EX-99.1 2 tm1921437d2_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

Capitala Finance Corp. Reports Third Quarter 2019 Results

 

CHARLOTTE, NC, November 4, 2019--Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala", the “Company”, “we”, “us”, or “our”) today announced its financial results for the third quarter of 2019.

 

Third Quarter Highlights

 

·Deployed $13.9 million during the quarter, consisting of $13.2 million in first lien debt and $0.7 million second lien debt. The weighted average yield on debt investments during the period was 10.6%
·Closed credit facility for Capitala Senior Loan Fund II, LLC, enhancing our ability to originate unitranche debt investments across the Capitala platform, including Capitala Finance Corp.

 

Management Commentary

 

In describing the Company’s third quarter activities, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, “During the third quarter of 2019, we earned a 4.5% return on equity. We anticipate closing several new investments prior to year-end, providing support to net investment income after two quarters of net repayments. Platform liquidity will allow us to remain active investors in the lower middle market. Our investment adviser’s recently announced partnership with Mitsui USA is expected to provide the Capitala platform, including Capitala Finance Corp., with additional resources for the growth of our credit and equity strategies focused on investing in small businesses located across North America.”

 

Third Quarter 2019 Financial Results

 

During the third quarter of 2019, the Company originated $13.9 million of new investments, and received $33.2 million of repayments. First lien investments totaled $13.2 million, while second lien investments totaled $0.7 million. The weighted average yield on third quarter investments was 10.6%.

 

Total investment income was $10.1 million for the third quarter of 2019, compared to $11.5 million in the third quarter of 2018. Interest and fee income was $2.2 million lower in third quarter of 2019 as compared to 2018, partially offset by an increase of $1.1 million in dividend income for the comparable periods. Dividend income for the third quarter of 2019 included $0.8 million from Micro Precision, LLC and $0.3 million from Capitala Senior Loan Fund II, LLC.

 

 

 

 

Total expenses for the third quarter of 2019 were $7.1 million, compared to $7.7 million for the comparable period in 2018. Interest and financing expenses were $0.2 million lower in the third quarter of 2019 as compared to 2018, while base management fees decreased by $0.3 million for the comparable periods.

 

Net investment income for the third quarter of 2019 was $3.0 million, or $0.18 per share, compared to $3.9 million, or $0.24 per share, for the same period in 2018.

 

Net realized gains were $12 thousand for the third quarter of 2019, compared to $6.3 million of net realized gains for the third quarter of 2018.

 

Net unrealized depreciation totaled $1.3 million, or $0.08 per share, for the third quarter of 2019, compared to depreciation of $22.0 million for the third quarter of 2018.

 

The net increase in net assets resulting from operations was $1.7 million for the third quarter of 2019, or $0.11 per share, compared to a net decrease of $11.9 million, or $0.74 per share, for the same period in 2018.

 

Investment Portfolio

 

As of September 30, 2019, our portfolio consisted of 40 companies with a fair market value of $371.4 million and a cost basis of $359.6 million. First lien debt investments represented 59.3% of the portfolio, second lien and subordinated debt investments collectively represented 16.0% of the portfolio, equity/warrant investments represented 21.0% of the portfolio, and our investment in Capitala Senior Loan Fund II, LLC represented 3.7% of the portfolio, based on fair values at September 30, 2019. The weighted average yield on our debt portfolio was 11.5% at September 30, 2019.

 

At September 30, 2019, non-accrual balances totaled $25.8 million and $15.8 million, on a cost basis and fair value basis, respectively. Non-accrual loans, on a cost basis and fair value basis, represented 7.2% and 4.3%, respectively, of the portfolio at September 30, 2019, compared to 4.9% and 2.1%, respectively, at December 31, 2018.

 

Liquidity and Capital Resources

 

At September 30, 2019, the Company had $62.8 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $150.0 million with an annual weighted average interest rate of 3.16%, $75.0 million of fixed rate notes bearing an interest rate of 6.00%, and $52.1 million of convertible notes bearing an interest rate of 5.75%. At September 30, 2019, the Company had no outstanding balance and $114.5 million available under its senior secured revolving credit facility, which is priced at LIBOR plus 3.0%.

 

Third Quarter 2019 Financial Results Conference Call

 

Management will host a conference call to discuss the operating and financial results at 8:30 a.m. on Tuesday, November 5, 2019. To participate in the conference call, please dial 1-877-312-5507 approximately 10 minutes prior to the call. A live webcast of the conference will be available at http://investor.CapitalaGroup.com.

 

 

 

 

About Capitala Finance Corp.

 

Capitala Finance Corp. is a business development company that invests primarily in first and second lien loans, subordinated debt and, to a lesser extent, equity securities issued by lower middle market companies. The Company is managed by Capitala Investment Advisors, LLC. For more information on Capitala, or to automatically receive email notifications of Company financial information, press releases, stock alerts, or other corporate filings, please visit the Investor Relations section of our website.

 

About Capitala Group

 

Capitala Group is a $3.0 billion asset management firm that has been providing capital to lower middle market companies throughout North America for twenty years. Since its inception in 1998, Capitala Group has invested in over 150 companies and seeks to partner with strong management teams to create value and generate superior risk-adjusted returns for its individual and institutional investors. For more information, visit Capitala Group’s website at www.CapitalaGroup.com. 

