KCAP Financial, Inc. (Nasdaq GS: KCAP) (the “Company”) announces
its second quarter 2018 financial results.
Financial Highlights
- Net investment income for the second quarter ended June 30,
2018 was approximately $2.5 million, or $0.07 per basic share,
compared with approximately $2.6 million, or $0.07 per basic share
in the quarter ended June 30, 2017.
- Net investment income for the six months ended June 30, 2018
was $0.13 per basic share, while estimated taxable distributable
income for the six months of 2018 was $0.14 per basic
share.
- The Company declared a second quarter shareholder distribution
of $0.10 per share.
- At June 30, 2018, the fair value of KCAP's investments totaled
approximately $274 million.
- Net asset value per share of $4.72 as of June 30, 2018,
compared with $4.87 at December 31, 2017.
Dayl Pearson, President and Chief Executive Officer of KCAP
Financial, Inc., noted, “While our results in the quarter were flat
year-over-year due in part to higher than expected professional
fees and relatively slow originations, we remain confident that our
disciplined investment process will lead to future growth. We look
forward to increasing direct lending and identifying opportunities
to drive shareholder value creation.”
Operating Results
For the three months ended June 30, 2018, we reported total
investment income of approximately $6.8 million as compared to
approximately $7.7 million in the same period last year. Investment
income from debt securities decreased to approximately $4.3 million
from approximately $4.8 million in the second quarter of 2017.
Investment income on CLO fund securities in the second quarter of
2018 decreased to approximately $1.5 million from approximately
$2.8 million for the same period in 2017. We received distributions
from our Asset Manager Affiliates of $800,000 in the second quarter
of 2018, $500,000 of which is estimated to be a return of capital.
The Asset Manager Affiliates distributed $650,000 in the second
quarter of 2017, all of which was a return of capital.
For the three months ended June 30, 2018, total
expenses were lower by approximately $731,000 as compared to the
same period in 2017, primarily attributable to a decrease in
interest expense.
Net investment income for the second quarter of 2018 and 2017 was
approximately $2.5 million and $2.6 million, respectively, or $0.07
per basic share for both periods. Net realized and unrealized
losses on investments for the three months ended June 30, 2018 was
approximately $3.8 million, compared to net realized and unrealized
gains of approximately $20,000 for the same period in
2017.
Portfolio and Investment
Activity
The fair value of our investment portfolio was
approximately $274 million as of June 30, 2018. The composition of
our investment portfolio at June 30, 2018 and December 31, 2017, at
cost and fair value, was as follows:
|
|
June 30, 2018
(unaudited) |
|
|
December 31, 2017 |
|
Security Type |
|
Cost/Amortized Cost |
|
Fair Value |
|
%¹ |
|
Cost/Amortized Cost |
|
Fair Value |
|
%¹ |
Short-term
investments² |
|
$ |
11,454,078 |
|
$ |
11,454,078 |
|
4 |
|
|
$ |
77,300,320 |
|
$ |
77,300,320 |
|
26 |
|
Senior
Secured Loan |
|
|
62,122,920 |
|
|
58,324,196 |
|
21 |
|
|
|
48,337,900 |
|
|
44,960,146 |
|
14 |
|
Junior
Secured Loan |
|
|
78,346,396 |
|
|
74,037,768 |
|
27 |
|
|
|
62,561,913 |
|
|
58,941,300 |
|
19 |
|
Senior
Unsecured Loan |
|
|
29,777,282 |
|
|
29,777,283 |
|
11 |
|
|
|
12,777,283 |
|
|
12,777,283 |
|
4 |
|
Senior
Secured Bond |
|
|
— |
|
|
— |
|
- |
|
|
|
1,502,374 |
|
|
1,518,750 |
|
- |
|
CLO Fund
Securities |
|
|
59,446,300 |
|
|
37,972,985 |
|
14 |
|
|
|
72,339,032 |
|
|
51,678,673 |
|
17 |
|
Equity
Securities |
|
|
10,571,007 |
|
|
4,251,111 |
|
2 |
|
|
|
10,571,007 |
|
|
4,414,684 |
|
1 |
|
Asset
Manager Affiliates³ |
|
|
51,591,230 |
|
|
36,853,000 |
|
13 |
|
|
|
52,591,230 |
|
|
38,849,000 |
|
12 |
|
Joint
Venture |
|
|
24,914,858 |
|
|
21,091,494 |
|
8 |
|
|
|
24,914,858 |
|
|
21,516,000 |
|
7 |
|
