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Press Release

KCAP Financial, Inc. Announces Third Quarter 2018 Financial Results

November 6, 2018 at 4:33 PM EST
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NEW YORK, Nov. 06, 2018 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq GS: KCAP) (the “Company”) announces its third quarter 2018 financial results.

Financial Highlights

  • Net investment income for the third quarter ended September 30, 2018 was approximately $3.0 million, or $0.08 per basic share, compared with approximately $2.5 million, or $0.07 per basic share in the quarter ended September 30, 2017.
     
  • Net investment income for the nine months ended September 30, 2018 was $0.21 per basic share, while estimated taxable distributable income for the nine months of 2018 was $0.24 per basic share.
     
  • The Company declared a third quarter shareholder distribution of $0.10 per share.
     
  • At September 30, 2018, the fair value of KCAP's investments totaled approximately $273 million.
     
  • Net asset value per share of $4.66 as of September 30, 2018, compared with $4.87 at December 31, 2017.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, “We are pleased with our progress in the third quarter as we continue to execute on our strategy and position the Company for growth.”

Operating Results

For the three months ended September 30, 2018, we reported total investment income of approximately $7.2 million as compared to approximately $6.3 million in the same period last year. Investment income from debt securities increased to approximately $4.8 million from approximately $2.4 million in the third quarter of 2017. Investment income on CLO fund securities in the third quarter of 2018 decreased to approximately $1.3 million from approximately $2.8 million for the same period in 2017. We received distributions from our Asset Manager Affiliates of $300,000 in the third quarter of 2018. The Asset Manager Affiliates distributed $880,000 in the third quarter of 2017, of which $700,000 was a return of capital.

For the three months ended September 30, 2018, total expenses increased by approximately $480,000 as compared to the same period in 2017, primarily attributable to an increase in interest expense.
                                                                                                           
Net investment income for the third quarter of 2018 and 2017 was approximately $3.0 million and $2.5 million, respectively, or $0.08 and $0.07 per basic share, respectively. Net realized and unrealized losses on investments for the three months ended September 30, 2018 was approximately $1.6 million, compared to net realized and unrealized gains on investments of approximately $816,000 for the same period in 2017. 

Portfolio and Investment Activity

The fair value of our investment portfolio was approximately $273 million as of September 30, 2018. The composition of our investment portfolio at September 30, 2018 and December 31, 2017, at cost and fair value, was as follows:   

    September 30, 2018 (unaudited)     December 31, 2017  
Security Type   Cost/Amortized
Cost		   Fair Value   %¹   Cost/Amortized
Cost		   Fair Value   %¹
Short-term investments²   $ 24,431,512   $ 24,431,512   9     $ 77,300,320   $ 77,300,320   26  
Senior Secured Loan     66,465,014     62,292,361   23       48,337,900     44,960,146   14  
Junior Secured Loan     76,396,298     71,229,383   26       62,561,913     58,941,300   19  
Senior Unsecured Loan     6,277,283     6,277,283   2       12,777,283     12,777,283   4  
Senior Secured Bond     —     —   -       1,502,374     1,518,750   -  
CLO Fund Securities     68,769,245     47,983,931   18       72,339,032     51,678,673   17  
Equity Securities     10,571,007     4,079,336   1       10,571,007     4,414,684   1  
Asset Manager Affiliates³     51,591,230     35,818,000   13       52,591,230     38,849,000   12  
Joint Venture     24,914,858     21,373,570   8       24,914,858     21,516,000   7  
Total   $ 329,416,447   $ 273,485,375   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 September 30, 2018, we had unrestricted cash and money market balances of approximately $26.1 million, total assets of approximately $280 million and stockholders' equity of approximately $174 million. Our net asset value per common share was $4.66. As of September 30, 2018, we had approximately $107.4 million (par value) of borrowings outstanding ($103.7 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 September 30, 2018. The record date for this distribution was October 9, 2018 and the distribution was paid on October 29, 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.

Conference Call and Webcast

We will hold a conference call on Wednesday, November 7, 2018 at 9:00 am Eastern Time to discuss our third 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 on November 7, 2018 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 November 7, 2018 until 12:00 p.m. on November 15, 2018. The dial in number for the replay is (855) 859-2056 and the conference ID is 8885087.

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://www.globenewswire.com/newsroom/prs/?pkgid=3121

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 of
September 30, 2018		   As of
December 31, 2017
      (unaudited)      
ASSETS            
Investments at fair value:            
Short-term investments (cost: 2018 - $24,431,512; 2017 - $77,300,320)   $ 24,431,512     $ 77,300,320  
Debt securities (amortized cost: 2018 - $149,138,595; 2017 - $125,179,470)     139,799,027       118,197,479  
CLO Fund Securities managed by affiliates (amortized cost: 2018 - $63,580,483; 2017 - $67,212,139)     45,531,058       49,488,393  
CLO Fund Securities managed by non-affiliates (amortized cost: 2018 - $5,188,762; 2017 - $5,126,893)     2,452,873       2,190,280  
Equity securities (cost: 2018 - $10,571,007; 2017 - $10,571,007)     4,079,336       4,414,684  
Asset Manager Affiliates (cost: 2018 - $51,591,230; 2017 - $52,591,230)     35,818,000       38,849,000  
Joint Venture (cost: 2018 - $24,914,858; 2017 - $24,914,858)     21,373,570       21,516,000  
                 
