Market Overview

Solar Capital Ltd. Announces Quarter Ended June 30, 2019 Financial Results; Net Investment Income Per Share of $0.44; Declares Quarterly Distribution of $0.41 Per Share for Q3, 2019

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NEW YORK, Aug. 05, 2019 (GLOBE NEWSWIRE) -- Solar Capital Ltd. (NASDAQ:SLRC) (the "Company" or "Solar Capital"), today reported net investment income of $18.4 million, or $0.44 per share, for the second quarter 2019.

At June 30, 2019, net asset value (NAV) was $21.98 per share, an increase from $21.93 the prior quarter. In addition, the Company's portfolio was 100% performing at June 30, 2019.

The Board declared a third quarter distribution of $0.41 per share payable on October 2, 2019 to stockholders of record as of September 19, 2019. The specific tax characteristics will be reported to stockholders on Form 1099 after the end of the calendar year.

HIGHLIGHTS:

At June 30, 2019:

  • Comprehensive Investment portfolio* fair value: $1.75 billion
  • Number of portfolio companies: 226
  • Net assets: $929.0 million
  • Net asset value per share: $21.98

Comprehensive Investment Portfolio Activity** for the Quarter Ended June 30, 2019:

  • Investments made during the quarter: $120.4 million
  • Investments prepaid and sold during the quarter: $162.1 million

Operating Results for the Quarter Ended June 30, 2019:

  • Net investment income: $18.4 million
  • Net investment income per share: $0.44
  • Net realized and unrealized gain: $1.2 million
  • Net increase in net assets from operations: $19.6 million
  • Earnings per share:  $0.46

* The Comprehensive Investment Portfolio is comprised of Solar Capital Ltd.'s investment portfolio, Crystal Financial's full portfolio (including its ownership of its SBIC), and NEF Holdings, LLC's ("NEF") full portfolio and excludes the fair value of the equity interests in Crystal Financial and NEF.

** Includes investment activity through Crystal Financial (including its ownership of its SBIC), and NEF.

"We are pleased with our second quarter results, during which our NII per share continued to exceed distributions, NAV increased and our portfolio is one hundred percent performing," said Michael Gross, Co-CEO. "At June 30, 2019, over 75% of the Company's assets were investments in Solar Capital's commercial finance verticals, reflecting our successful transition to a specialty finance platform focused on senior secured lending across a number of middle market niches."

"Given the frothy credit markets, Solar Capital continues to take a conservative investment approach with a focus on first lien senior secured transactions which now represent over 88% of our portfolio," said Bruce Spohler, Co-CEO. "With our available capital to grow our portfolio, we believe Solar Capital is positioned for net investment income growth over the balance of 2019."

Conference Call and Webcast
The Company will host an earnings conference call and audio webcast at 10:00 a.m. (Eastern Time) on Tuesday, August 6, 2019. All interested parties may participate in the conference call by dialing (844) 889-7786 approximately 5-10 minutes prior to the call, international callers should dial (661) 378-9930. Participants should reference Solar Capital Ltd. and the participant passcode of 1987781 when prompted. A telephone replay will be available until August 20, 2019 and can be accessed by dialing (855) 859-2056 and using the passcode 1987781. International callers should dial (404) 537-3406. This conference call will also be broadcast live over the Internet and can be accessed by all interested parties through Solar Capital's website, www.solarcapltd.com. To listen to the webcast, please go to the Company's website prior to the start of the call to register and download any necessary audio software. For those who are not able to listen to the live broadcast, a replay of the webcast will be available soon after the call.

Comprehensive Investment Portfolio

Investment Activity

During the three months ended June 30, 2019, Solar Capital had total originations of $120.4 million and repayments and amortization of $162.1 million across its four core business units: cash flow, asset-based, equipment finance, and life science lending. 

 
Comprehensive Investment Portfolio Activity(1)
Q2 2019
(in millions)
Asset Class Cash Flow
Loans
Asset-based
Loans / Crystal
Financial(2)
Equipment
Financings /
NEF(3)
Life Science
Loans
Total
Portfolio
Activity
Originations $4.9 $47.5 $37.6 $30.4 $120.4
Repayments / Amortization $23.9 $93.5 $39.1 $5.6 $162.1
Net Portfolio Activity ($19.0) ($46.0) ($1.5) $24.8 ($41.7)
           
           
  1. Portfolio activity includes gross originations/repayments across each business unit.
  2. Includes Crystal Financial's full portfolio (and its ownership of its SBIC) and asset-based loans on the Company's balance sheet.
  3. Includes NEF's full portfolio and NEF equipment financings on the Company's balance sheet.

Portfolio Composition

Our Comprehensive Investment Portfolio composition by business unit at June 30, 2019 was as follows:

     
Comprehensive Investment Portfolio Composition
(at fair value)
Amount Weighted Average
Asset Yield

 ($mm) %
Cash Flow Senior Secured Loans $404.0 23.1% 9.8%(5)
Asset-Based Senior Secured Loans / Crystal Financial(1) $595.0 34.1% 11.5%(6)
Equipment Senior Secured Financings / NEF(2) $396.1 22.7% 10.4%(7)
Life Science Senior Secured Loans $320.7 18.4% 11.1%(8)
Total Senior Secured Loans $1,715.8 98.3% 10.8%
Equity and Equity-like Securities(3) $30.3 1.7%  
Total Comprehensive Investment Portfolio $1,746.1 100%  
Floating Rate Investments(4) $1,314.6 75.9%  
First Lien Senior Secured Loans $1,542.9 88.4%  
Second Lien Senior Secured Cash Flow Loans $100.6 5.8%  
Second Lien Senior Secured Asset-Based Loans $72.3 4.1%  
       
