Alcentra Capital Corporation Announces Fourth Quarter Earnings of $0.28 per share and Full Year 2017 Financial Results of $1.32 per share. Declaration of Reduced Quarterly Dividend of $0.18 per share for Q1 2018
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PR Newswire 14-Mar-2018 5:22 PM
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NEW YORK, March 14, 2018 /PRNewswire/ --Alcentra Capital Corporation (NASDAQ: ABDC) ("Alcentra" or the "Company"), a provider of customized debt and equity financing solutions primarily to lower middle-market and middle-market companies based in the United States, today announced its financial results for the fourth quarter and full year of 2017.
Fourth Quarter 2017 Financial Summary
Total investment income of $8.2 million
Net investment income of $4.0 million, or $0.28 per share based on weighted average shares of common stock outstanding
Net decrease in net assets resulting from operations of ($13.4) million
Invested $36.8 million in debt securities; one new investment, one refinancing and one add on investment
Received proceeds from repayments of $15.7 million
Paid quarterly dividend for the Q4 2017 of $0.25 per share on January 4, 2018
On November 16, 2017, the Board of Directors expanded the open market stock repurchase program by $2.5 million to $5.0 million. Net asset value of $157.7 million, or $11.09 per share, which is down from $12.27 in the third quarter of 2017
Weighted Average Debt Portfolio Yield 11.3%
Full Year 2017 Financial Summary
Total investment income of $33.4 million
Net Investment income of $18.3 million, or $1.32 per share
Net decrease in net assets resulting from operations of ($19.1) million
Invested $135.5 million in debt and equity securities, including investments in 4 new portfolio companies
Received proceeds from repayments of $90.1 million
Paid dividends totaling $1.30 per share (inclusive of $0.03 special dividend)
First Quarter 2018 Dividend
On March 8, 2018, the Company's Board of Directors declared a quarterly dividend of $0.18 per share for the first quarter of 2018, which is payable on April 4, 2018 to stockholders of record as of March 30, 2018.
Management CommentaryOn March 8, 2018, the Board of Directors reduced the first quarter 2018 quarterly dividend to $0.18 per share. David Scopelliti, the Company's CEO, stated, "The board's view on the dividend policy is to make distributions to shareholders in line with the earnings potential of the portfolio. The market environment and yield profile has changed since the initial dividend rate of $0.34 per share was established following our IPO in May 2014. Contributing to the dividend reduction this quarter was (i) lower earnings associated with the portfolio of high yielding unsecured subordinated debt (ii) further credit markdowns in Q4 2017, (iii) ongoing repayments of high coupon performing loans, (iv) rotation to senior secured loans, which have lower pricing than the subordinated debt portfolio and (v) overall private credit market yield compression. Given that we believe we are in the late stages of the credit cycle, we are pursuing a portfolio construction with more senior secured debt to reduce risk of principal loss or impairment. This strategy will allow us to generate income without reducing the quality of new investments by reaching for yield. Mr. Scopelliti further stated, "We continue to be committed to creating shareholder value through share repurchases and aligning the dividend with the current earnings power of the portfolio."
Fourth Quarter 2017 Financial Results
For the three months ended December 31, 2017, total investment income was $8.2 million, a decrease of $2.7 million over the $10.9 million of total investment income for the three months ended December 31, 2016. This decrease was primarily attributable to the conversion of Conisus debt to equity, the addition of Southern Technical Institute to non-accrual status, the further write down of Media Storm along with a shift in timing of the closing of new deals. Interest and PIK income comprised $6.2 million and $1.3 million, respectively and other income was $0.7 million. Net investment income for the three months ended December 31, 2017 was $4.0 million ($0.28 per share based on average shares outstanding of 14.2 million).
For the three months ended December 31, 2017, net expenses were $4.2 million, a decrease of $0.6 million from the $4.8 million of net expenses for the three months ended December 31, 2016. This decrease is due largely to the decrease in earned incentive fees. Interest and financing expenses for the quarter was $2.1 million and the base management fee was $1.3 million. Professional fees and other general and administrative expenses totaled $0.8 million for the three months ended December 31, 2017.