Total |
|
$ |
328,224,071 |
|
$ |
273,761,914 |
|
100 |
% |
|
$ |
362,895,917 |
|
$ |
311,956,156 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
¹ Represents percentage of total portfolio at fair
value. |
² Includes money market accounts and U.S. treasury
bills. |
|
³ Represents the equity investment in the Asset Manager
Affiliates. |
|
Liquidity and Capital
Resources
At June 30, 2018, we had unrestricted cash and
money market balances of approximately $13.9 million, total assets
of approximately $280 million and stockholders' equity of
approximately $176 million. Our net asset value per common share
was $4.72. As of June 30, 2018, we had approximately $105.6 million
(par value) of borrowings outstanding ($101.8 million net of
capitalized costs) with a weighted average interest rate of
approximately 6.1%.
Subject to prevailing market conditions, we
intend to grow our portfolio of assets by raising additional
capital, including through the prudent use of leverage available to
us. As a result, we may seek to enter into new agreements with
other lenders or into other financing arrangements as market
conditions permit. Such financing arrangements may include a new
secured and/or unsecured credit facility or the issuance of
unsecured debt or preferred stock.
Distributions
Generally, we seek to fund distributions to
shareholders from current distributable earnings, primarily from
net interest and dividend income generated by our investment
portfolio and any distributions from our Asset Manager Affiliates.
However, a portion of distributions paid to shareholders may be a
return of capital. We announced a regular quarterly distribution of
$0.10 per share during the quarter ended June 30, 2018. The record
date for this distribution was July 6, 2018 and the distribution
was paid on July 26, 2018. An estimate of the tax attributes of
distributions made on a quarterly basis may not be representative
of the actual tax attributes of distributions for a full year. Tax
characteristics of all distributions will be reported to
stockholders on Form 1099-DIV after the end of the calendar
year.
We have adopted a dividend reinvestment plan
that provides for reinvestment of distributions in shares of our
common stock, unless a stockholder elects to receive cash. As a
result, if we declare a cash distribution, shareholders who have
not "opted out" of our dividend reinvestment plan will have their
cash distributions automatically reinvested in additional shares of
our common stock, rather than receiving cash. For more information
regarding our distributions, please refer to our 2017 annual
financial report. Please contact your broker or other financial
intermediary for more information regarding the dividend
reinvestment plan.
Reduction in Asset Coverage Ratio
Effective March 29, 2019
On March 29, 2018, our Board of Directors,
including a “required majority” (as such term is defined in Section
57(o) of the 1940 Act) of the Board, approved the modified asset
coverage requirements set forth in Section 61(a)(2) of the 1940
Act, as amended by the Small Business Credit Availability Act (the
“SBCA”). As a result, our asset coverage requirements for senior
securities will be changed from 200% to 150%, effective as of March
29, 2019. However, pursuant to covenants in the indentures
governing our 7.375% Notes Due 2019 and 6.125% Notes Due 2022
(together, the “Notes”), we are limited in our ability to make
distributions if our asset coverage ratio is below 200% at the time
we declare a distribution. As a result, despite the SBCA, we will
continue to be prohibited by the indentures governing the Notes
from making distributions on our common stock if our asset coverage
ratio falls below 200%.
Conference Call and Webcast
We will hold a conference call on Thursday,
August 2, 2018 at 10:00 am Eastern Time to discuss our second
quarter 2018 financial results. Shareholders, prospective
shareholders and analysts are welcome to listen to the call or
attend the webcast.
