CHARLOTTE, N.C.--(BUSINESS WIRE)--Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala" or the “Company”) today announced its financial results for third quarter ended September 30, 2015.
Third Quarter Highlights
- Net investment income of $7.8 million, or $0.48 per common share
- Net asset value per share increased to $18.04 from $17.95 the previous quarter
- Net increase in net assets resulting from operations of $8.0 million, or $0.49 per common share
- Originated $55.6 million of gross investments during the quarter with a weighted average yield on debt investments of 12.6%
- Repurchased 399,448 shares of common stock, representing approximately 2.5% of the shares outstanding at quarter end
- Paid $0.62 of distributions per share during the quarter for an approximate annualized distribution rate of 13.75%, based on September 30, 2015 net asset value per share of $18.04 per share
- Increased commitments under our revolving credit facility (the “Credit Facility”) to $120.0 million from $80.0 million
Management Commentary
In describing the Company’s third quarter activities, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, “Management is pleased to report positive results related to net investment income and net asset value per share for the third quarter of 2015. Net investment income per share of $0.48 for the period covered our normal distributions of $0.47 per share. In addition, net asset value per share increased to $18.04 as of quarter end. These results can be attributed to the completion of our equity rotation strategy, coupled with new debt investments funded by our April 2015 equity offering and advances from our Credit Facility. Our direct origination platform continues to deliver quality investment opportunities at attractive risk adjusted returns.”
Third Quarter 2015 Financial Results
Total investment income was $18.3 million for the third quarter of 2015, compared to $11.2 million for the same period in 2014, an increase of $7.1 million, or approximately 63.9%. Interest and fee income for the third quarter of 2015 increased $5.6 million from the comparable period in 2014, while payment-in-kind (“PIK”) income and dividend income collectively increased by $1.5 million.
Total expenses for the third quarter of 2015 were $10.5 million, compared to $7.6 million for the comparable period in 2014. The increase is primarily attributable to (1) an increase in incentive fees of $1.9 million as incentive fees were not earned during the third quarter of 2014, (2) an increase in interest and financing expenses of $0.5 million, and (3) an increase of $0.2 million in management fees, net of the waiver.
Net investment income for the third quarter of 2015 was $7.8 million, or $0.48 per share, compared to $3.5 million, or $0.27 per share, for the same period in 2014.
Net realized losses totaled $16.0 million, or $1.00 per share, for the third quarter of 2015, compared to net realized losses of $3.1 million for the same period in 2014. Unrealized appreciation for the third quarter of 2015 was $16.2 million, or $1.02 per common share, compared to depreciation of $0.2 million for the same period in 2014.
The chart below provides additional details regarding gains and losses, changes in unrealized appreciation, and the corresponding impact to net asset value, for the third quarter of 2015 (dollars in thousands):
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Net Gain/Loss for the three months ended 9/30/15 |
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| Portfolio Company |
Cost Basis at 6/30/15 |
Unrealized Appreciation/ (Depreciation) at 6/30/15 |
Fair Value at 6/30/15 |
Proceeds received |
Net Asset Value Impact for the 3 months ended 9/30/15 |
Realized Gain/(Loss) for the 3 months ended 9/30/15 |
Unrealized Appreciation/ (Depreciation) for the 3 months ended 9/30/15 |
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| Source Capital SSCR, LLC* | $ | 25,513 | $ | (9,513 | ) | $ | 16,000 | $ | 14,256 | $ | (1,744 | ) | $ | (11,257 | ) | $ | 9,513 | ||||||||
| Market E's, LLC* | 5,065 | (3,315 | ) | 1,750 | - | (1,750 | ) | (5,065 | ) | 3,315 | |||||||||||||||
| Source Recycling, LLC (equity only)* | 1,590 | (1,590 | ) | - | - | - | (1,590 | ) | 1,590 | ||||||||||||||||
| Worklife America, Inc.* | - | 2,197 | 2,197 | 1,590 | (607 | ) | 1,590 | (2,197 | ) | ||||||||||||||||
| Stoddard Hill Media Holdings, LLC* | - | 96 | - | 15 | (81 | ) | 15 | (96 | ) | ||||||||||||||||
| Realized gains on partial exits | - | - | - | 270 | 270 | 270 | - | ||||||||||||||||||
| Remaining Portfolio Companies | 514,466 | 30,805 | 545,367 | - | 4,083 | - | 4,083 | ||||||||||||||||||
| $ | 546,634 | $ | 18,680 | $ | 565,314 | $ | 16,131 | $ | 171 | $ | (16,037 | ) | $ | 16,208 | |||||||||||
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*These investments were exited during the three months ended September 30, 2015
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The net increase in net assets resulting from operations was $8.0 million for the third quarter of 2015, or $0.49 per common share, compared to a net increase of $0.3 million, or $0.02 per common share, for the same period in 2014.
Third Quarter 2015 Investment Activity
During the third quarter of 2015, the Company originated approximately $55.6 million of investments, and received approximately $34.7 million of repayments. $40.0 million was invested in three new portfolio companies, while $10.8 million was invested in six existing portfolio companies. In addition, the Company invested $4.8 million in Capitala Senior Liquid Loan Fund I, LLC (“CSLLF”). Debt investments for the period totaled $47.8 million, with a weighted average yield of 12.6%.
