which 94.4% is held in first lien senior secured loans and
4.8% is held in senior secured second lien loans. Second lien cash
flow exposure is 2.1% of the Comprehensive Portfolio at December
31, 2020 with the remainder in second lien asset-based loans.
Solar Capital Ltd.’s Results of Operations for the
Fiscal Year Ended December 31, 2020 compared to the Fiscal Year
Ended December 31, 2019.
Investment Income
For the fiscal years ended December 31, 2020 and
2019, gross investment income totaled $121.7 million and $154.7
million, respectively.
Solar Capital Ltd.
Portfolio
Asset Quality
As of December 31, 2020, 100% of SLRC’s
portfolio was performing.
The Company puts its largest emphasis on risk
control and credit performance. On a quarterly basis, or more
frequently if deemed necessary, the Company formally rates each
portfolio investment on a scale of one to four, with one
representing the least amount of risk.
As of December 31, 2020, the composition of our portfolio, on a
risk ratings basis, was as follows:
Internal Investment Rating |
Investments at Fair Value ($mm) |
% of Total Portfolio |
1 |
$195.2 |
12.8% |
|
2 |
$1,292.1 |
84.3% |
|
3 |
$43.0 |
2.8% |
|
4 |
$1.7 |
0.1% |
|
Investment Income Contribution by Business
Unit
|
Business Unit Contribution to Gross Investment
Income (1)(in millions) |
For the YearEnded: |
Cash FlowLending |
Asset-based Lending / Crystal
Financial |
EquipmentFinancing / NEF |
Life ScienceLending |
CorporateLeasing(2) |
Total |
12/31/2020 |
$29.7 |
|
$33.4 |
|
$18.3 |
|
$34.9 |
|
$5.4 |
|
$121.7 |
|
% Contribution |
24.4% |
|
27.4% |
|
15.0% |
|
28.7% |
|
4.5% |
|
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, distributions from KBH, and income/fees
from life science loans. (2) Inclusive of the
dividend paid by KBH in the fourth quarter and full year interest
received on a debt investment in KBH.
Expenses
Expenses totaled $62.5 million and $82.3
million, respectively, for the fiscal years ended December 31, 2020
and 2019. The decrease in expenses from 2019 to 2020 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 as well as lower interest expense
due to reductions in LIBOR.
Net Investment Income
SLRC’s net investment income totaled $59.2 million and $72.4
million, or $1.40 and $1.71, per average share, respectively, for
the fiscal years ended December 31, 2020 and 2019.
Net Realized and Unrealized Loss
Net realized and unrealized loss for the fiscal
years ended December 31, 2020 and 2019 totaled approximately $43.8
million and $16.4 million, respectively. The net realized and
unrealized loss for the fiscal year ended December 31, 2020 was
primarily due to a combination of the exit of our investment in IHS
Intermediate, Inc. and unrealized depreciation in the value of
select investments, partially offset by unrealized appreciation of
the value of select investments.
Net Increase in Net Assets Resulting From
Operations
For the fiscal years ended December 31, 2020 and
2019, SLRC had a net increase in net assets resulting from
operations of $15.5 million and $56.0 million, respectively. For
the fiscal years ended December 31, 2020 and 2019, earnings per
average share were $0.37 and $1.33, respectively.
Liquidity and Capital Resources
Unsecured Debt
At December 31, 2020, approximately 66% of the
Company’s funded debt, or $446 million, was comprised of fixed rate
unsecured notes.
Credit Facilities and Available Capital
At December 31, 2020, the Company had $156
million drawn on its $545 million and $50 million revolving credit
facilities and had approximately $8.8 million in cash on hand. When
including undrawn capital on the Crystal, NEF, and KBH non-recourse
credit facilities, total available capital is $737 million, subject
to borrowing base availability at December 31, 2020.
Leverage
On December 31, 2020, the Company’s net
debt-to-equity was 0.78x. 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 December 31, 2020, Solar Capital had unfunded
revolver commitments of approximately $15.9 million that can be
fully drawn by the borrowers.
Credit Rating
On January 25, 2021, Fitch Ratings, 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.
