THL Credit, Inc. (NASDAQ: TCRD) (“THL Credit” or the “Company”), a
direct lender to middle market companies, today announced financial
results for its first fiscal quarter ended March 31, 2019.
Additionally, THL Credit announced that its Board of Directors has
declared a second fiscal quarter 2019 dividend of $0.21 per share
payable on June 28, 2019, to stockholders of record as of June 14,
2019.
HIGHLIGHTS
($ in millions, except per share amounts) |
|
Portfolio results |
As of March 31,2019 |
|
Total assets |
$ |
519.9 |
|
|
Investment portfolio, at fair value |
$ |
497.6 |
|
|
Net assets |
$ |
287.8 |
|
|
Net asset value per share |
$ |
8.96 |
|
|
Weighted average yield on investments |
|
9.9 |
% |
|
|
Quarter endedMarch 31, 2019 |
Quarter endedMarch 31, 2018 |
Portfolio activity |
|
Total portfolio investments made, at par |
$ |
34.9 |
|
$ |
11.8 |
Total portfolio investments made, at cost |
$ |
34.5 |
|
$ |
11.8 |
Number of new portfolio investments |
|
3 |
|
|
- |
Number of portfolio investments at end of period |
|
44 |
|
|
45 |
Operating results |
|
|
Total investment income |
$ |
14.2 |
|
$ |
16.7 |
Net investment income |
$ |
6.7 |
|
$ |
8.8 |
Net increase in net assets from operations |
$ |
0.2 |
|
$ |
6.3 |
Net investment income per share (1) |
$ |
0.21 |
|
$ |
0.27 |
Dividends declared per share |
$ |
0.21 |
|
$ |
0.27 |
(1) For the quarter ended March 31, 2019,
net investment income per share excluding the impact of the
acceleration of deferred financing costs in connection with the
reduction of commitments under our credit facility was $0.22 per
share.
PORTFOLIO AND INVESTMENT
ACTIVITYIn the first quarter, THL Credit closed on three
new investments totaling $13.7 million as well as $21.2 million in
follow-on investments, including delayed draw and revolver
fundings.
Notable investments for the first quarter
included:
- $10.0 million follow-on first lien senior secured term loan in
LAI International, Inc.;
- $6.7 million first lien senior secured term loan in
SolutionReach, Inc., a provider of patient relationship management
tools;
- $5.5 million first lien senior secured term loan in IRC Opco,
LLC, a physician practice providing physical medicine and
rehabilitation services; and
- $1.5 million first lien senior secured term loan in Certify,
Inc., a provider of time, travel, and expense software.
Notable realizations for the quarter
included:
- Sale of the first lien senior
secured term loan in Alex Toys, LLC which resulted in proceeds
received of $7.7 million; and
- Sale of the first lien senior secured term loan in Home
Partners of America, Inc. which resulted in proceeds received of
$7.7 million.
As of March 31, 2019, these transactions,
coupled with changes in net unrealized depreciation on the
portfolio during the quarter, bring the total fair value of THL
Credit’s investment portfolio to $497.6 million across 44 portfolio
investments. THL Credit’s investment portfolio at fair value was
allocated 67 percent in first lien senior secured debt (including
unitranche investments), 16 percent in the Logan JV, 5 percent in
second lien debt, 1 percent in subordinated debt, and 11 percent in
equity securities and warrants. The weighted average yield on debt
investments made in the first quarter of 2019 was 11.9 percent. As
of March 31, 2019, the weighted average yield of the debt and
income-producing securities, including the Logan JV and reflecting
the impact of investments on non-accrual, in the investment
portfolio at their current cost basis was 9.9 percent. As of March
31, 2019, THL Credit had loans on non-accrual status with an
aggregate amortized cost of $68.2 million and fair value of $29.1
million, or 12.4 percent and 5.9 percent of the portfolio’s
amortized cost and fair value, respectively. As of March 31, 2019,
96.5 percent of THL Credit’s debt investments bore interest based
on floating rates, which may be subject to interest rate floors,
such as London Interbank offer rate, or LIBOR, or Canadian Dollar
offer rate, or CDOR, and 3.5 percent of its debt investments bore
interest at fixed rates.