Investment Portfolio
As of September 30, 2015, the Company’s portfolio consisted of investments in 58 companies with a fair market value of $588.2 million and a cost basis of $553.3 million. Senior secured debt investments represented 36.7% of the portfolio, subordinated debt investments represented 44.2% of the portfolio, equity/warrant investments represented 15.8% of the portfolio, and the investment in the CSLLF represented 3.3% of the portfolio, based on fair values at September 30, 2015.
The fair value of the Company’s five energy investments totaled $65.3 million at September 30, 2015, approximately 11.1% of the portfolio. During the third quarter of 2015, the Company recorded unrealized depreciation of $3.2 million on its energy investments. Over the past four quarters, the Company has recorded $13.2 million of unrealized depreciation on its energy investments, approximately 16.8% of the cost basis at September 30, 2015.
The Company had three debt investments on cash non-accrual status as of September 30, 2015, with a fair value and cost basis of $10.9 million and $13.6 million, respectively. At December 31, 2014, the Company had one cash non-accrual investment with a fair value and cost basis of $0 and $3.4 million, respectively.
The Company had two debt investments on PIK non-accrual as of September 30, 2015, with a fair value of $9.7 million and a cost basis of $13.5 million. The Company had debt investments in one portfolio company on PIK non-accrual at December 31, 2014, with a fair value of $10.6 million and a cost basis of $13.1 million.
Liquidity and Capital Resources
At September 30, 2015, the Company had $37.5 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $184.2 million with an annual weighted average interest rate of 3.45%, and approximately $113.4 million of fixed rate notes bearing an interest rate of 7.125%. At September 30, 2015, the Company had $69.0 million of borrowing capacity available under its Credit Facility, which is priced at LIBOR plus 3.0% and matures on October 17, 2018. During the quarter, the Company repurchased 399,448 shares of common stock, or approximately 2.5% of the outstanding shares at September 30, 2015.
At September 30, 2015, the Company’s balance sheet and future earnings will not be materially impacted by an increase in short term interest rates.
Subsequent Events
On October 22, 2015, the Company sold $13.0 million of its Western Window Systems, LLC senior secured term debt investment as part of a post-closing syndication.
Third Quarter 2015 Financial Results Conference Call
Management will host a conference call to discuss the operating and financial results at 8:30 a.m. on Tuesday November 10, 2015. To participate in the conference call, please dial 1-877-312-5507 approximately 10 minutes prior to the call. A live webcast of the conference will be available at http://investor.CapitalaGroup.com.
About Capitala Finance Corp.
Capitala Finance Corp. is a business development company that invests primarily in traditional mezzanine, senior subordinated and unitranche debt, as well as senior and second-lien loans and, to lesser extent, equity securities issued by lower and traditional middle-market companies. The Company is managed by Capitala Investment Advisors, LLC. For more information about the Company, please visit www.CapitalaGroup.com.
Forward-Looking Statements
This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, condition 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 the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
| Capitala Finance Corp. | ||||||||
| Consolidated Statements of Assets and Liabilities | ||||||||
| (in thousands, except share and per share data) | ||||||||
| As of | ||||||||
|
September 30, 2015 |
December 31, 2014 |
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| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value | ||||||||
| Non-control/non-affiliate investments (amortized cost of $359,557 and $219,163, respectively) | $ | 379,329 | $ | 236,804 | ||||
| Affiliate investments (amortized cost of $114,922 and $154,552, respectively) | 134,317 | 171,471 | ||||||
| Control investments (amortized cost of $78,850 and $67,440, respectively) | 74,571 | 72,062 | ||||||
| Total investments at fair value (amortized cost of $553,328 and $441,155, respectively) | 588,217 | 480,337 | ||||||
| Cash and cash equivalents | 37,535 | 55,107 | ||||||
| Interest and dividend receivable | 5,923 | 3,113 | ||||||
| Due from related parties | 256 | 518 | ||||||
| Deferred financing fees (net of accumulated amortization of $4,722 and $3,288, respectively) | 9,227 | 10,002 | ||||||
| Prepaid expenses | 637 | 515 | ||||||
| Other assets | 522 | 274 | ||||||