The conference call dial-in number is (866)
757-5630. No password is required. A live audio webcast of the
conference call can be accessed via the Internet, on a listen-only
basis on our Company's website www.kcapfinancial.com in the
Investor Relations section under Events. The online archive of the
webcast will be available after 7:00 p.m. Eastern Time for
approximately 90 days.
A replay of this conference call will be
available from 1:00 p.m. on August 2, 2018 until 11:59 p.m. on
August 10, 2018. The dial in number for the replay is (855)
859-2056 and the conference ID is 1494828.
About KCAP Financial, Inc.
KCAP Financial, Inc. is a publicly traded,
internally managed business development company. The Company's
middle market investment business originates, structures, finances
and manages a portfolio of term loans, mezzanine investments and
selected equity securities in middle market companies. The
Company's wholly owned portfolio companies, Trimaran Advisors,
L.L.C. and Katonah Debt Advisors, L.L.C., manage collateralized
debt obligation funds that invest in broadly syndicated corporate
term loans, high-yield bonds and other credit instruments.
The KCAP Financial, Inc. logo is available
at http://globenewswire.com/attachment-download-view/1526815/370017/4/1/0/370017.jpg
Forward Looking Statements
This press release contains forward-looking
statements. The matters discussed in this press release that are
forward-looking statements are based on current management
expectations that involve substantial risks and uncertainties which
could cause actual results to differ materially from the results
expressed in, or implied by, these forward-looking statements.
Forward-looking statements relate to future events or our future
financial performance. We generally identify forward-looking
statements by terminology such as "may,'' "will,'' "should,''
"expects,'' "plans,'' "anticipates,'' "could,'' "intends,''
"target,'' "projects,'' "contemplates,'' "believes,'' "estimates,''
"predicts,'' "potential'' or "continue'' or the negative of these
terms or other similar words. Further information about factors
that could affect our financial and other results is included in
our filings with the Securities and Exchange Commission. We do not
undertake to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required to be reported under the rules and
regulations of the Securities and Exchange Commission.
KCAP FINANCIAL,
INC. |
CONSOLIDATED BALANCE
SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
As ofJune 30,
2018 |
|
As ofDecember 31,
2017 |
|
|
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
|
|
Short-term investments (cost: 2018 - $11,454,078; 2017 -
$77,300,320) |
|
$ |
11,454,078 |
|
|
$ |
77,300,320 |
|
|
Debt securities (amortized cost: 2018 - $170,246,598; 2017 -
$125,179,470) |
|
|
162,139,246 |
|
|
|
118,197,479 |
|
|
CLO Fund Securities managed by affiliates (amortized cost:
2018 - $54,277,463; 2017 - $67,212,139) |
|
|
35,545,465 |
|
|
|
49,488,393 |
|
|
CLO Fund Securities managed by non-affiliates (amortized
cost: 2018 - $5,168,837; 2017 - $5,126,893) |
|
|
2,427,520 |
|
|
|
2,190,280 |
|
|
Equity securities (cost: 2018 - $10,571,007; 2017 -
$10,571,007) |
|
|
4,251,111 |
|
|
|
4,414,684 |
|
|
Asset Manager Affiliates (cost: 2018 - $51,591,230; 2017 -
$52,591,230) |
|
|
36,853,000 |
|
|
|
38,849,000 |
|
|
Joint Venture (cost: 2018 - $24,914,858; 2017 -