  1. Includes Crystal Financial's full portfolio, including the Company's pro rata ownership of Crystal's SBIC, and asset-based loans on the Company's balance sheet.
  2. Includes NEF's full portfolio and NEF equipment financings on the Company's balance sheet.
  3. Excludes Crystal and NEF, which distribute quarterly cash dividends to the Company.
  4. Floating rate investments calculated as a percent of the Company's income-producing Comprehensive Investment Portfolio. The majority of fixed rate loans are associated with NEF and are short in duration with average hold periods of 2.5 years. Additionally, NEF seeks to match-fund its fixed rate assets with fixed rate liabilities.
  5. Represents the weighted average of each individual loan's yield to maturity based on fair market value at June 30, 2019.
  6. Represents the weighted average of each individual loan's underwritten yield to expected repayment date, which is based on a historical average realized investment duration.
  7. Represents the weighted average of each individual loan's yield to maturity (excluding residual upside on tax leases).
  8. Represents the weighted average of each individual loan's yield to maturity based on fair value at June 30, 2019 (excluding exit fees or warrants).

The Comprehensive Investment Portfolio is diversified across approximately 226 unique issuers across approximately 97 industries and with an average exposure of $7.7 million or 0.4% per issuer.

At June 30, 2019, 98.3% of the Company's Comprehensive Investment Portfolio was invested in senior secured loans, comprised of 88.4% first lien senior secured loans and approximately 9.9% second lien senior secured loans of which 5.8% were second lien cash flow loans and 4.1% were second lien asset-based loans.

The weighted average yield at fair value of all income-producing investments in the Comprehensive Portfolio was 10.8% at June 30, 2019.

Solar Capital Ltd. Portfolio

Asset Quality

As of June 30, 2019, 100% of the Company's portfolio was performing.

The Company puts its greatest emphasis on risk mitigation and credit performance. On a quarterly basis, or more frequently if deemed necessary, the Company formally rates each portfolio investment on a scale of one to four, with one representing the least amount of risk.

As of June 30, 2019, the composition of our portfolio, on a risk ratings basis, was as follows:

Internal Investment Rating Investments at Fair Value ($mm) % of Total Portfolio
1 $201.6 13.5%
2 $1,218.5 81.4%
3 $75.7 5.1%
4 $0.8 >0.0%
     

Investment Income Contribution by Business Unit

 
Business Unit Contribution to Gross Investment Income
Q2 2019

(in millions)
For the
Period:
Cash Flow
Lending(1)
Asset-based
Lending /
Crystal
Financial(2)
Equipment
Financing /
NEF(3)
Life Science
Lending
Total
Q2 2019 $10.9 $10.9 $5.5 $11.4 $38.7
% Contribution 28.1% 28.1% 14.2% 29.6% 100%
           
  1. Includes interest income/fees from cash flow loans on balance sheet.
  2. Includes interest income/fees from asset based loans on balance sheet and distributions from Crystal Financial.
  3. Includes interest income/fees from equipment financings on balance sheet and distributions from NEF Holdings.

Solar Capital Ltd.'s Results of Operations for the Quarter Ended June 30, 2019 compared to the Quarter Ended June 30, 2018.

Investment Income

For the fiscal quarters ended June 30, 2019 and 2018, gross investment income totaled $38.7 million and $39.2 million, respectively. The change in gross investment income for the year over year periods was generally flat as the income producing portfolio increased in size year over year but the yield on the portfolio decreased slightly.

Expenses

Net expenses totaled $20.3 million and $20.0 million, respectively, for the fiscal quarters ended June 30, 2019 and 2018.

Net Investment Income

The Company's net investment income totaled $18.4 million and $19.2 million, or $0.44 and $0.45 per average share, respectively, for the fiscal quarters ended June 30, 2019 and 2018.

Net Realized and Unrealized Gain

Net realized and unrealized gains for the fiscal quarters ended June 30, 2019 and 2018 totaled approximately $1.2 million and $0.6 million, respectively.

Net Increase in Net Assets Resulting From Operations

For the fiscal quarters ended June 30, 2019 and 2018, the Company had a net increase in net assets resulting from operations of $19.6 million and $19.8 million, respectively. For the fiscal quarters ended June 30, 2019 and 2018, earnings per average share were $0.46 and $0.47, respectively.

Liquidity and Capital Resources

As of June 30, 2019 the Company had a total of $463 million of unused borrowing capacity under the Company's credit facilities, subject to borrowing base limits.

When including Crystal Financial and NEF Holdings, the Company had a total of approximately $600 million of unused borrowing capacity under its revolving credit facilities, subject to borrowing base limits.

Financial Statements and Tables

 
SOLAR CAPITAL LTD.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except share amounts)
     
  June 30, 2019
(unaudited)

  December 31,
2018
Assets              
Investments at fair value:    
Companies less than 5% owned (cost: $965,219 and $948,478, respectively) $ 959,020     $ 944,597  
Companies more than 25% owned (cost: $516,612 and $500,792, respectively)   537,618       511,483  
Cash   11,066       7,570  
Cash equivalents (cost: $199,488 and $199,646, respectively)...   199,488       199,646  
Dividends receivable   8,715       9,065  
Interest receivable   6,511       7,619  
Receivable for investments sold   1,720      
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