| Total assets | $ | 642,317 | $ | 549,866 | ||||
| LIABILITIES | ||||||||
| SBA debentures | $ | 184,200 | $ | 192,200 | ||||
| Notes | 113,438 | 113,438 | ||||||
| Revolving Credit Facility | 51,000 | - | ||||||
| Distribution payable | 2,384 | - | ||||||
| Due to related parties | 4 | 8 | ||||||
| Management and incentive fee payable | 3,246 | 159 | ||||||
| Interest and financing fees payable | 1,152 | 2,902 | ||||||
| Accounts payable and accrued expenses | 80 | 322 | ||||||
| Total liabilities | $ | 355,504 | $ | 309,029 | ||||
| Commitments and contingencies | ||||||||
| NET ASSETS | ||||||||
| Common stock, par value $.01, 100,000,000 common shares authorized, 15,895,580 and 12,974,420 common shares | ||||||||
| issued and outstanding, respectively | 159 | 130 | ||||||
| Additional paid in capital | 240,808 | 188,408 | ||||||
| Accumulated undistributed net investment income | 8,902 | 12,314 | ||||||
| Accumulated undistributed net realized gain from investments | 2,055 | 803 | ||||||
| Net unrealized appreciation on investments | 34,889 | 39,182 | ||||||
| Total net assets | 286,813 | 240,837 | ||||||
| Total liabilities and net assets | $ | 642,317 | $ | 549,866 | ||||
| Net asset value per share | $ | 18.04 | $ | 18.56 | ||||
| Capitala Finance Corp. | ||||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||||
| (in thousands, except share and per share data) | ||||||||||||||||||||
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||
| INVESTMENT INCOME | ||||||||||||||||||||
| Interest and fee income: | ||||||||||||||||||||
| Non-control/Non-affiliate investments | $ | 11,948 | $ | 4,104 | $ | 29,139 | $ | 10,170 | ||||||||||||
| Affiliate investments | 2,675 | 4,790 | 9,347 | 12,415 | ||||||||||||||||
| Control investments | 1,285 | 1,422 | 4,010 | 4,259 | ||||||||||||||||
| Total interest and fee income | 15,908 | 10,316 | 42,496 | 26,844 | ||||||||||||||||
|
Payment-in-kind income: |
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| Non-control/Non-affiliate investments | 758 | 202 | 1,447 | 626 | ||||||||||||||||
| Affiliate investments | 612 | 334 | 1,263 | 956 | ||||||||||||||||
| Control investments | 227 | 192 | 848 | 479 | ||||||||||||||||
|
Total payment-in-kind interest income |
1,597 | 728 | 3,558 | 2,061 | ||||||||||||||||
| Dividend income: | ||||||||||||||||||||
| Non-control/Non-affiliate investments | 154 | 152 | 462 | 1,666 | ||||||||||||||||
| Affiliate investments | 29 | 29 | 86 | 745 | ||||||||||||||||
| Control investments | 615 | (61 | ) | 823 | 4,734 | |||||||||||||||
| Total dividend income | 798 | 120 | 1,371 | 7,145 | ||||||||||||||||
| Interest income from cash and cash equivalents | 1 | 3 | 4 | 17 | ||||||||||||||||
| Total investment income | 18,304 | 11,167 | 47,429 | 36,067 | ||||||||||||||||
| EXPENSES | ||||||||||||||||||||
| Interest and financing expenses | 4,809 | 4,268 | 14,126 | 8,870 | ||||||||||||||||
| Base management fee | 2,781 | 2,536 | 7,778 | 6,830 | ||||||||||||||||
| Incentive fees | 1,946 | - | 4,457 | 2,838 | ||||||||||||||||
| General and administrative expenses | 981 | 857 | 3,148 | 2,870 | ||||||||||||||||
| Expenses before management fee waiver | 10,517 | 7,661 | 29,509 | 21,408 | ||||||||||||||||
| Management fee waiver | - | (38 | ) | - | (238 | ) | ||||||||||||||
| Total expenses net of management fee waiver | 10,517 | 7,623 | 29,509 | 21,170 | ||||||||||||||||
| NET INVESTMENT INCOME | 7,787 | 3,544 | 17,920 | 14,897 | ||||||||||||||||
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||||||||||||||||||
| Net realized gain (loss) from investments: | ||||||||||||||||||||
| Non-control/Non-affiliate investments | 1,605 | - | 9,304 | 1,158 | ||||||||||||||||
| Affiliate investments | (12,847 | ) | (3,055 | ) | (5,750 | ) | (2,704 | ) | ||||||||||||
| Control investments | (4,795 | ) | - | 5,586 | 173 | |||||||||||||||
| Total realized gain (loss) from investments | (16,037 | ) | (3,055 | ) | 9,140 | (1,373 | ) | |||||||||||||
| Net unrealized appreciation/(depreciation) on investments | 16,208 | (178 | ) | (4,293 | ) | (5,784 | ) | |||||||||||||
| Net gain (loss) on investments | 171 | (3,233 | ) | 4,847 | (7,157 | ) | ||||||||||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 7,958 | $ | 311 | $ | 22,767 | $ | 7,740 | ||||||||||||
| NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM | ||||||||||||||||||||
| OPERATIONS-BASIC AND DILUTED | $ | 0.49 | $ | 0.02 | $ | 1.52 | $ | 0.60 | ||||||||||||
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED | 16,088,979 | 12,974,420 | 15,018,537 | 12,974,420 | ||||||||||||||||
| DISTRIBUTIONS PAID PER SHARE | $ | 0.62 | $ | 0.47 | $ | 1.76 | $ | 0.47 | ||||||||||||
| DISTRIBUTIONS PAYABLE PER SHARE | $ | 0.15 | $ | - | $ | 0.15 | $ | - | ||||||||||||
