Harvest Capital Credit Corporation Announces June 30, 2018 Financial Results and Declares Regular Monthly Distributions for July, August and September

NEW YORK--()--Harvest Capital Credit Corporation (the “Company”) (NASDAQ: HCAP) announced that its Board of Directors declared distributions of $0.095 per share for the months of July, August and September. The July distribution is payable on August 30, 2018 to shareholders of record on August 23, 2018. The August distribution is payable on September 27, 2018 to shareholders of record on September 20, 2018. The September distribution is payable on October 25, 2018 to shareholders of record on October 18, 2018. The Company's distributions may include a return of capital to shareholders to the extent that the Company's net investment income and net capital gains are insufficient to support the distributions. Distributions that are treated for tax purposes as a return of capital will reduce each shareholder's basis in his, her or its shares. Returns of shareholder capital also have the effect of reducing the Company's assets.

                 

FINANCIAL HIGHLIGHTS

 
Q2-18 Q2-17 YTD-18 YTD-17
Amount    

Per
share

Amount    

Per
share

Amount    

Per
share

Amount    

Per
share

 
Net investment income $1,605,307 $0.25 $2,514,706 $0.39 $2,820,595 $0.44 $4,752,363 $0.75
 
Core net investment income (1) $1,605,307 $0.25 $2,514,706 $0.39 $2,820,595 $0.44 $4,752,363 $0.75
 
Net realized gains (losses) on investments $156,347 $0.02 $267,019 $0.04 ($729,295) ($0.11) $271,115 $0.04
 

Net change in unrealized appreciation (depreciation) on investments

$(422,420) $(0.07) $(4,641,564) $(0.72) $1,317,929 $0.21 ($4,549,764) ($0.71)
 
Net (loss) income $815,756 $0.13 ($1,859,839) ($0.29) $2,885,751 $0.45 $473,714 $0.07
 
Weighted average shares outstanding (basic and diluted) 6,390,521 6,407,362 6,413,869 6,378,953
 
(1)     Core net investment income and core net investment income per share are non-GAAP financial measures. Reconciliations of core net investment income and core net investment income per share to the most directly comparable GAAP financial measure and other information regarding these non-GAAP financial measures are set forth in Schedule 1 hereto.
 
                 

PORTFOLIO ACTIVITY

 
June 30, 2018 December 31, 2017
Portfolio investments at fair value $ 120,592,617 $ 115,600,678
Total assets $ 133,613,393 $ 128,152,840
Net assets $ 80,078,048 $ 81,781,429
Shares outstanding 6,395,192 6,457,588
Net asset value per share $ 12.52 $ 12.66
 
Q2-18 Q2-17    

YTD-18

   

YTD-17

Portfolio activity during the period:
New debt investments $ 4,662,500 $ 15,449,797 $ 12,662,500 $ 30,527,222
New equity investments 284,767 1,600,000 434,767 2,643,640
Exits of debt investments (26,740 ) (6,474,698 ) (6,779,865 ) (10,697,645 )
Exits of equity investments (84,379 ) (4,480 ) (84,379 )
Principal repayments (2,434,393 ) (7,561,268 )     (3,206,355 )     (14,066,378 )
Net activity $ 2,486,134 $ 2,929,452 $ 3,106,567 $ 8,322,460
 
June 30, 2018 December 31, 2017
Number of portfolio company investments 29 31
Number of debt investments 23 28
 
Weighted average yield of debt investments (1):
Cash 11.9 % 11.3 %
PIK 1.3 % 1.4 %
Fee amortization 1.3 % 2.6 %
Total 14.5 % 15.3 %
 
(1)     The dollar-weighted average annualized effective yield is computed using the effective interest rates for our debt investments and other income producing investments, including cash and PIK interest as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective fair values of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expenses or any sales load that may be paid by investors. Infinite Care, LLC was excluded from the calculation as of June 30, 2018 and December 31, 2017 because it was on non-accrual status on that date. The weighted average effective yield of our debt and other income-producing investments, as of June 30, 2018 and December 31, 2017, was approximately 14.5% and 15.3%, respectively. The weighted average effective yield on the entire portfolio as of June 30, 2018 and December 31, 2017 was 12.8% and 13.7%, respectively.
 