$24,914,858) |
|
|
21,091,494 |
|
|
|
21,516,000 |
|
|
Total Investments at Fair Value (cost: 2018 - $328,224,071;
2017 - $362,895,917) |
|
|
273,761,914 |
|
|
|
311,956,156 |
|
|
Cash |
|
|
2,451,249 |
|
|
|
2,034,095 |
|
|
Restricted cash |
|
|
1,023,114 |
|
|
|
— |
|
|
Interest receivable |
|
|
1,520,858 |
|
|
|
1,051,271 |
|
|
Receivable for open trades |
|
|
— |
|
|
|
2,993,750 |
|
|
Due from affiliates |
|
|
1,155,635 |
|
|
|
1,243,493 |
|
|
Other assets |
|
|
478,024 |
|
|
|
530,209 |
|
|
Total Assets |
|
$ |
280,390,794 |
|
|
$ |
319,808,974 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
6.125% Notes Due 2022 (net of offering costs of:
2018-$2,474,275; 2017 - $2,734,248) |
|
$ |
74,932,925 |
|
|
$ |
74,672,952 |
|
|
7.375% Notes Due 2019 (net of offering costs of: 2018 -
$40,536; 2017 - $259,635) |
|
|
6,959,463 |
|
|
|
26,740,365 |
|
|
KCAP Funding I, LLC Revolving Credit Facility (net of
offering costs of: 2018 - $1,265,107) |
|
|
19,895,080 |
|
|
|
— |
|
|
Payable for open trades |
|
|
776,180 |
|
|
|
34,215,195 |
|
|
Accounts payable and accrued expenses |
|
|
1,582,528 |
|
|
|
2,350,803 |
|
|
Accrued interest payable |
|
|
90,664 |
|
|
|
— |
|
|
Due to affiliates |
|
|
8,690 |
|
|
|
25,083 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
104,245,530 |
|
|
|
138,004,398 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
Common stock, par value $0.01 per share, 100,000,000 common
shares authorized; 37,536,496 issued, and 37,341,924 outstanding at
June 30, 2018, and 37,507,402 issued, and 37,339,224 outstanding at
December 31, 2017 |
|
|
373,419 |
|
|
|
373,392 |
|
|
Capital in excess of par value |
|
|
330,266,874 |
|
|
|
329,789,716 |
|
|
Excess distribution of net investment income |
|
|
(12,432,385 |
) |
|
|
(9,987,928 |
) |
|
Accumulated net realized losses |
|
|
(86,201,443 |
) |
|
|
(86,031,799 |
) |
|
Net unrealized depreciation on investments |
|
|
(55,861,201 |
) |
|
|
(52,338,805 |
) |
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
|
|
176,145,264 |
|
|
|
181,804,576 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
|
$ |
280,390,794 |
|
|
$ |
319,808,974 |
|
|
|
|
|
|
|
|
|
|
|
NET ASSET VALUE PER COMMON SHARE |
|
$ |
4.72 |
|
|
$ |
4.87 |
|
|
|
|
|
|
|
|
|
|
|
|
KCAP FINANCIAL,
INC. |
CONSOLIDATED STATEMENTS OF
OPERATIONS |
(unaudited) |
|
|
Three Months Ended |
|
Six Months Ended |
|
June 30, |
|
June 30, |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
Interest
from investments in debt securities |
$ |
3,910,473 |
|
|
$ |
4,565,276 |
|
|
$ |
7,308,670 |
|
$ |
8,901,115 |
|
|
Payment-in-kind investment income |
|
369,116 |
|
|
|
204,577 |
|
|
|
732,053 |
|
|
423,916 |
|
|
Interest
from cash and time deposits |
|
12,211 |
|
|
|
14,300 |
|
|
|
61,416 |
|
|
30,206 |
|
|
Investment
income on CLO Fund Securities managed by affiliates |
|
1,414,903 |
|
|
|
2,710,680 |
|
|
|
3,248,569 |
|
|
5,685,238 |
|
|
Investment
income on CLO Fund Securities managed by non-affiliates |
|
98,341 |
|
|
|
111,419 |
|
|
|
197,702 |
|
|
229,530 |
|
|
Dividends
from Asset Manager Affiliates |
|
300,000 |
|
|
|
— |
|
|
|
620,000 |
|
|
— |
|
|
Investment income - Joint Venture |
700,000 |
|
|
|
— |
|
|
|
1,400,000 |
|
|
— |
|
|
Capital
structuring service fees |
|
43,399 |
|
|
|
53,480 |
|
|
|
106,509 |
|
|
164,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
6,848,443 |
|
|
|
7,659,732 |
|
|
|
13,674,919 |
