Harvest Capital Credit Corporation Announces March 31, 2020 Financial Results

NEW YORK--()--Harvest Capital Credit Corporation (the “Company,” “we,” or “our”) (NASDAQ: HCAP) announced financial results for its first quarter ended March 31, 2020.

FINANCIAL HIGHLIGHTS

 

Q1-2020

 

Q1-2019

 

 

Amount

Per
share

 

Amount

Per
share

 

Net investment income

$988,670

 

$0.17

 

 

$762,270

 

$0.12

 

 

Core net investment income (1)

988,670

 

0.17

 

 

762,270

 

0.12

 

 

Net realized gains (losses) on investments

(86,427

)

(0.01

)

 

35,410

 

0.01

 

 

Net change in unrealized depreciation on investments

(4,579,537

)

(0.77

)

 

(736,685

)

(0.12

)

 

Net income (loss)

($3,677,294

)

($0.62

)

 

$60,995

 

$0.01

 

 

Weighted average shares outstanding (basic and diluted)

5,949,548

 

 

 

6,302,724

 

 

 

(1)

Core net investment income and core net investment income per share are non-GAAP financial measures. For the quarters ended March 31, 2020 and 2019, there were no adjustments to GAAP net investment income and GAAP net investment income per share to arrive at core net investment income and core net investment income per share.

PORTFOLIO ACTIVITY

 

March 31, 2020

 

December 31, 2019

Portfolio investments at fair value

$

111,069,696

 

 

$

116,809,390

 

Total assets

$

135,643,093

 

 

$

140,059,736

 

Net assets

$

61,761,890

 

 

$

66,781,482

 

Shares outstanding

5,958,479

 

 

5,945,854

 

Net asset value per share

$

10.37

 

 

$

11.23

 

 

 

 

 

 

Q1-2020

 

Q1-2019

Portfolio activity during the period:

 

 

 

New debt investments

$

1,255,000

 

 

$

21,349,788

 

New equity investments

200,000

 

 

158,252

 

Exits of debt investments

(2,196,600

)

 

(10,424,648

)

Exits of equity investments

(102,421

)

 

(206,435

)

Principal repayments

(846,241

)

 

(3,348,148

)

Net activity

$

(1,690,262

)

 

$

7,528,809

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

Number of portfolio company investments

24

 

 

25

 

Number of debt investments

19

 

 

20

 

 

 

 

 

Weighted average yield of debt and other income producing investments (1):

 

 

 

Cash

11.7

%

 

12.0

%

PIK

1.1

%

 

1.1

%

Fee amortization

0.6

%

 

0.9

%

Total

13.4

%

 

14.0

%

 

 

 

 

Weighted average yield on total investments (2):

 

 

 

Cash

8.7

%

 

9.7

%

PIK

0.8

%

 

0.9

%

Fee amortization

0.4

%

 

0.7

%

Total

9.9

%

 

11.3

%

(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 as a percentage of our debt and other income producing investments. 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, CP Holding Co., Inc. (Choice Pet), and ProAir Holdings Corporation were excluded from the calculation as of March 31, 2020 because they were on non-accrual status as of that date. Infinite Care, LLC and CP Holding Co., Inc. (Choice Pet) were excluded from the calculation as of December 31, 2019 because they were on non-accrual status as of that date.

 

(2)

The dollar-weighted average yield on total investments takes the same yields but weights them to determine the weighted average effective yield as a percentage of the Company's total investments. 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.

FIRST QUARTER OF 2020 OPERATING RESULTS

Net investment income was $1.0 million, or $0.17 per share, for the quarter ended March 31, 2020, compared to net investment income of $0.8 million, or $0.12 per share, for the quarter ended March 31, 2019, an increase of $0.2 million in the first quarter of 2020 compared to 2019. The increase in net investment income during the 2020 first quarter as compared to the 2019 first quarter primarily resulted from an increase of $0.2 million in investment income between periods.