This compares to the portfolio as of December
31, 2018, which had a fair value of $493.7 million across 42
portfolio investments allocated 67 percent in first lien senior
secured debt (including unitranche investments), 17 percent in the
Logan JV, 5 percent in second lien debt, 1 percent in subordinated
debt, and 10 percent in equity securities and warrants. The
weighted average yield of the debt and other income-producing
securities in the investment portfolio, including the Logan JV, at
their cost basis was 10.7 percent. As of December 31, 2018, THL
Credit had loans on non-accrual status with an aggregate amortized
cost of $38.0 million and fair value of $18.1 million, or 7.0
percent and 3.7 percent of the portfolio’s amortized cost and fair
value, respectively. As of December 31, 2018, 96.5 percent of THL
Credit’s debt investments bore interest based at floating rates,
which may be subject to interest rate floors, such as London
Interbank offer rate, or LIBOR, or Canadian Dollar offer rate, or
CDOR, and 3.5 percent of its debt investments bore interest at
fixed rates.
RESULTS OF OPERATIONS
Investment income Total
investment income for the three months ended March 31, 2019 and
2018 was $14.2 million and $16.7 million, respectively, and
consisted of $9.7 million and $12.6 million of interest income on
debt securities (which included PIK interest of $0.7 million and
$0.2 million, respectively), $3.7 million and $2.6 million of
dividend income, $0.1 million and $1.0 million of interest income
on other income-producing securities, and $0.7 million and $0.5
million of other income, including fees from THL Credit’s managed
vehicles, respectively.
The decrease in investment income compared to the prior period
was primarily due to the contraction in the overall investment
portfolio since March 31, 2018, which led to lower interest income,
offset by higher dividend income from certain equity
investments.
Expenses Expenses for the three
months ended March 31, 2019 and 2018 were $7.5 million and $7.9
million, respectively. For the three months ended March 31, 2019
and 2018, base management fees were $1.9 million and $2.3 million,
administrator and other expenses were $1.4 million and $1.6 million
and fees and expenses related to THL Credit’s borrowings were $4.1
million and $3.9 million, respectively. In addition, for each of
the three months ended March 31, 2019 and 2018, THL Credit recorded
an income tax provision related to its consolidated blocker
corporations, excise and other taxes of $0.1 million.
The decrease in expenses was primarily due to
lower base management fees as a result of portfolio contraction and
lower administrator expense.
Net investment incomeNet
investment income totaled $6.7 million and $8.8 million for the
three months ended March 31, 2019 and 2018, or $0.21 and $0.27 per
share, respectively, based upon 32,289,420 and 32,673,590 weighted
average common shares outstanding, respectively.
The decrease in net investment income between
the three month periods is primarily attributable to a decrease in
interest income on debt and other income-producing investments due
to portfolio contraction offset by lower base management fees and
administrator expense.
Net realized gains and losses on
investments, net of income tax provisionFor the three
months ended March 31, 2019, THL Credit recognized a net realized
loss on portfolio investments of $2.0 million, primarily related to
a sale of the Alex Toys term loan, which was mostly offset by a
change in related unrealized depreciation, and a change in
estimated recovery of an escrow. For the three months ended March
31, 2018, THL Credit recognized a net realized loss on portfolio
investments of $13.1 million, primarily related to a realized loss
from the exit of its investments in Aerogroup International Inc.
and losses from the initial restructuring of its Charming Charlie
investment through bankruptcy proceedings.
Net change in unrealized appreciation
(depreciation) on investmentsFor the three months ended
March 31, 2019 and 2018, THL Credit’s investment portfolio had a
net change in unrealized appreciation (depreciation) of ($4.3)
million and $10.0 million, respectively.
The net change in unrealized appreciation
(depreciation) on investments was primarily due to the performance
of certain portfolio investments, including certain control
investments.
Change in net assets resulting from
operationsChange in net assets resulting from operations
totaled $0.2 million and $6.3 million, or $0.01 and $0.19 per share
based upon and weighted average common shares outstanding, for the
three months ended March 31, 2019 and 2018, respectively.
The decrease in net assets resulting from
operations for the respective periods is primarily due to lower
interest income as a result of portfolio contraction and the
increase of the realized and unrealized losses in the portfolio and
the related tax impact.
FINANCIAL CONDITION, INCLUDING LIQUIDITY
AND CAPITAL RESOURCES
As of March 31, 2019, THL Credit had cash of
$2.5 million.
