EX-99.1 2 tv493109_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

Capitala Finance Corp. Reports First Quarter 2018 Results

 

CHARLOTTE, NC, May 7, 2018--Capitala Finance Corp. (Nasdaq:CPTA) (“Capitala”, the “Company”, “we”, “us”, or “our”) today announced its financial results for the first quarter of 2018.

 

First Quarter Highlights

 

·Net investment income of $4.4 million, or $0.28 per share
·Net asset value per share of $13.66 at March 31, 2018, compared to $13.91 at December 31, 2017
·Deployed $27.8 million during the quarter, $27.0 million of first lien debt and $0.8 million of equity. The debt investments made during the quarter had a weighted average yield of 10.8%

 

Management Commentary

 

In describing the Company’s first quarter results, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, “Operationally, our first quarter net investment income exceeded distributions, while NAV per share declined only slightly to $13.66 per share. All debt investments made during the quarter were senior debt structures, while 85% of all debt investments made over the last seven quarters were senior structures, thus validating the investment shift to less-risky and more senior debt focused investment strategy. We continue to build out our team of professionals, including the addition of a new partner who is opening a full service office in New York. Lastly, we recently announced the closing of a $1.0 billion pool of private capital, Capitala Specialty Lending Corp., which will significantly benefit the Company by providing substantial platform liquidity that allows the Company to be an active co-investor in new deals irrespective of liquidity limitations. Moreover, the Company benefits from the additional resources resulting from the growth of the investment adviser, including the addition of very talented seasoned professionals, the opening of new full service offices, and the upgrading of our investment adviser’s technology and software resources.”

 

First Quarter 2018 Financial Results

 

During the first quarter of 2018, the Company originated $27.8 million of new investments, and received $21.4 million of repayments. Debt investments represented 97% of first quarter investment activity, all of which were first lien structures. The weighted average annualized yield on the first quarter debt investments was 10.8%.

 

 

 

 

Total investment income was $12.6 million for the first quarter of 2018, compared to $14.8 million in the first quarter of 2017. Interest, fee and PIK income collectively were $1.8 million lower in the first quarter of 2018 compared to 2017, resulting from a decline in the Company’s investment portfolio and the impact of higher non-accrual balances. All other income decreased by $0.4 million from the comparable period.

 

Total expenses for the first quarter of 2018 were $8.1 million, compared to $8.6 million for the comparable period in 2017. The decrease of $0.5 million is attributable to (1) a decrease in interest and financing expenses of $0.3 million, (2) a decrease of $0.1 million in incentive fees, net of the waiver, and (3) a $0.1 million decrease in all other expenses.

 

Net investment income for the first quarter of 2018 was $4.4 million, or $0.28 per share, compared to $6.2 million, or $0.39 per share, for the same period in 2017.

 

Net realized losses totaled $3.9 million, or $0.24 per share, for the first quarter of 2018, compared to net gains of $4.8 million, or $0.31 per share, for the same period in 2017. During the quarter, the Company realized a loss related to American Exteriors, LLC ($4.6 million), partially offset by other gains totaling $0.7 million.

 

Net unrealized depreciation totaled $0.4 million, or $0.02 per share, for the first quarter of 2018, compared to depreciation of $6.2 million for the first quarter of 2017.

 

During the first quarter of 2018, the Company recorded a tax expense of $50 thousand primarily related to net income from our blocker corporation. There was no tax provision for the first quarter of 2017.

 

The net increase in net assets resulting from operations was $0.1 million for the first quarter of 2018, or $0.01 per share, compared to a net increase of $4.9 million, or $0.31 per share, for the same period in 2017.

 

Investment Portfolio

 

As of March 31, 2018, our portfolio consisted of 46 companies with a fair market value of $503.7 million and a cost basis of $469.2 million. First lien debt investments represented 51.0% of the portfolio, second lien debt investments represented 6.3% of the portfolio, subordinated debt investments represented 18.4% of the portfolio, and equity/warrant investments represented 24.3% of the portfolio, based on fair values at March 31, 2018. On a cost basis, equity investments comprised 12.0% of the portfolio at March 31, 2018. The weighted average yield on our debt portfolio was 12.0% at March 31, 2018, compared to 11.9% at December 31, 2017.

 

At March 31, 2018, we had debt investments in three portfolio companies on non-accrual status with a fair value and cost basis of $20.2 million and $44.4 million, respectively. Non-accrual loans, on a fair value and cost basis, represent 4.0% and 9.5%, respectively, of the portfolio at March 31, 2018. At December 31, 2017, the fair value of the non-accrual investments was $25.0 million, with a cost basis of $50.1 million.

 

 

 

 

Liquidity and Capital Resources

 

At March 31, 2018, the Company had $25.7 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $170.7 million with an annual weighted average interest rate of 3.29%, $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 March 31, 2018, the Company had $12.0 million outstanding and $102.5 million available under its senior secured revolving credit facility, which is priced at LIBOR plus 3.0%. The Company’s regulatory leverage ratio at March 31, 2018 was 0.64x, compared to 0.61x at December 31, 2017.

 

Subsequent Events

 

On April 2, 2018, the Company restructured its investment in Cedar Electronics Holdings Corp., exchanging its $21.6 million subordinated debt investment for 4,759,250 Class C Preferred Units, 16,562,190 Class D Preferred Units, and 19.04% of the Class E Common Units of Cedar Ultimate Parent, LLC.