Total Investments at Fair Value (cost: 2018 - $329,416,447; 2017 - $362,895,917)     273,485,375       311,956,156  
Cash     1,713,906       2,034,095  
Restricted cash     987,818       —  
Interest receivable     2,276,162       1,051,271  
Receivable for open trades     —       2,993,750  
Due from affiliates     935,120       1,243,493  
Other assets     340,472       530,209  
                 
Total Assets   $ 279,738,854     $ 319,808,974  
             
LIABILITIES            
6.125% Notes Due 2022 (net of offering costs of: 2018 - $2,341,686; 2017 - $2,734,248)   $ 75,065,514     $ 74,672,952  
7.375% Notes Due 2019 (net of offering costs of: 2018 - $31,173; 2017 - $259,635)     6,968,827       26,740,365  
KCAP Funding I, LLC Revolving Credit Facility (net of offering costs of: 2018 - $1,246,998)     21,701,195       —  
Payable for open trades     —       34,215,195  
Accounts payable and accrued expenses     2,008,553       2,350,803  
Accrued interest payable     86,133       —  
Due to affiliates     127       25,083  
Total Liabilities     105,830,349       138,004,398  
             
COMMITMENTS AND CONTINGENCIES            
             
STOCKHOLDERS' EQUITY            
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,544,083 issued, and 37,349,224 outstanding at September 30, 2018, and 37,507,402 issued, and 37,339,224 outstanding at December 31, 2017     373,492       373,392  
Capital in excess of par value     330,404,400       329,789,716  
Excess distribution of net investment income     (13,201,062 )     (9,987,928 )
Accumulated net realized losses     (86,338,209 )     (86,031,799 )
Net unrealized depreciation on investments     (57,330,116 )     (52,338,805 )
             
Total Stockholders' Equity     173,908,505       181,804,576  
             
Total Liabilities and Stockholders' Equity   $ 279,738,854     $ 319,808,974  
             
NET ASSET VALUE PER COMMON SHARE   $ 4.66     $ 4.87  
             


 
KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    Three Months Ended   Nine Months Ended
  September 30,   September 30,
    2018     2017     2018     2017  
                   
Investment Income:                    
  Interest from investments in debt securities $ 4,487,575     $ 2,033,813     $ 11,796,245     $ 10,934,928  
  Payment-in-kind investment income 329,365       405,858       1,061,419       829,773  
  Interest from cash and time deposits 9,767       21,043       71,183       51,250  
  Investment income on CLO Fund Securities managed by affiliates 1,179,463       2,693,547       4,428,032       8,378,785  
  Investment income on CLO Fund Securities managed by non-affiliates 94,992       99,578       292,694       329,108  
  Dividends from Asset Manager Affiliates 300,000       180,000       920,000       180,000  
  Investment income - Joint Venture 750,000       685,000       2,150,000       685,000  
  Capital structuring service fees 7,588       134,504       114,097       298,628  
    Total investment income 7,158,750       6,253,343       20,833,670       21,687,473  
                       
Expenses:                    
  Interest and amortization of debt issuance costs 1,871,187       1,371,953       5,582,467       5,790,242  
  Compensation 1,004,323       1,072,812       3,216,710       3,473,841  
  Professional fees 867,724       802,507       2,489,098       2,545,195  
  Insurance 79,152       80,794       236,900       256,473  
  Administrative and other 381,835       395,782       1,364,302       1,265,317  
    Total expenses 4,204,221       3,723,848       12,889,477       13,331,068  
Net Investment Income 2,954,529       2,529,495       7,944,193       8,356,404  
Realized And Unrealized Gains (Losses) On Investments:                    
  Net realized losses from investment transactions (136,766 )     (1,906,537 )     (137,336 )     (2,871,941 )
  Net change in unrealized (depreciation) appreciation on:                    
    Debt securities (1,232,216 )     1,759,152       (2,357,578 )     4,172,723  
    Equity securities (171,775 )     (186,368 )     (335,348 )     (606,179 )
    CLO Fund Securities managed by affiliates 682,574       (1,590,062 )     (325,678 )     (3,695,876 )
    CLO Fund Securities managed by non-affiliates 5,427       (34,655 )     200,723       (328,552 )
    Asset Manager Affiliates investments (1,035,000 )     2,922,000       (2,031,000 )     1,481,000  
    Joint Venture Investment 282,076       (147,751 )     (142,430 )     (147,751 )
    Total net change in unrealized appreciation (depreciation) (1,468,914 )     2,722,316       (4,991,311 )     875,365  
  Net realized and unrealized appreciation (depreciation) on investments (1,605,680 )     815,779       (5,128,647 )     (1,996,576 )
Realized losses on extinguishments of Debt —       (4,014,723 )     (169,074 )     (4,121,998 )
Net Increase (Decrease )In Stockholders’ Equity Resulting From Operations $ 1,348,849     $ (669,449 )   $ 2,646,472     $ 2,237,830  
  Net Increase (Decrease) In Stockholders' Equity Resulting from Operations per Common Share:                    
    Basic: $ 0.04     $ (0.02 )   $ 0.07     $ 0.06  
    Diluted: $ 0.04     $ (0.02 )   $ 0.07     $ 0.06  
  Net Investment Income Per Common Share:                    
    Basic: $ 0.08     $ 0.07     $ 0.21     $ 0.23  
    Diluted: $ 0.08     $ 0.07     $ 0.21     $ 0.23  
                       
  Weighted Average Shares of Common Stock Outstanding—Basic 37,349,904       37,196,621       37,354,449       37,202,011  
  Weighted Average Shares of Common Stock Outstanding—Diluted 37,349,904       37,196,621       37,354,449       37,202,011  
           

KCAP-G

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

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

 

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Source: KCAP Financial, Inc.