Market Overview

KCAP Financial, Inc. Announces Full Year 2018 Financial Results

Share:

NEW YORK, Feb. 26, 2019 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq GS: KCAP) ("KCAP" or the "Company") announces its full year 2018 financial results.

Recent Developments

As previously announced, the Company has entered into a stock purchase and transaction agreement (the "Externalization Agreement") with BC Partners Advisors L.P., an affiliate of BC Partners LLP ("BC Partners"), pursuant to which the Company's management function would be externalized (the "Externalization"). At a special meeting of the Company's stockholders held on February 19, 2019, the Company's stockholders approved an investment advisory agreement between the Company and Sierra Crest Investment Management LLC, an affiliate of BC Partners (the "Adviser"). If the transactions contemplated by the Externalization Agreement are completed and closing conditions are satisfied or appropriately waived, upon closing of the Externalization, the Company will commence operations as an externally managed BDC managed by the Adviser.

On November 8, 2018, we entered into an agreement with LibreMax Intermediate Holdings, LP ("LibreMax") under which our wholly-owned subsidiary Commodore Holdings, LLC ("Commodore") agreed to sell Katonah Debt Advisors, L.L.C. ("Katonah Debt Advisors"), Trimaran Advisors, L.L.C. ("Trimaran Advisors"), and Trimaran Advisors Management, L.L.C. ("Trimaran Advisors Management" and, together with Katonah Debt Advisors and Trimaran Advisors, the "Disposed Manager Affiliates") to LibreMax for a cash purchase price of approximately $37.9 million (the "LibreMax Transaction"). In connection with the closing of the LibreMax Transaction on December 31, 2018, Commodore sold the Disposed Manager Affiliates, which manage collateralized loan obligation funds ("CLO Funds") to LibreMax for a cash purchase price of approximately $37.9 million.

Financial Highlights

  • Net investment income for the year ended December 31, 2018 was approximately $10.0 million, or $0.27 per basic share, compared with $11.0 million, $0.30 per basic share in 2017.
     
  • Taxable distributable income for the year was $0.25 per basic share.
     
  • KCAP declared a fourth quarter shareholder distribution of $0.10 per share.
     
  • At December 31, 2018, the fair value of KCAP's investments totaled approximately $273.3 million.
     
  • Net asset value per share of $4.23 as of December 31, 2018, compared with $4.87 at December 31, 2017.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "We executed on two significant strategic initiatives during the fourth quarter of 2018, with the successful completion of the sale of substantially all of our Asset Manager Affiliates, and our shareholders have recently approved the externalization of the management of KCAP which we expect will close towards the end of the first quarter of 2019."

Operating Results

For the year ended December 31, 2018, we reported total investment income of approximately $27.1 million as compared to approximately $28.3 million in the prior year, a decrease of 4%. Investment income from debt securities increased 6% to approximately $16.0 million from approximately $15.1 million in 2017. Investment income from investments in CLO fund securities in 2018 decreased 43% to $6.4 million from $11.2 million in 2017, and investment income from our joint venture investment increased to $3.1 million from just under $1.0 million in 2017.

For the year ended December 31, 2018, total expenses were relatively flat as compared to the same period in 2017, with lower compensation expenses offset by higher professional fees.

Net investment income for the years ended 2018 and 2017 was approximately $10.0 million and $11.0 million, or $0.27 and $0.30 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2018 was approximately $19.4 million, compared to net realized and unrealized depreciation on investments of $3.5 million for the same period in 2017.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $273.3 million as of December 31, 2018. The composition of our investment portfolio at December 31, 2018 and December 31, 2017, at cost and fair value, was as follows:

    December 31, 2018     December 31, 2017  
Security Type   Cost/Amortized Cost   Fair Value       Cost/Amortized Cost   Fair Value    
Short-term investments²   $ 44,756,478   $ 44,756,478   17     $ 77,300,320   $ 77,300,320   26 %
Senior Secured Loan     86,040,921     77,616,209   28       48,337,900     44,960,146   14  
Junior Secured Loan     76,223,561     70,245,535   26       62,561,913     58,941,300   19  
Senior Unsecured Loan           -       12,777,283     12,777,283   4  
Senior Secured Bond           -       1,502,374     1,518,750   -  
CLO Fund Securities     55,480,626     44,325,000   16       72,339,032     51,678,673   17  
Equity Securities     21,944,430     14,504,687   5       10,571,007     4,414,684   1  
Asset Manager Affiliates³     17,791,230     3,470,000   1       52,591,230     38,849,000   12  
Joint Venture     24,914,858     18,390,440   7       24,914,858     21,516,000   7  
Total   $ 327,152,104   $ 273,308,349   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 December 31, 2018, we had unrestricted cash and short-term investments of approximately $50.2 million, total assets of approximately $285.5 million and stockholders' equity of approximately $158.0 million, and our net asset value per common share was $4.23. As of December 31, 2018, we had $103.8 million of borrowings outstanding ($100.4 million net of discount) with a weighted average interest rate of approximately 6.0%. At December 31, 2018, we had approximately $23.6 million of available capacity under our Revolving Credit Facility.