For the quarter ended March 31, 2020, the Company recorded a net operating loss of $3.7 million, compared to $60,995 of net operating income in the quarter ended March 31, 2019. Per share loss was $0.62 in the three months ended March 31, 2020 compared to net earnings of $0.01 per share in the three months ended March 31, 2019. The $3.7 million decrease between periods was primarily attributable to a $3.8 million increase in unrealized depreciation, an increase in realized loss of $0.1 million, offset by a $0.2 million increase in net investment income. The increase in unrealized depreciation during the three months ended March 31, 2020 is primarily the result of the immediate adverse economic effects of the COVID-19 pandemic and the continuing uncertainty surrounding its long-term impact.

As of March 31, 2020, our total portfolio investments at fair value and total assets were $111.1 million and $135.6 million, respectively, compared to $116.8 million and $140.1 million at December 31, 2019. Net asset value per share was $10.37 at March 31, 2020, compared to $11.23 at December 31, 2019.

During the first quarter of 2020, the Company made investments in three companies totaling $1.5 million. All three were additional investments in existing portfolio companies. The Company had one investment mature during the three months ended March 31, 2020. The significant investment activity for the quarter ended March 31, 2020 was as follows:

New and Incremental Investments

On January 21, 2020, the Company increased its debt investment in Slappey Communications, LLC with a $1.1 million increase in its senior secured term loan.

On January 22, 2020, the Company increased its senior secured debt investment in Infinite Care, LLC, with a $0.2 million increase in its senior secured revolving credit facility.

On January 31, 2020, the Company increased its equity investment in KC Engineering & Construction Services, LLC with a $0.2 million pro-rata increase through one add-on funding to purchase Class A Units.

Investment Sales and Payoffs

On March 31, 2020, the Company’s senior secured debt investment in Regional Engine Leasing, LLC matured. Payment was subsequently received in April 2020. The Company generated an internal rate of return (IRR*) of 12.15% 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.

"Given the severe negative impact on the US economy from the COVID-19 pandemic since late February, we quickly shifted our strategy from growing our investment portfolio to preserving our capital and actively managing our current investments to limit the negative impact from the downturn," said Joseph Jolson, Chairman and CEO. "We continue to negotiate with our lenders to extend our revolving line of credit until the end of July 2020 or a later date, otherwise it will term out over an 18-month period unless further extended or replaced with a new agreement. Because we will likely be in this mode for the next few quarters, our Board of Directors decided to preserve our cash and capital and defer the payment of our March and April cash dividends and suspend future dividends, until we have better visibility to the depth and duration of this economic debacle," 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. In determining an investment rating, Company management takes into account various aspects of a company's performance during the measurement period and assigns an investment rating to each aspect, which are then averaged. Such averages may inform, but do not necessarily determine, the investment rating assigned to a company. 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 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 loss of return and principal is expected.

As of March 31, 2020, the weighted average risk rating of the debt investments in the Company's portfolio decreased to 2.75 from 2.43 in the previous quarter. Also, as of March 31, 2020, three of the Company’s nineteen debt investments were rated 1, eight investments were rated 2, four investments were rated 3, three investments were rated 4, and one investment was rated 5. As of March 31, 2020, three investments with a combined fair value of $17.7 million were on non-accrual status.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2020, the Company had $20.8 million of cash and restricted cash and $7.6 million of undrawn borrowing capacity on its $55.0 million senior secured revolving credit facility. The credit facility is secured by all of the Company’s assets. The revolving period under the credit facility ended on April 30, 2020 and, as a result, the Company is no longer able to borrow additional amounts under the credit facility. The Company is currently in negotiations with the lenders to extend the revolving period from April 30, 2020 to July 31, 2020 or some other date, but there is no assurance that the lenders will agree to do so or of any timing thereof. Please see the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020, as filed with the Securities and Exchange Commission on May 13, 2020, for more information.