As of March 31, 2019, THL Credit had $228.8
million in outstanding borrowings, which was comprised of $117.2
million outstanding on the revolving credit facility and $111.6
million of notes payable outstanding. As of March 31, 2019,
borrowings outstanding had a weighted average interest rate of 5.68
percent. For the three months ended March 31, 2019, THL Credit
borrowed $18.0 million and repaid $8.8 million under the revolving
credit facility.
For the three months ended March 31, 2019, THL
Credit’s operating activities used cash of $5.2 million primarily
in connection with new and follow-on investments. Financing
activities included $9.2 million used for net repayments on its
credit facility, $6.8 million for distributions to stockholders and
$0.3 million for the payment of financing costs.
For the three months ended March 31, 2018, THL
Credit operating activities provided cash of $6.4 million primarily
in connection with the purchase and sales of investments. Financing
activities provided $2.1 million of net borrowings on its credit
facility and used $8.8 million for distributions to
stockholders.
RECENT DEVELOPMENTS
From April 1, 2019 through May 9, 2019, we made
new investments totaling $2.0 million and follow-on investments of
$11.6 million at a combined weighted average yield based upon cost
at the time of the investment of 10.1%.
From April 1, 2019 to May 8, 2019, we
repurchased 310,229 shares of stock for a total cost of $2.1
million as part of a 10b5-1 Stock Repurchase Plan, which is the
most recent information available to us at the time of this press
release. This brings up total shares repurchased since we began the
2019 stock repurchase program on March 11, 2019 to 508,712 shares
at an aggregate cost of $3.4 million.
On April 2, 2019, we received proceeds of $24.7 million from the
repayment of our first lien debt in Hart InterCivic, Inc at
par.
On May 7, 2019, our board of directors declared
a dividend of $0.21 per share payable on June 28, 2019 to
stockholders of record at the close of business on June 14,
2019.
CONFERENCE CALL
THL Credit will host a conference call to
discuss these results and its business outlook on May 10, 2019, at
10:30 a.m. Eastern Time.
For those wishing to participate by telephone,
please dial (877) 375-9141 (domestic) or (253) 237-1151
(international). Use passcode 1538398. The Company will also
broadcast the conference call live via the Investor Relations
section of its website at www.THLCreditBDC.com. Starting
approximately two hours after the conclusion of the call, a replay
will be available through May 19, 2019, by dialing (855) 859-2056
(domestic) or (404) 537-3406 (international) and entering passcode
1538398. The replay will also be available on the Company’s
website.
AVAILABLE INFORMATIONTHL
Credit’s filings with the Securities and Exchange Commission, press
releases, earnings releases, investor presentation and other
financial information are available on our website at
www.THLCreditBDC.com.
THL CREDIT, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES(in thousands, except per share
data)
|
|
|
|
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
|
|
Assets: |
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
Non-controlled, non-affiliated investments (cost of $342,246 and
$333,023, respectively) |
$ |
311,919 |
|
|
$ |
313,377 |
|
|
|
Controlled investments (cost of $180,339 and $181,325,
respectively) |
|
172,659 |
|
|
|
167,733 |
|
|
|
Non-controlled, affiliated investments (cost of $25,292 and
$25,292, respectively) |
|
12,986 |
|
|
|
12,543 |
|
|
|
Cash |
|
2,510 |
|
|
|
6,860 |
|
|
|
Escrow receivable |
|
7,965 |
|
|
|
7,306 |
|
|
|
Interest, dividends, and fees
receivable |
|
6,030 |
|
|
|
5,480 |
|
|
|
Deferred tax assets |
|
2,046 |
|
|
|
2,056 |
|
|
|
Deferred financing costs |
|
2,005 |
|
|
|
2,314 |
|
|
|
Due from affiliate |
|
981 |
|
|
|
377 |
|
|
|
Prepaid expenses and other
assets |
|
503 |
|
|
|
198 |
|
|
|
Distributions receivable |
|
311 |
|
|
|
207 |
|
|
|
Total assets |
$ |
519,915 |
|
|
$ |
518,451 |
|
|
|
Liabilities: |
|
|
|
|
|
Loans payable |
$ |
117,224 |
|
|
$ |
107,657 |
|
|
|
Notes payable ($111,607 and
$111,607 face amounts, respectively, reported net of