|
|
15,434,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
Interest
and amortization of debt issuance costs |
|
1,847,432 |
|
|
|
2,237,317 |
|
|
|
3,711,280 |
|
|
4,418,289 |
|
|
Compensation |
|
1,005,050 |
|
|
|
1,175,294 |
|
|
|
2,212,387 |
|
|
2,401,030 |
|
|
Professional fees |
|
906,965 |
|
|
|
1,193,407 |
|
|
|
1,621,375 |
|
|
1,742,688 |
|
|
Insurance |
|
79,726 |
|
|
|
80,644 |
|
|
|
157,748 |
|
|
175,680 |
|
|
Administrative and other |
|
480,351 |
|
|
|
364,301 |
|
|
|
982,466 |
|
|
869,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
4,319,524 |
|
|
|
5,050,963 |
|
|
|
8,685,256 |
|
|
9,607,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income |
|
2,528,919 |
|
|
|
2,608,771 |
|
|
|
4,989,663 |
|
|
5,826,908 |
|
Realized And Unrealized Gains (Losses) On
Investments: |
|
|
|
|
|
|
|
|
|
|
|
Net
realized losses from investment transactions |
|
(3,671 |
) |
|
|
(1,009,342 |
) |
|
|
(571 |
) |
|
(965,405 |
) |
|
Net change
in unrealized (depreciation) appreciation on: |
|
|
|
|
|
|
|
|
|
|
|
Debt
securities |
|
(682,477 |
) |
|
|
1,211,554 |
|
|
|
(1,125,361 |
) |
|
2,413,571 |
|
|
Equity securities |
|
(227,169 |
) |
|
|
(266,249 |
) |
|
|
(163,573 |
) |
|
(419,811 |
) |
|
CLO
Fund Securities managed by affiliates |
|
(787,433 |
) |
|
|
(852,828 |
) |
|
|
(1,008,252 |
) |
|
(2,105,814 |
) |
|
CLO
Fund Securities managed by non-affiliates |
|
(154,059 |
) |
|
|
(227,903 |
) |
|
|
195,296 |
|
|
(293,897 |
) |
|
Asset Manager Affiliates investments |
|
(1,310,000 |
) |
|
|
1,165,000 |
|
|
|
(996,000 |
) |
|
(1,441,000 |
) |
|
Joint Venture Investment |
|
(675,882 |
) |
|
|
— |
|
|
|
(424,506 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net change in unrealized appreciation (depreciation) |
|
(3,837,020 |
) |
|
|
1,029,574 |
|
|
|
(3,522,396 |
) |
|
(1,846,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized appreciation (depreciation) on
investments |
|
(3,840,691 |
) |
|
|
20,232 |
|
|
|
(3,522,967 |
) |
|
(2,812,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses on extinguishments of Debt |
|
— |
|
|
|
(107,276 |
) |
|
|
(169,074 |
) |
|
(107,276 |
) |
Net (Decrease )Increase In Stockholders’ Equity
Resulting From Operations |
$ |
(1,311,772 |
) |
|
$ |
2,521,727 |
|
|
$ |
1,297,622 |
|
$ |
2,907,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) Increase In Stockholders' Equity Resulting from
Operations per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
Basic: |
$ |
(0.04 |
) |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
$ |
0.08 |
|
|
Diluted: |
$ |
(0.03 |
) |
|
$ |
0.07 |
|
|
$ |
0.03 |
|
$ |
0.08 |
|
|
Net
Investment Income Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
Basic: |
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.13 |
|
$ |
0.16 |
|
|
Diluted: |
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.13 |
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares of Common Stock Outstanding—Basic |
|
37,363,038 |
|
|
|
37,206,487 |
|
|
|
37,356,759 |
|
|
37,204,751 |
|
|
Weighted
Average Shares of Common Stock Outstanding—Diluted |
|
37,363,038 |
|
|
|
37,206,487 |
|
|
|
37,356,759 |
|
|
37,204,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KCAP-G
Ted Gilpingilpin@kcapinc.com (212) 455-8300
Kcap Financial, Inc. (NASDAQ:KCAP)
Historical Stock Chart
From Apr 2024 to May 2024
Kcap Financial, Inc. (NASDAQ:KCAP)
Historical Stock Chart
From May 2023 to May 2024