Financial Statements and Tables
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
|
December 31,2020 |
|
December 31,2019 |
|
Assets |
|
|
|
|
|
|
Investments at fair value: |
|
|
Companies less than 5% owned (cost: $832,507 and $989,564,
respectively) |
$ |
822,298 |
|
$ |
970,821 |
|
Companies more than 25% owned (cost: $724,428 and $513,119,
respectively) |
|
709,653 |
|
|
524,003 |
|
Cash |
|
8,779 |
|
|
16,783 |
|
Cash equivalents (cost: $379,997
and $419,571, respectively) |
|
379,997 |
|
|
419,571 |
|
Dividends receivable |
|
7,927 |
|
|
10,488 |
|
Interest receivable |
|
6,478 |
|
|
5,401 |
|
Receivable for investments
sold |
|
255 |
|
|
2,207 |
|
Prepaid expenses and other
assets |
|
571 |
|
|
615 |
|
|
|
|
|
|
Total assets |
$ |
1,935,958 |
|
$ |
1,949,889 |
|
|
|
|
|
|
Liabilities |
|
|
Debt ($677,000 and $593,900 face
amounts, respectively, reported net of unamortized debt issuance
costs of $5,549 and $6,783, respectively |
$ |
671,451 |
|
$ |
587,117 |
|
Payable for investments and cash
equivalents purchased |
|
380,038 |
|
|
419,662 |
|
Distributions payable |
|
17,327 |
|
|
17,327 |
|
Management fee payable |
|
6,535 |
|
|
6,747 |
|
Performance-based incentive fee
payable |
|
792 |
|
|
4,281 |
|
Interest payable |
|
3,416 |
|
|
3,678 |
|
Administrative services expense
payable |
|
1,946 |
|
|
2,757 |
|
Other liabilities and accrued
expenses |
|
2,430 |
|
|
2,440 |
|
Total liabilities |
$ |
1,083,935 |
|
$ |
1,044,009 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
962,481 |
|
|
988,792 |
|
Accumulated distributable net
loss |
|
(110,881 |
) |
|
(83,335 |
) |
|
|
|
|
|
Total net assets |
$ |
852,023 |
|
$ |
905,880 |
|
|
|
|
|
|
Net Asset Value Per
Share |
$ |
20.16 |
|
$ |
21.44 |
|
|
|
|
|
|
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share amounts)
|
|
|
|
Year ended December 31, |
|
|
2020 |
|
|
2019 |
|
INVESTMENT
INCOME: |
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
Companies less than 5% owned |
$ |
84,143 |
|
$ |
106,099 |
|
Companies more than 25% owned |
|
8,861 |
|
|
5,429 |
|
Dividends: |
|
|
Companies less than 5% owned |
|
50 |
|
|
56 |
|
Companies more than 25% owned |
|
26,794 |
|
|
39,382 |
|
Other income: |
|
|
Companies less than 5% owned |
|
1,885 |
|
|
3,727 |
|
Companies more than 25% owned |
|
12 |
|
|
18 |
|
|
|
|
|
|
Total investment income |
|
121,745 |
|
|
154,711 |
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
Management fees |
|
24,951 |
|
|
26,774 |
|
Performance-based incentive
fees |
|
2,272 |
|
|
18,111 |
|
Interest and other credit
facility expenses |
|
27,156 |
|
|
28,901 |
|
Administrative services
expense |
|
5,215 |
|
|
5,265 |
|
Other general and administrative
expenses |
|
2,936 |
|
|
3,215 |
|
|
|
|
|
|
|
|
|
Total expenses |
|
62,530 |
|
|
82,266 |
|
|
|
|
|
|
|
Net investment income |
$ |
59,215 |
|
$ |
72,445 |
|
|
|
|
|
|
|
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 |
$ |
(26,638 |
) |
$ |
754 |
|
Companies more than 25% owned |
|
— |
|
|
(661 |
) |
|
|
|
|
|
|
Net realized loss on investments and cash equivalents |
|
(26,638 |
) |
|
93 |
|
Net realized loss on
extinguishment of debt: … |
|
— |
|
|
(1,853 |
) |
|
|
|
|
|
|
Net realized loss |
|
(26,638 |
) |
|
(1,760 |
) |
|
|
|
|
|
|
Net change in unrealized loss on
investments and cash equivalents: |
|
|
Companies less than 5% owned |
|
8,970 |
|
|
(14,861 |
) |
Companies more than 25% owned |
|
(26,096 |
) |
|
192 |
|
|
|
|
|
|
|
Net change in unrealized loss |
|
(17,126 |
) |
|
(14,669 |
) |
|
|
|
|
|
|
Net realized and unrealized loss on investments and
cash equivalents |
|
(43,764 |
) |
|
(16,429 |
) |
|
|
|
|
|
|
NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS |
$ |
15,451 |
|
$ |
56,016 |
|
|
|
|
|
|
|
EARNINGS PER
SHARE |
$ |
0.37 |
|
$ |
1.33 |
|
|
|
|
|
|
|
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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