SECOND QUARTER AND YEAR TO DATE 2018 OPERATING RESULTS

For the quarter ended June 30, 2018, the Company reported net income of $0.8 million, an increase of $2.7 million from $(1.9) million of net loss in the quarter ended June 30, 2017. Per share earnings (loss) were $0.13 and $(0.29) per share for the three months ended June 30, 2018 and 2017, respectively.

For the quarter ended June 30, 2018, the Company reported a $0.9 million decrease in net investment income and core net investment income, compared to the quarter ended June 30, 2017. Net investment income and core net investment income were $1.6 million, or $0.25 per share, for the quarter ended June 30, 2018, compared to $2.5 million, or $0.39 per share, for the quarter ended June 30, 2017.

The $2.7 million improvement in net income for the quarter ended June 30, 2018, compared to the quarter ended June 30, 2017, was primarily attributable to a $3.6 million positive change in net unrealized depreciation (which is net of $0.5 million of deferred taxes), decrease in interest expense of $0.2 million and a decrease in professional fees of $0.1 million, partially offset by a $1.0 million decrease in investment income, $0.2 million increase in management and administrative fees and a $0.1 million decrease in net realized gains, for the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017.

Net investment income and core net investment income decreased in the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017, primarily as a result of lower investment income offset by lower operating expenses. Investment income was lower as a result of a smaller investment portfolio and slightly lower weighted average effective yield for the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017.

As of June 30, 2018, our total portfolio investments at fair value and total assets were $120.6 million and $133.6 million, respectively, compared to $115.6 million and $128.2 million at December 31, 2017. Net asset value per share was $12.52 at June 30, 2018, compared to $12.66 at December 31, 2017.

During the second quarter of 2018, the Company made investments in three companies totaling $4.9 million. One of the investments was in a new portfolio company and two were additional investments in existing portfolio companies. The Company also had investment sales, payoffs and commitment expirations totaling $2.5 million during the three months ended June 30, 2018. The investment activity for the quarter ended June 30, 2018 was as follows:

NEW AND INCREMENTAL INVESTMENTS

During the second quarter of 2018, the Company increased its debt investment in Infinite Care, LLC by $0.7 million through two over-advances on its revolver commitment. The revolver carries an interest rate of LIBOR plus 12.0%. Infinite Care was on non-accrual status, however, as of June 30, 2018.

On June 29, 2018, the Company made a $4.0 million senior secured debt investment and a $0.2 million equity investment in National Program Management & Project Controls, LLC. The debt investment consists of a $3.6 million term loan and a $0.4 million revolver. The loans carry an interest rate of 1 month LIBOR plus 10.0% with a 1.95% LIBOR floor.

During the second quarter of 2018, the Company increased its equity investment in King Engineering Associates, Inc., with a $0.1 million pro-rata increase through two add-on fundings to purchase Class A common stock.

INVESTMENT SALES AND PAYOFFS

On May 23, 2018, the Company received a full repayment, at par, on its senior secured debt investment in Bridgewater Engine Ownership III, LLC. The original par value of the debt investment was $1.4 million. The Company generated an internal rate of return (“IRR”) of 11.6% on its investment. IRR is the rate of return that makes the net present value of all cash flows into or from the investment equal to zero, and is calculated based on the amount of each cash flow received or invested by the Company and the day it was received or invested.

"Our second quarter results continue to reflect our reduced capital deployment as well as stable, but below our historical, credit quality," said Joseph A. Jolson, Chairman and CEO. "We are increasingly optimistic that both these issues could improve over the next few quarters. We currently have three mandated deals totaling $17.1 million that could close in the next few months, though we do expect an increase in payoffs. We have also implemented specific resolution plans on each of our 3, 4 and 5 rated credits and hope to show improved credit metrics in the next six months," concluded Mr. Jolson.