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. 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 for the quarter ended December 31, 2018. The record date for this distribution was January 7, 2019 and the distribution was paid on January 31, 2019. Tax characteristics of all distributions paid by us in 2018 have been 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. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Conference Call and Webcast

We will hold a conference call on Wednesday, February 27, 2019 at 9:00 a.m. Eastern Time to discuss our full year 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 12:00 p.m. on February 27, 2019 until 12:00 p.m. Eastern time on March 7, 2019.  The dial in number for the replay is 855-859-2056 and the conference ID is 1725119.

About KCAP Financial, Inc.

KCAP Financial, Inc. is a publicly traded, internally managed business development company ("BDC"). 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.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The matters discussed in this press release, as well as in future oral and written statements by management of KCAP Financial, Inc., 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. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.

Important assumptions include our ability to originate new investments, and achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by us that such plans, estimates, expectations or our plans or objectives will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) that one or more closing conditions to the externalization may not be satisfied or waived, on a timely basis or otherwise, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the externalization, may require conditions, limitations or restrictions in connection with such approvals; (2) the risk that the externalization contemplated by the stock purchase and transaction agreement may not be completed in the time frame expected by parties, or at all; (3) unexpected costs, charges or expenses resulting from the externalization; (4) uncertainty of the expected financial performance of the Company following completion of the externalization; (5) failure to realize the anticipated benefits of the externalization, including as a result of delay in completing the externalization; (6) the ability of the Company and/or BC Partners to implement its business strategy; (7) the occurrence of any event that could give rise to termination of the agreement; (8) the risk that stockholder litigation in connection with the externalization may affect the timing or occurrence of the contemplated externalization or result in significant costs of defense, indemnification and liability; (9) evolving legal, regulatory and tax regimes; and (10) changes in general economic and/or industry specific conditions. 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.

This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities of any CLO fund. Such securities have not been, and will not be, registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933

KCAP FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
                 
      As of
December 31, 2018
  As of
December 31, 2017
 
                 
ASSETS              
Investments at fair value:              
Short-term investments (cost: 2018 - $44,756,478; 2017 - $77,300,320)   $ 44,756,478     $ 77,300,320    
Debt securities (amortized cost: 2018 - $162,264,482; 2017 - $125,179,470)     147,861,744       118,197,479    
CLO Fund Securities managed by affiliates (amortized cost: 2018 - $4,407,106; 2017 - $67,212,139)     4,473,840       49,488,393    
CLO Fund Securities managed by non-affiliates (amortized cost: 2018 - $51,073,520; 2017 - $5,126,893)     39,851,160       2,190,280    
Equity securities (cost: 2018 - $21,944,430; 2017 - $10,571,007)     14,504,687       4,414,684    
Asset Manager Affiliates (cost: 2018 - $17,791,230; 2017 - $52,591,230)     3,470,000       38,849,000    
Joint Venture (cost: 2018 - $24,914,858; 2017 - $24,914,858)     18,390,440       21,516,000    
                   
Total Investments at Fair Value (cost: 2018 - $327,152,104; 2017 - $362,895,917)     273,308,349       311,956,156    
Cash     5,417,125       2,034,095    
Restricted cash     3,907,341          
Interest receivable     1,342,970       1,051,271    
Receivable for open trades           2,993,750    
Due from affiliates     1,007,631       1,243,493    
Other assets     481,265       530,209    
Total Assets   $ 285,464,681     $ 319,808,974    
               
LIABILITIES              
6.125% Notes Due 2022 (net of offering costs of: 2018 - $2,207,342; 2017 - $2,734,248)   $ 75,199,858     $ 74,672,952    
KCAP Funding I, LLC Revolving Credit Facility  (net of offering costs of: 2018 - $1,155,754)     25,200,331          
7.375% Notes Due 2019 (net of offering costs of: 2017 - $259,635)     -       26,740,365    
Payable for open trades     23,204,564       34,215,195    
Accounts payable and accrued expenses     3,591,910       2,350,803    
Accrued interest payable     131,182          
Due to affiliates     115,825       25,083    
Total Liabilities     127,443,670       138,004,398    
               