deferred financing costs of $3,342 and $3,541, respectively) |
|
108,265 |
|
|
|
108,067 |
|
|
|
Base management fees payable |
|
1,910 |
|
|
|
2,112 |
|
|
|
Deferred tax liability |
|
1,855 |
|
|
|
1,972 |
|
|
|
Accrued expenses and other
payables |
|
1,710 |
|
|
|
1,633 |
|
|
|
Accrued incentive fees |
|
677 |
|
|
|
677 |
|
|
|
Accrued interest and fees |
|
481 |
|
|
|
633 |
|
|
|
Other deferred liabilities |
|
9 |
|
|
|
19 |
|
|
|
Total liabilities |
|
232,131 |
|
|
|
222,770 |
|
|
|
|
|
|
|
|
|
Net Assets: |
|
|
|
|
|
Common stock, par value $.001 per
share, 100,000 common shares authorized, 32,119 and 32,318
shares issued and outstanding at March 31, 2019 and December 31,
2018, respectively |
|
32 |
|
|
|
32 |
|
|
|
Paid-in capital in excess of
par |
|
429,983 |
|
|
|
431,361 |
|
|
|
Accumulated deficit |
|
(142,231 |
) |
|
|
(135,712 |
) |
|
|
Total net assets |
$ |
287,784 |
|
|
$ |
295,681 |
|
|
|
Total liabilities and net
assets |
$ |
519,915 |
|
|
$ |
518,451 |
|
|
|
Net asset value per share
attributable to THL Credit, Inc. |
$ |
8.96 |
|
|
$ |
9.15 |
|
|
|
|
|
|
|
|
THL CREDIT, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share
data)
|
|
|
|
|
|
|
|
|
|
For the three months ended March
31, |
|
|
|
|
|
2019 |
|
|
|
2018 |
|
|
|
Investment
Income: |
|
|
|
|
|
|
From non-controlled,
non-affiliated investments: |
|
|
|
|
|
|
Interest income |
|
$ |
8,413 |
|
|
$ |
12,206 |
|
|
|
Other income |
|
|
454 |
|
|
|
119 |
|
|
|
From non-controlled,
affiliated investments: |
|
|
|
|
|
|
Interest income |
|
|
34 |
|
|
|
— |
|
|
|
Other income |
|
|
197 |
|
|
|
255 |
|
|
|
From controlled
investments: |
|
|
|
|
|
|
Interest income |
|
|
1,349 |
|
|
|
1,404 |
|
|
|
Dividend income |
|
|
3,706 |
|
|
|
2,613 |
|
|
|
Other income |
|
|
38 |
|
|
|
91 |
|
|
|
Total investment income |
|
|
14,191 |
|
|
|
16,688 |
|
|
|
Expenses: |
|
|
|
|
|
|
Interest and fees on borrowings |
|
|
3,398 |
|
|
|
3,566 |
|
|
|
Base management fees |
|
|
1,910 |
|
|
|
2,319 |
|
|
|
Administrator expenses |
|
|
449 |
|
|
|
591 |
|
|
|
Other general and administrative expenses |
|
|
373 |
|
|
|
422 |
|
|
|
Amortization of deferred financing costs |
|
|
695 |
|
|
|
308 |
|
|
|
Professional fees |
|
|
397 |
|
|
|
337 |
|
|
|
Directors' fees |
|
|
188 |
|
|
|
194 |
|
|
|
Total expenses |
|
|
7,410 |
|
|
|
7,737 |
|
|
|
Income tax provision, excise and other taxes |
|
|
77 |
|
|
|
124 |
|
|
|
Net investment income |
|
|
6,704 |
|
|
|
8,827 |
|
|
|
Realized Gain (Loss) and
Change in Unrealized Appreciation (Depreciation) on
Investments: |
|
|
|
|
|
|
Net realized (loss) gain on investments: |
|
|
|
|
|
|
Non-controlled, non-affiliated investments |
|
|
(2,417 |
) |
|
|
(13,212 |
) |
|
|
Controlled investments |
|
|
442 |
|
|
|
96 |
|
|
|
Foreign currency transactions |
|
|
3 |
|
|
|
(1 |
) |
|
|
Net realized loss on investments |
|
|
(1,972 |
) |
|
|
(13,117 |
) |
|
|
Net change in unrealized
(depreciation) appreciation on investments: |
|
|
|
|
|
|
Non-controlled, non-affiliated investments |
|
|
(10,681 |
) |
|
|
10,571 |
|
|
|
Non-controlled, affiliated investments |
|
|
443 |
|
|
|
— |
|
|
|
Controlled investments |
|
|
5,911 |
|
|
|
(321 |
) |
|
|
Translation of assets and liabilities in foreign currencies |
|
|
(318 |
) |
|
|
660 |
|
|
|
Net change in unrealized
(depreciation) appreciation on investments |
|
|
(4,645 |
) |
|
|
10,910 |
|
|
|
Net change in unrealized
depreciation attributable to non-controlling interests |
|
|
— |
|
|
|
(247 |
) |
|
|
Net realized and unrealized loss from investments |
|
|
(6,617 |
) |
|
|
(2,454 |
) |
|
|
Benefit (provision) for taxes on unrealized gain/loss on
investments |
|
|
107 |
|
|
|
(32 |
) |
|
|
Net increase in net assets resulting from operations |
|
$ |
194 |
|
|
$ |
6,341 |
|
|
|
Net investment income per common share: |
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.21 |
|
|
$ |
0.27 |
|
|
|
Net increase in net assets resulting from operations per common
share: |
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.01 |
|
|
$ |
0.19 |
|
|
|
Weighted average shares of common stock outstanding: |
|
|
|
|
|
|
Basic and diluted |
|
|
32,289 |
|
|
|
32,674 |
|
|
|
|
|
|
|
|
|
About THL Credit, Inc.