CREDIT QUALITY

The Company employs various risk management and monitoring tools to categorize and assess its investments. No less frequently than quarterly, the Company applies an investment risk rating system which uses a five-level numeric scale. The following is a description of the conditions associated with each investment rating:

  • Investment Rating 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.
  • Investment Rating 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.
  • Investment Rating 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.
  • Investment Rating 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout. Investments with a rating of 4 are those for which there is an increased possibility of some loss of return but no loss of principal is expected.
  • Investment Rating 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout. Investments with a rating of 5 are those for which some loss of return and principal is expected.

As of June 30, 2018, the weighted average risk rating of the debt investments in the Company's portfolio remained stable at 2.24 from the previous quarter. Also, as of June 30, 2018, eight of the Company’s twenty-three debt investments were rated 1, ten investments were rated 2, three investments were rated 3, one investment was rated 4, and one investment was rated 5. As of June 30, 2018, one investment was on non-accrual status.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2018, the Company had $11.8 million of cash and restricted cash and $11.3 million of undrawn capacity on its $55.0 million senior secured revolving credit facility. The credit facility is secured by all of the Company’s assets and has an accordion feature that allows the size of the facility to increase up to $85.0 million.

Additionally, the Company held three syndicated loans totaling $8.3 million at fair value as of June 30, 2018. These investments could be sold and the proceeds re-invested in our core lower-middle market strategy, as attractive opportunities arise. Subsequent to June 30, 2018, we received a full repayment on one of our syndicated loans in Sitel Worldwide Corporation totaling $1.8 million.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO JUNE 30, 2018

On July 31, 2018, the Company received a full repayment at par value plus a 1.0% prepayment fee on its junior secured term loan in Sitel Worldwide Corporation. The Company generated an IRR of 11.7% on its investment.

On August 1, 2018, the Company declared monthly distributions of $0.095 per share payable on each August 30, 2018, September 27, 2018 and October 25, 2018.

On August 2, 2018, the Company received a full repayment at par value for its senior secured term loan in AMS Flight Leasing and its senior secured term loan in IAG Engine Center, LLC. The Company generated an IRR of 15.0% on its investment in AMS Flight Leasing and an IRR of 15.7% on its investment in IAG Engine Center, LLC. The Company also received its final distribution on its revenue linked security investment in IAG Engine Center, LLC. The Company generated an IRR of 48.9% on its investment and had entered into an agreement with Flight Lease XX, Inc. regarding potential future payout of proceeds, from the sale of an asset, to the extent sales proceeds exceed $0.6 million, where the Company would receive 50% of any excess over $0.6 million with a $0.3 million cap.

On August 7, 2018, the Company made a $2.5 million junior secured debt investment in Water-Land Manufacturing & Supply, LLC. The term loan carries an interest rate of 3 month LIBOR + 10.5% with a 2.25% LIBOR floor.

CONFERENCE CALL

The Company will host a conference call on Thursday, August 9, 2018 at 11:00 a.m. Eastern Time to discuss its second quarter results. All interested parties are invited to participate in the conference call by dialing (888) 566-6060 (domestic) or (973) 200-3100 (international). Participants should enter the Conference ID 4884932 when prompted.

ABOUT HARVEST CAPITAL CREDIT CORPORATION

Harvest Capital Credit Corporation (NASDAQ: HCAP) provides customized financing solutions to privately held small and mid-sized companies in the U.S., generally targeting companies with annual revenues of less than $100 million and annual EBITDA of less than $15 million. The Company’s investment objective is to generate both current income and capital appreciation primarily by making direct investments in the form of subordinated debt, senior debt and, to a lesser extent, minority equity investments. Harvest Capital Credit Corporation is externally managed and has elected to be treated as a business development company under the Investment Company Act of 1940. For more information about Harvest Capital Credit Corporation, visit www.harvestcapitalcredit.com. However, the contents of such website are not and should not be deemed to be incorporated by reference herein.