During the quarter, we also recorded a net change in unrealized depreciation from portfolio investments of $15.6 million attributable largely to unrealized depreciation of our debt investments in Southern Technical Institute, Media Storm and Conisus. The net decrease in net assets resulting from operations post benefit for taxes during the three months ended December 31, 2017 was ($13.4) million.
Portfolio and Investment Activities
As of December 31, 2017, the fair value of our investment portfolio totaled $287.6 million and consisted of 29 portfolio companies. The average portfolio investment at amortized cost was $11.5 million and equity constituted 10.1% of the fair value of the portfolio. During the fourth quarter, we invested $36.8 million in debt and equity investments, including one new investment and two add-on investments and received proceeds from repayments on investments of $15.7 million. As of December 31, 2017, the weighted average yield on debt investments was 11.3%.
New and add-on investments during the quarter included the following:
Cirrus Medical Staffing - $19.3 million in L+8.25% 1st lien secured debt
Healthcare Associates of Texas - Refinanced our 2nd lien debt at 12.25% with 1st lien secured debt at L+8.0%; $15.0 million of additional capital invested
Medsurant - Additional $2.5 million of 2nd lien secured debt at 13.0%
As of December 31, 2017, Alcentra had three debt investments on non-accrual - Show Media, Southern Technical Institute, Media Storm.
Liquidity and Capital Resources
At December 31, 2017, Alcentra had $13.9 million in cash and cash equivalents, $89.7 million of borrowings outstanding on its $135 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.
Subsequent Events
On January 3, 2018, Stancor, Inc. First Lien debt was sold at par for $4.1 million.
On January 3, 2018, IGT First Lien debt was sold at par for $7.8 million.
On January 3, 2018, $6.0 million of the outstanding Cirrus Medical Staffing First Lien debt was syndicated.
On January 4, 2018, Alcentra paid a dividend to shareholders of record as of December 29, 2017 of $0.25 per share.
On February 1, 2018, Alcentra funded an incremental $1.5 million to Healthcare Associates of Texas LLC's revolver commitment.
On February 15, 2018, Metal Powder Products LLC repaid its 2nd Lien debt totaling $8.3 million and a prepayment fee of $0.250 million.
On February 28, 2018, NextCare Holdings, Inc. repaid its 2nd Lien debt totaling $15.9 million and a prepayment fee of $1.1 million.
On March 2, 2018Alcentra invested $7.0 million in BayMark Health Services (L+8.25 2nd Lien).
On March 5, 2018, Alcentra syndicated a net $1.2 million of Cirrus Medical Staffing First Lien debt.
On March 8, 2018, the Board of Directors approved the 2018 first quarter dividend of $0.18 per share for shareholders of record March 29, 2018 and payable April 4, 2018.
On March 12, 2018, Battery Solutions, Inc. repaid a portion of its subordinated debt totaling $1.25 million.
Fourth Quarter 2017 Financial Results Conference Call
Management will host a conference call to discuss the operating and financial results at 10:00 am ET on March 15, 2018. To participate in the conference call, please dial (844) 832-0218 approximately 10 minutes prior to the call. International callers should dial (484) 756-4314. Please reference conference ID 5618338#.
A live webcast of the conference call will be available at http://investors.alcentracapital.com/events-presentations. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.
An archived webcast replay will be available on the Company's website until March 14, 2019.
ABOUT ALCENTRA CAPITAL CORPORATION
Alcentra Capital Corporation provides debt financing solutions to lower middle and middle-market companies, which the Company generally defines as U.S. based companies having revenues between $10.0 million and $250.0 million. Alcentra Capital Corporation's investment objective is to generate both current income and to a lesser extent capital appreciation primarily by making direct investments in lower middle and middle-market companies in the form of first lien, second lien, unitranche and, to a lesser extent given the current credit environment, subordinated debt and equity investments. Alcentra seeks to partner with management teams, financial sponsors and other stakeholders by providing financing for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.
Alcentra Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. In addition, for tax purposes, Alcentra Capital Corporation has elected to be treated as a regulated investment company, under Subchapter M of the Internal Revenue Code of 1986.
FORWARD-LOOKING STATEMENTS
This press release may contain certain forward-looking statements. Any such statements, other than statements of historical fact, are based on management's current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company's control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including those described from time to time in Alcentra Capital Corporation's filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and Alcentra Capital Corporation undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