COVID-19 DEVELOPMENTS

The COVID-19 pandemic, and the related effects on the U.S. and global economies, has had, and may continue to have, adverse consequences for the business operations of some of the Company's portfolio companies and has adversely affected, and threatens to continue to adversely affect, the Company's operations and the operations of HCAP Advisors. Given the dynamic nature of this situation, the Company cannot reasonably estimate the full impact of COVID-19 on its financial condition, results of operations or cash flows in the future. However, the Company does expect that it could have a material adverse impact on its future net investment income, the fair value of its portfolio investments, and the Company's results of operations and financial condition as well as its portfolio companies. Please see the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020, as filed with the Securities and Exchange Commission on May 13, 2020, for more information.

OTHER SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO MARCH 31, 2020

On April 13, 2020, in light of the economic and financial disruptions caused by the COVID-19 pandemic, the Company's board of directors announced its decision to defer the record date and payment of its previously announced distributions of $0.08 per share payable on each of April 30, 2020 and May 28, 2020 until such later time as the board of directors determines is prudent in light of the Company's capital needs and contractual obligations, and in the best interests of the Company and its stockholders. The board of directors has also determined to suspend the declaration of any future dividends until further notice.

CONFERENCE CALL

The Company will host a conference call on Wednesday, May 13, 2020 at 11:00 a.m. Eastern Time to discuss its first 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 4695473 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 senior debt, subordinated 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 events, results and conditions to differ materially from those discussed or projected in these forward-looking statements, including, without limitation, changes in our relationships and contractual arrangements with lenders and changes in economic, market or other conditions, including with respect to the impact of the COVID-19 pandemic and its effects on the Company and its portfolio companies' results of operations and financial condition. These factors are identified from time to time in our filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the three months ended March 31, 2020. 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

 

 

March 31,

 

December 31,

 

2020

 

 

2019

 

ASSETS:

 

 

 

Non-affiliated/non-control investments, at fair value (cost of $58,893,829 at 3/31/2020 and $61,379,670 at 12/31/19)

$

55,245,610

 

 

$

60,973,556

 

Affiliated investments, at fair value (cost of $49,287,516 at 3/31/20 and $48,111,833 at 12/31/19)

46,879,036

 

 

47,431,234

 

Control investments, at fair value (cost of $14,108,202 at 3/31/20 and $13,958,202 at 12/31/19)

8,945,050

 

 

8,404,600

 

Cash

285,647

 

 

11,199,083

 

Restricted cash

20,464,943

 

 

10,648,199

 

Interest receivable

831,825

 

 

663,191

 

Accounts receivable – other

2,260,248

 

 

184,804

 

Deferred financing costs

367,373

 

 

425,379

 

Other assets

363,361

 

 

129,690

 

Total assets

$

135,643,093

 

 

$

140,059,736

 

 

 

 

 

LIABILITIES:

 

 

 

Revolving line of credit

$

44,000,000

 

 

$

43,700,000

 

2022 Notes (net of deferred offering costs of $571,424 at 3/31/20 and $623,276 at 12/31/19)

28,178,576

 

 

28,126,724

 

Accrued interest payable

163,851

 

 

152,544

 

Accounts payable - base management fees

581,166

 

 

593,266

 

Accounts payable - administrative services

350,000

 

 

350,000

 

Accounts payable - accrued expenses

607,612

 

 

355,720

 

Total liabilities

73,881,205

 

 

73,278,254

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

NET ASSETS:

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 6,600,444 issued and 5,958,479 outstanding at 3/31/20 and 6,587,819 issued and 5,945,854 outstanding at 12/31/19

6,601

 

 

6,588

 

Capital in excess of common stock

90,962,284

 

 

90,876,759

 

Treasury shares, at cost, 641,965 shares at 3/31/20 and 12/31/19

(6,723,505

)

 

(6,723,505

)

Accumulated over distributed earnings

(22,483,490

)

 

(17,378,360

)

Total net assets

61,761,890

 

 

66,781,482

 

Total liabilities and net assets

$

135,643,095

 

 

$

140,059,736

 

 

 

 

 

Common stock outstanding

5,958,479

 

 

5,945,854

 

 

 

 

 

Net asset value per common share

$

10.37

 

 

$

11.23

 

Harvest Capital Credit Corporation

Consolidated Statements of Operations

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2020

 