 

Forward-Looking Statements

 

This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

 

SOURCE: Capitala Finance Corp.

 

Capitala Finance Corp.

Stephen Arnall, Chief Financial Officer

704-376-5502

sarnall@capitalagroup.com

 

 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

    As of  
    September 30, 2019     December 31, 2018  
    (unaudited)        
ASSETS            
Investments at fair value                
 Non-control/non-affiliate investments (amortized cost of $248,479 and $280,114, respectively)   $ 259,747     $ 286,843  
 Affiliate investments (amortized cost of $74,435 and $72,300, respectively)     91,355       92,939  
 Control investments (amortized cost of $36,659 and $67,556, respectively)     20,249       69,145  
 Total investments at fair value (amortized cost of $359,573 and $419,970, respectively)     371,351       448,927  
Cash and cash equivalents     62,776       39,295  
Interest and dividend receivable     1,572       3,778  
Prepaid expenses     117       454  
Deferred tax asset, net     -       628  
Other assets     114       83  
Total assets   $ 435,930     $ 493,165  
                 
LIABILITIES                
SBA debentures (net of deferred financing costs of $1,129 and $1,688, respectively)   $ 148,871     $ 164,012  
2022 Notes (net of deferred financing costs of $1,585 and $1,987, respectively)     73,415       73,013  
2022 Convertible Notes (net of deferred financing costs of $1,003 and $1,259, respectively)     51,085       50,829  
Credit Facility (net of deferred financing costs of $727 and $983, respectively)     (727 )     9,017  
Management and incentive fees payable     3,509       2,487  
Interest and financing fees payable     1,440       3,063  
Trade settlement payable     6,442       -  
Accounts payable and accrued expenses     14       100  
Total liabilities   $ 284,049     $ 302,521  
                 
NET ASSETS                
Common stock, par value $0.01, 100,000,000 common shares authorized, 16,161,075 and 16,051,547 common shares issued and outstanding, respectively   $ 162     $ 161  
Additional paid in capital     242,639       241,757  
Total distributable loss     (90,920 )     (51,274 )
Total net assets   $ 151,881     $ 190,644  
Total liabilities and net assets   $ 435,930     $ 493,165  
                 
Net asset value per share   $ 9.40     $ 11.88  

  

 

 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2019   2018   2019   2018 
INVESTMENT INCOME                    
Interest and fee income:                    
Non-control/non-affiliate investments  $6,270   $6,692   $21,096   $20,915 
Affiliate investments   1,898    1,852    6,578    5,870 
Control investments   115    1,898    1,421    5,585 
Total interest and fee income   8,283    10,442    29,095    32,370 
Payment-in-kind interest income:                    
Non-control/non-affiliate investments   388    350    1,283    1,482 
Affiliate investments   235    343    611    1,118 
Control investments   -    295    372    715 
Total payment-in-kind interest income   623    988    2,266    3,315 
Dividend income:                    
Non-control/non-affiliate investments   -    -    1,281    59 
Affiliate investments   25    29    25    87 
Control investments   1,134    25    1,584    75 
Total dividend income   1,159    54    2,890    221 
Interest income from cash and cash equivalents   61    46    149    78 
Total investment income   10,126    11,530    34,400    35,984 
                     
EXPENSES                    
Interest and financing expenses   4,110    4,320    12,751    13,015 
Base management fee   1,925    2,254    6,063    6,871 
Incentive fees   -    -    1,497    244 
General and administrative expenses   1,107    1,105    3,236    3,334 
Expenses before incentive fee waiver   7,142    7,679    23,547    23,464 
Incentive fee waiver   -    -    (288)   - 
Total expenses, net of incentive fee waiver   7,142    7,679    23,259    23,464 
                     
NET INVESTMENT INCOME   2,984    3,851    11,141    12,520 
                     
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL OPTION:                    
Net realized gain (loss) on investments:                    
Non-control/non-affiliate investments   -    9,874    (3,544)   (15,820)
Affiliate investments   12    93    2,288    956 
Control investments   -    (3,669)   (19,656)   (5,315)
Net realized gain (loss) on investments   12    6,298    (20,912)   (20,179)
Net unrealized appreciation (depreciation) on investments:                    
Non-control/non-affiliate investments   1,518    (8,380)   4,539    18,847 
Affiliate investments   1,218    11,730    (3,719)   5,727 
Control investments   (4,015)   (32,100)   (17,999)   (31,722)
Net unrealized depreciation on investments   (1,279)   (28,750)   (17,179)   (7,148)
Net unrealized appreciation on written call option   -    6,795    -    6,795 
Net realized and unrealized loss on investments and written call option   (1,267)   (15,657)   (38,091)   (20,532)
Tax benefit (provision)   -    (110)   (628)   1,185 
Total net realized and unrealized loss on investments and written call option, net of taxes   (1,267)   (15,767)   (38,719)   (19,347)
                     
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS  $1,717   $(11,916)  $(27,578)  $(6,827)
                     
NET INCREASE (DECREASE) IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.11   $(0.74)  $(1.71)  $(0.43)
                     
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING  –  BASIC AND DILUTED   16,133,365    16,001,919    16,097,908    15,981,154 
                     
DISTRIBUTIONS PAID PER SHARE  $0.25   $0.25   $0.75   $0.75