Forward-Looking Statements

This press release contains forward-looking statements subject to the inherent uncertainties in predicting future results and conditions. Any statements that are not of historical fact (including statements containing the words "believes", "plans", "anticipates", "expects", "estimates", and similar expressions) should also be considered to be forward-looking statements. Certain factors could cause actual results and conditions to differ materially from those projected in these forward-looking statements. These factors are identified from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to update such statements to reflect subsequent events, except as may be required by law.

         

Harvest Capital Credit Corporation

Consolidated Statements of Assets and Liabilities (Unaudited)

 
June 30, December 31,
2018 2017
ASSETS:
Non-affiliated/non-control investments, at fair value (cost of $80,144,861 at 6/30/18 and $80,790,705 at 12/31/17) $ 82,761,470 $ 82,902,537
Affiliated investments, at fair value (cost of $29,228,055 at 6/30/18 and $26,365,364 at 12/31/17) 30,330,874 25,983,871
Control investments, at fair value (cost of $13,059,688 at 6/30/18 and $11,984,621 at 12/31/17) 7,500,273   6,714,270  
Total investments, at fair value (cost of $122,669,839 at 6/30/18 and $119,140,690 at 12/31/17) 120,592,617 115,600,678
 
Cash 8,375,062 4,233,597
Restricted cash 3,374,174 7,230,840
Interest receivable 440,552 287,408
Accounts receivable – other 182,657 37,688
Deferred offering costs 146,446
Deferred financing costs 430,136 508,284
Other assets 218,195 107,899
Total assets $ 133,613,393   $ 128,152,840  
 
LIABILITIES:
Revolving line of credit $ 23,000,000 $ 16,721,853
Unsecured notes (net of deferred offering costs of $916,106 at 6/30/18 and $1,004,448 at 12/31/17) 27,833,894 27,745,552
Accrued interest payable 135,956 139,148
Accounts payable - base management fees 605,237 582,912
Accounts payable - incentive management fees 187,293
Accounts payable - administrative services 366,666 397,463
Accounts payable - accrued expenses 877,885 782,726
Deferred tax liability 523,478
Other liabilities 4,936 1,757
Total liabilities 53,535,345 46,371,411
 
Commitments and contingencies (Note 8)
 
NET ASSETS:
Common stock, $0.001 par value, 100,000,000 shares authorized, 6,537,157 issued and 6,395,192 outstanding at 6/30/18 and 6,519,978 issued and 6,457,588 outstanding at 12/31/17 6,537 6,520
Capital in excess of common stock 93,071,543 93,043,208
Treasury shares at cost, 141,965 and 62,390 shares at 6/30/18 and 12/31/17, respectively (1,573,457 ) (724,039 )
Accumulated realized losses on investments (9,653,256 ) (8,923,961 )
Net unrealized depreciation on investments (2,745,562 ) (3,540,012 )
Undistributed net investment income 972,243 1,919,713
Total net assets 80,078,048 81,781,429
Total liabilities and net assets $ 133,613,393   $ 128,152,840  
 
Common stock outstanding 6,395,192 6,457,588
 
Net asset value per common share $ 12.52 $ 12.66
 
         

Harvest Capital Credit Corporation

Consolidated Statements of Operations (Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Investment Income:
Interest:
Cash - non-affiliated/non-control investments $ 2,390,700 $ 3,065,834 $ 4,715,816 $ 5,884,704
Cash - affiliated investments 811,059 789,892 1,517,630 1,506,232
Cash - control investments 47,546 72,993 130,934 165,950
PIK - non-affiliated/non-control investments 141,785 254,277 337,827 577,071
PIK - affiliated investments 182,426 186,288 350,303 354,325
Amortization of fees, discounts and premiums
Non-affiliated/non-control investments 440,680 639,318 631,713 1,086,313
Affiliated investments 18,245 45,276 34,086 132,532
Control investments   5,943     9,468  
Total interest income 4,032,441 5,059,821 7,718,309 9,716,595
Other income 22,557   23,568   77,473   36,532  
Total investment income 4,054,998   5,083,389   7,795,782   9,753,127  
 