 

First Quarter 2018 Financial Results Conference Call

 

Management will host a conference call to discuss the operating and financial results at 8:30 a.m. on Tuesday, May 8, 2018. 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 liens, subordinated debt and, to lesser extent, equity securities issued by lower and traditional 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 leading provider of capital to lower and traditional middle market companies, through its family of credit focused funds. Since 1998, Capitala Group’s managed funds have participated in over 145 transactions, representing over $1.4 billion of investments in a variety of industries throughout North America. Capitala’s approach to investing, whether in its growth fund strategy or its lower middle market credit strategy, has proven to be a reliable and attractive financing solution to our partners. Capitala Group manages both public capital

(Capitala Finance Corp.) (Nasdaq:CPTA) and private capital (Capitala Private Credit Fund V L.P.; CapitalSouth SBIC Fund IV, L.P.; and Capitala Specialty Lending Corp.) for institutional and individual investors, and seeks to partner with strong management teams to create value and serve as long term partners.  For more information, please visit 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 
   March 31, 2018   December 31, 2017 
   (unaudited)     
ASSETS          
Investments at fair value          
Non-control/non-affiliate investments (amortized cost of $278,716 and $298,132, respectively)  $271,092   $288,374 
Affiliate investments (amortized cost of $99,167 and $77,336, respectively)   125,012    103,957 
Control investments (amortized cost of $91,319 and $89,559, respectively)   107,618    107,608 
Total investments at fair value (amortized cost of $469,202 and $465,027, respectively)   503,722    499,939 
Cash and cash equivalents   25,720    31,221 
Interest and dividend receivable   3,090    2,976 
Due from related parties   -    95 
Prepaid expenses   275    309 
Other assets   57    55 
Total assets  $532,864   $534,595 
           
LIABILITIES          
SBA debentures (net of deferred financing costs of $2,146 and $2,300, respectively)  $168,554   $168,400 
2022 Notes (net of deferred financing costs of $2,371 and $2,496, respectively)   72,629    72,504 
2022 Convertible Notes (net of deferred financing costs of $1,504 and $1,583, respectively)   50,584    50,505 
Credit Facility (net of deferred financing costs of $1,186 and $1,293, respectively)   10,814    7,707 
Management and incentive fee payable   2,446    2,172 
Interest and financing fees payable   1,479    3,141 
Trade settlement payable   -    175 
Deferred tax liability, net   1,339    1,289 
Written call option at fair value (proceeds of $20 and $20, respectively)   6,815    6,815 
Total liabilities  $314,660   $312,708 
           
NET ASSETS          
Common stock, par value $.01, 100,000,000 common shares authorized, 15,974,218 and 15,951,231 common shares issued and outstanding, respectively  $160   $160 
Additional paid in capital   241,191    241,027 
Undistributed net investment income   16,304    15,854 
Accumulated net realized losses from investments   (65,837)   (61,982)
Net unrealized appreciation on investments, net of deferred taxes   33,181    33,623 
Net unrealized depreciation on written call option   (6,795)   (6,795)
Total net assets  $218,204   $221,887 
Total liabilities and net assets  $532,864   $534,595 
           
Net asset value per share  $13.66   $13.91 

 

 

 

 

Capitala Finance Corp.

 

Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

   For the Three Months Ended March 31, 
   2018   2017 
INVESTMENT INCOME          
Interest and fee income:          
Non-control/non-affiliate investments  $7,356   $9,638 
Affiliate investments   1,941    1,044 
Control investments   1,849    1,988 
Total interest and fee income   11,146    12,670 
Payment-in-kind interest and dividend income:          
Non-control/non-affiliate investments   705    1,178 
Affiliate investments   486    231 
Control investments   166    246 
Total payment-in-kind interest and dividend income   1,357    1,655 
Dividend income:          
Non-control/non-affiliate investments   -    168 
Affiliate investments   29    29 
Control investments   25    280 
Total dividend income   54    477 
Interest income from cash and cash equivalents   15    13 
Total investment income   12,572    14,815 
           
EXPENSES          
Interest and financing expenses   4,364    4,653 
Base management fee   2,303    2,514 
Incentive fees   244    1,308 
General and administrative expenses   1,223    1,107 
Expenses before incentive fee waiver   8,134    9,582 
Incentive fee waiver   -    (958)
Total expenses, net of fee waivers   8,134    8,624 
           
NET INVESTMENT INCOME   4,438    6,191 
           
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL OPTION:          
Net realized gain (loss) from investments:          
Non-control/non-affiliate investments   (4,579)   4,831 
Affiliate investments   724    15 
Net realized gain (loss) from investments   (3,855)   4,846 
Net unrealized appreciation (depreciation) on investments:          
Non-control/non-affiliate investments   2,134    (6,395)
Affiliate investments   (776)   225 
Control investments   (1,750)   1,499 
Net unrealized depreciation from investments   (392)   (4,671)
Net unrealized depreciation on written call option   -    (1,485)
Net loss on investments and written call option   (4,247)   (1,310)
Tax provision   (50)   - 
Total net realized and unrealized loss on investments and written call option, net of taxes   (4,297)   (1,310)
           
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  $141   $4,881 
           
NET INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED  $0.01   $0.31 
           
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING – BASIC AND DILUTED   15,959,215    15,873,655 
           
DISTRIBUTIONS PAID PER SHARE  $0.25   $0.39