2019

Investment Income:

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

Cash - non-affiliated/non-control investments

 

 

 

 

$

1,564,087

 

 

$

1,481,111

 

Cash - affiliated investments

 

 

 

 

1,301,790

 

 

960,946

 

PIK - non-affiliated/non-control investments

 

 

 

 

109,634

 

 

12,119

 

PIK - affiliated investments

 

 

 

 

155,328

 

 

194,515

 

Amortization of fees, discounts and premiums

 

 

 

 

 

 

 

Non-affiliated/non-control investments

 

 

 

 

89,995

 

 

226,862

 

Affiliated investments

 

 

 

 

59,747

 

 

22,732

 

Total interest income

 

 

 

 

3,280,581

 

 

2,898,285

 

Other income

 

 

 

 

6,180

 

 

139,959

 

Total investment income

 

 

 

 

3,286,761

 

 

3,038,244

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Interest expense – revolving line of credit

 

 

 

 

321,119

 

 

10,486

 

Interest expense - unused line of credit

 

 

 

 

55,396

 

 

101,749

 

Interest expense - deferred financing costs

 

 

 

 

58,005

 

 

55,011

 

Interest expense - 2022 Notes

 

 

 

 

440,235

 

 

440,235

 

Interest expense - deferred offering costs

 

 

 

 

51,853

 

 

48,360

 

Total interest expense

 

 

 

 

926,608

 

 

655,841

 

 

 

 

 

 

 

 

 

Professional fees

 

 

 

 

209,045

 

 

520,334

 

General and administrative

 

 

 

 

231,272

 

 

254,953

 

Base management fees

 

 

 

 

581,166

 

 

494,846

 

Incentive management fees

 

 

 

 

 

 

 

Administrative services expense

 

 

 

 

350,000

 

 

350,000

 

Total expenses

 

 

 

 

2,298,091

 

 

2,275,974

 

 

 

 

 

 

 

 

 

Net Investment Income

 

 

 

 

988,670

 

 

762,270

 

 

 

 

 

 

 

 

 

Net realized gains (losses):

 

 

 

 

 

 

 

Non-Affiliated / Non-Control investments

 

 

 

 

(86,427

)

 

46,300

 

Control investments

 

 

 

 

 

 

(10,890

)

Net realized gains (losses)

 

 

 

 

(86,427

)

 

35,410

 

Net change in unrealized appreciation (depreciation) on investments:

 

 

 

 

 

 

 

Non-Affiliated / Non-Control investments

 

 

 

 

(3,242,104

)

 

(738,955

)

Affiliated investments

 

 

 

 

(1,727,883

)

 

(61,230

)

Control investments

 

 

 

 

390,450

 

 

63,500

 

Net change in appreciation depreciation on investments

 

 

 

 

(4,579,537

)

 

(736,685

)

Total net unrealized and realized losses on investments

 

 

 

 

(4,665,964

)

 

(701,275

)

Net increase (decrease) in net assets resulting from operations

 

 

 

 

$

(3,677,294

)

 

$

60,995

 

 

 

 

 

 

 

 

 

Net investment income per share

 

 

 

 

$0.17

 

 

$0.12

 

Net increase (decrease) in net assets resulting from operations per share

 

 

 

 

($0.62

)

 

$0.01

 

Weighted average shares outstanding (basic and diluted)

 

 

 

 

5,949,548

 

 

6,302,724

 

 

Contacts

Investor & Media Relations Contacts
Harvest Capital Credit Corporation

Joseph Jolson
Chairman & Chief Executive Officer
(415) 835-8970
jjolson@harvestcaps.com

William E. Alvarez, Jr
Chief Financial Officer
(212) 906-3589
balvarez@harvestcaps.com

Contacts

Investor & Media Relations Contacts
Harvest Capital Credit Corporation

Joseph Jolson
Chairman & Chief Executive Officer
(415) 835-8970
jjolson@harvestcaps.com

William E. Alvarez, Jr
Chief Financial Officer
(212) 906-3589
balvarez@harvestcaps.com