Expenses:
Interest expense – revolving line of credit 150,335 328,818 289,174 528,837
Interest expense - unused line of credit 82,481 30,891 164,136 96,734
Interest expense - deferred financing costs 57,590 52,872 112,711 127,720
Interest expense - unsecured notes 440,235 481,251 880,470 962,502
Interest expense - deferred offering costs 45,856   52,740   90,842   104,445  
Total interest expense 776,497 946,572 1,537,333 1,820,238
 
Professional fees 209,382 331,532 1,241,669 552,786
General and administrative 283,062 294,819 573,348 540,545
Base management fees 605,237 695,760 1,185,880 1,375,944
Incentive management fees 187,293 187,293 58,005
Administrative services expense 366,666   300,000   666,666   600,000  
Total expenses, before reimbursement 2,428,137 2,568,683 5,392,189 4,947,518
 
Less: Professional fees reimbursed by HCAP Advisors, LLC (11,279 )   (449,835 )  
 
Total expenses, after reimbursement 2,416,858   2,568,683   4,942,354   4,947,518  
 
Net Investment Income, before taxes 1,638,140 2,514,706 2,853,428 4,805,609
Excise tax 53,246
Current income tax expense 32,833     32,833    
Net Investment Income, after taxes 1,605,307   2,514,706   2,820,595   4,752,363  
 
Net realized gains (losses):
Non-Affiliated / Non-Control investments 267,019 271,115
Affiliated investments (885,642 )
Control investments 156,347     156,347    
Net realized gains (losses) 156,347   267,019   (729,295 ) 271,115  
Net change in unrealized depreciation on investments:
Non-Affiliated / Non-Control investments 68,338 (3,783,706 ) 122,681 (3,416,348 )
Affiliated investments (297,157 ) (901,599 ) 1,484,312 (1,201,714 )
Control investments (193,601 ) 43,741   (289,064 ) 68,298  
Net change in unrealized appreciation (depreciation) on investments (422,420 ) (4,641,564 ) 1,317,929   (4,549,764 )
Total net unrealized and realized gains (losses) on investments (266,073 ) (4,374,545 ) 588,634   (4,278,649 )
Provision for taxes on unrealized gains on investments (523,478 )   (523,478 )  
Net (decrease) increase in net assets resulting from operations $ 815,756   $ (1,859,839 ) $ 2,885,751   $ 473,714  
 
Net investment income per share $0.25 $0.39 $0.44 $0.75
Net (decrease) increase in net assets resulting from operations per share $0.13 ($0.29 ) $0.45 $0.07
Weighted average shares outstanding (basic and diluted) 6,390,521 6,407,362 6,413,869 6,378,953
Dividends paid per common share $0.29 $0.34 $0.59 $0.68
 
                         

SCHEDULE 1

 

Reconciliations of Net Investment Income to Core Net Investment Income

 
Three months ended June 30, Six months ended June 30,
2018     2017 2018     2017
Amount    

Per
share (1)

    Amount    

Per
share (1)

Amount    

Per
share (1)

    Amount    

Per
share (1)

 
Net investment income $1,605,307 $0.25 $2,514,706 $0.39 $2,820,595 $0.44 $4,752,363 $0.75
Core net investment income $1,605,307 $0.25 $2,514,706 $0.39 $2,820,595 $0.44 $4,752,363 $0.75
 
(1)     All per share amounts are basic and diluted unless indicated otherwise.
 

The purpose of core net investment income is to present net investment income without the effect of certain non-recurring charges, without the effect of incentive fees related to items not included in net investment income, and without the effect of any excise taxes related to realized capital gains and losses.

Contacts

Investor & Media Relations
Harvest Capital Credit Corporation
Joseph A. Jolson, 415-835-8970
Chairman & Chief Executive Officer
jjolson@harvestcaps.com
or
William E. Alvarez, Jr., 212-906-3589
Chief Financial Officer
balvarez@harvestcaps.com

Contacts

Investor & Media Relations
Harvest Capital Credit Corporation
Joseph A. Jolson, 415-835-8970
Chairman & Chief Executive Officer
jjolson@harvestcaps.com
or
William E. Alvarez, Jr., 212-906-3589
Chief Financial Officer
balvarez@harvestcaps.com