COMMITMENTS AND CONTINGENCIES (Note 8)              
                 
STOCKHOLDERS' EQUITY              
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,521,705 issued, and 37,326,846 outstanding at December 31, 2018, and 37,507,402 issued, and 37,339,224 outstanding at December 31, 2017     373,268       373,392    
Capital in excess of par value     306,784,387       329,789,716    
Total distributable (loss) earnings     (149,136,644 )     (148,358,532 )  
Total Stockholders' Equity     158,021,011       181,804,576    
Total Liabilities and Stockholders' Equity   $ 285,464,681     $ 319,808,974    
NET ASSET VALUE PER COMMON SHARE   $ 4.23     $ 4.87    


KCAP FINANCIAL, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS  
 
      For the Years Ended December 31,  
    2018   2017   2016  
Investment Income:                  
  Interest from investments in debt securities $ 14,939,309     $ 13,963,970     $ 19,763,577    
  Payment-in-kind investment income   1,066,354       1,099,223       1,065,339    
  Interest from cash and time deposits   76,055       71,934       29,383    
  Investment income on CLO Fund Securities managed by affiliates   6,024,935       10,807,490       12,642,625    
  Investment income on CLO Fund Securities managed by non-affiliates   388,237       420,766       630,647    
  Dividends from Asset Manager Affiliates   1,246,510       460,000       1,400,000    
  Investment income from Joint Venture    3,100,000       949,037          
  Capital structuring service fees   245,393       491,279       668,527    
    Total investment income   27,086,793       28,263,699       36,200,098    
                       
Expenses:                  
  Interest and amortization of debt issuance costs   7,403,436       7,661,407       9,110,603    
  Compensation   4,012,743       4,571,309       4,103,558    
  Professional fees   3,470,269       2,942,059       2,391,038    
  Insurance   321,268       347,175       412,764    
  Administrative and other   1,874,600       1,722,618       1,692,140    
    Total expenses   17,082,316       17,244,568       17,710,103    
                       
Net Investment Income   10,004,477       11,019,131       18,489,995    
Realized And Unrealized Gains (Losses) On Investments:                  
  Net realized losses from investment transactions   (16,474,939 )     (6,899,044 )     (6,167,467 )  
  Net change in unrealized (depreciation) appreciation on:                  
    Debt securities   (7,420,747 )     4,194,914       2,492,707    
    Equity securities   (1,283,420 )     (823,671 )     (4,413,354 )  
    CLO Fund Securities managed by affiliates   17,790,480       2,102,279       4,380,974    
    CLO Fund Securities managed by non-affiliates   (8,285,747 )     (85,671 )     284,625    
    Asset Manager Affiliates investments   (579,000 )     1,401,000       (15,933,000 )  
    Joint Venture investment   (3,125,560 )     (3,398,858 )        
  Total net (depreciation) appreciation from investment transactions   (2,903,994 )     3,389,993       (13,188,048 )  
    Net realized and unrealized losses on investments   (19,378,933 )     (3,509,051 )     (19,355,515 )  
                       
  Realized losses on extinguishments of debt   (197,090 )     (4,121,998 )     (174,211 )  
Net (Decrease) Increase In Stockholders' Equity Resulting From Operations $ (9,571,546 )   $ 3,388,082     $ (1,039,731 )  
                       
  Net (Decrease) Increase in Stockholders' Equity Resulting from Operations per Common Share:                  
  Basic: $ (0.26 )   $ 0.09     $ (0.03 )  
  Diluted: $ (0.26 )   $ 0.09     $ (0.03 )  
  Net Investment Income Per Common Share:                  
  Basic: $ 0.27     $ 0.30     $ 0.50    
  Diluted: $ 0.27     $ 0.30     $ 0.50    
  Weighted Average Shares of Common Stock Outstanding—Basic   37,356,241       37,235,130       37,149,663    
  Weighted Average Shares of Common Stock Outstanding—Diluted   37,356,241       37,235,130       37,149,663    

KCAP-G

CONTACT: Ted Gilpin
  gilpin@kcapinc.com
  (212) 455-8300


Source: KCAP Financial, Inc.
News Provided by Acquire Media

KCAP Financial, Inc. Logo

View Comments and Join the Discussion!