THL Credit, Inc. (NASDAQ: TCRD) is a closed-end
management investment company that has elected to be treated as a
business development company under the Investment Company Act of
1940. The Company’s investment objective is to generate both
current income and capital appreciation, primarily through
investments in privately negotiated debt and equity securities of
middle market companies. The company is a direct lender to middle
market companies and invests primarily in directly originated first
lien senior secured loans, including unitranche investments. In
certain instances, the Company also makes second lien secured loans
and subordinated or mezzanine, debt investments, which may include
an associated equity component such as warrants, preferred stock or
other similar securities and direct equity co-investments. The
Company targets investments primarily in middle market companies
with annual EBITDA generally between $5 million and $25 million.
The Company is headquartered in Boston, with additional origination
teams in Chicago, Dallas, Los Angeles and New York. The Company’s
investment activities are managed by THL Credit Advisors LLC, an
investment adviser registered under the Investment Advisers Act of
1940. For more information, please visit www.THLCreditBDC.com.
Forward-Looking Statements
Statements made in this press release may
constitute forward-looking statements. Such statements reflect
various assumptions by the Company concerning anticipated results
and are not guarantees of future performance. These statements
include but are not limited to statements related to our, projected
financial performance, expected development of the business,
anticipated share repurchases or lack thereof, our plans and
expectations about future investments and the future liquidity of
the company. The accuracy of such statements involves known and
unknown risks, uncertainties and other factors that, in some ways,
are beyond management’s control, including the factors described
from time to time in filings by the Company with the Securities and
Exchange Commission. Such factors include: the introduction,
withdrawal, success and timing of business initiatives and
strategies; changes in political, economic or industry conditions,
the interest rate environment or financial and capital markets,
which could result in changes in the value of our assets; the
relative and absolute investment performance and operations of our
investment adviser; the impact of increased competition; the impact
of future acquisitions and divestitures; the unfavorable
resolution of legal proceedings; our business prospects and the
prospects of our portfolio companies; the impact, extent and timing
of technological changes and the adequacy of intellectual property
protection; the impact of legislative and regulatory actions and
reforms and regulatory, supervisory or enforcement actions of
government agencies relating to us or THL Credit Advisors LLC, the
Advisor; the ability of the Advisor to identify suitable
investments for us and to monitor and administer our investments;
our contractual arrangements and relationships with third
parties; any future financings by us; the ability of
the Advisor to attract and retain highly talented professionals;
fluctuations in foreign currency exchange rates; the impact of
changes to tax legislation and, generally, our tax position; our
ability to exit a control investment in a timely manner; and the
ability to fund Logan JV’s unfunded commitments to the extent
approved by each member of the Logan JV investment committee; and
stockholder approval of certain amendments to our investment
management agreement and increased leverage.
The Company undertakes no duty to update any
forward-looking statements made herein. All forward-looking
statements speak only as of the date of this press release.
Investor Contact:THL Credit, Inc. Lauren Vieira
617-790-6070lvieira@thlcredit.com
Media Contact:Stanton Public Relations and
Marketing, LLCDoug Allen646-502-3530dallen@stantonprm.com
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