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Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Assets and Liabilities

As ofDecember 31,2017 As ofDecember 31,2016
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $265,675,598 and $248,479,039, respectively) $ 252,325,403 $ 239,722,117
Non-controlled, affiliated investments, at fair value (cost of $51,734,635 and $29,734,859, respectively) 19,972,905 22,094,203
Controlled, affiliated investments, at fair value (cost $15,806,301 and $15,122,171, respectively) 15,256,237 14,456,630
Cash 13,882,956 3,891,606
Dividends and interest receivable 1,942,300 3,240,640
Receivable for investments sold 669,733 2,139,463
Deferred financing costs 514,241 1,287,807
Deferred tax asset 4,934,962 1,264,811
Income tax asset 748,408
Prepaid expenses and other assets 79,005 100,770
Total Assets $ 310,326,150 $ 288,198,047

Liabilities
Credit facility payable $ 89,703,273 $ 39,133,273
Notes payable (net of deferred note offering costs of $1,252,165 and $1,495,062, respectively) 53,747,835 53,504,938
Other accrued expenses and liabilities 447,589 282,165
Directors' fees payable 68,917 95,000
Professional fees payable 548,455 331,867
Interest and credit facility expense payable 1,248,791 1,008,127
Management fee payable 1,265,172 1,301,591
Income-based incentive fees payable 1,294,985 2,071,661
Distributions payable 3,561,305 4,586,816
Unearned structuring fee revenue 725,653 1,175,319
Income tax liability 182,699
Total Liabilities $ 152,611,975 $ 103,673,456

Commitments and Contingencies

Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 14,222,945 and 13,451,633 shares issued and outstanding, respectively) 14,223 13,452
Additional paid-in capital 206,570,701 196,290,348
Accumulated net realized loss (11,436,155) (776,548)
Undistributed net investment income 4,449,122 4,890,065
Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $3,778,273 and $1,170,393 as of December 31, 2017 and December 31, 2016, respectively (41,883,716) (15,892,726)
Total Net Assets 157,714,175 184,524,591
Total Liabilities and Net Assets $ 310,326,150 $ 288,198,047

Net Asset Value Per Share $ 11.09 $ 13.72


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Investment Income: Three MonthsEndedDecember 31,2017 Three MonthsEndedDecember 31,2016 For the yearendedDecember 31,2017 For the yearendedDecember 31,2016
From non-controlled, non-affiliated investments:
Interest income from portfolio investments $5,350,763 $8,435,370 $23,917,956 $25,178,890
Paid in-kind income from portfolio investments 279,585 413,432 1,156,486 3,182,683
Other income from portfolio investments 653,286 746,478 2,228,104 2,475,976
Dividend income from portfolio investments 83,853 30,756 171,083 82,777
From non-controlled, affiliated investments:
Interest income from portfolio investments 381,220 219,187 1,318,924 2,742,054
Paid in-kind income from portfolio investments 834,245 418,048 2,209,418 2,365,373
Other income from portfolio investments - 65,150 - 2,352,766
Dividend income from portfolio investments - - - -
From controlled, affiliated investments:
Interest income from portfolio investments 445,642 403,353 1,665,409 1,566,173
Paid in-kind income from portfolio investments 172,837 167,997 684,129 655,907
Other income from portfolio investments - - - -
Dividend income from portfolio investments - - - -
Total investment income 8,201,431 10,899,771 33,351,509 40,602,599
Expenses:
Management fees 1,265,171 1,301,591 4,975,349 5,209,684
Income-based incentive fees - 930,543 638,244 3,255,167
Capital gains incentive fees - - - -
Professional fees 386,618 227,475 1,248,715 1,227,977
Valuation services 103,345 37,135 314,432 236,904
Interest and credit facility expense 1,845,488 1,536,789 6,434,924 5,657,154
Amortization of deferred financing costs 106,292 305,976 912,710 1,154,343
Directors' fees 86,919 64,201 341,680 296,809
Insurance Expense 57,233 65,913 239,048 264,209
Amortization of deferred note offering costs 158,214 101,505 473,768 193,357
Other expenses 147,378 209,488 778,920 697,809
Total expenses 4,156,658 4,780,616 16,357,790 18,193,413
Waiver of management and incentive fees by the Investment Advisor - - (1,330,420) -
Waiver of capital gains incentive fees - - - -
Net expenses 4,156,658 4,780,616 15,027,370 18,193,413
Net investment income 4,044,773 6,119,155 18,324,139 22,409,186

Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments 62,165 (5,557,600) (11,434,891) (4,018,220)
Non-controlled, affiliated investments (72,164) (337,257) - 11,019,205
Controlled, affiliated investments - (18,961) - (11,282,968)
Net realized gain (loss) from portfolio investments (9,999) (5,913,818) (11,434,891) (4,281,983)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments (2,217,008) 7,784,736 (4,593,273) (10,390,732)
Non-controlled, affiliated investments (12,977,585) (1,123,826) (24,121,074) (10,458,180)
Controlled, affiliated investments (360,522) 474,006 115,477 10,875,915
Net change in unrealized appreciation (depreciation) from portfolio investments (15,555,115) 7,134,916 (28,598,870) (9,972,997)
Benefit/(Provision) for taxes on unrealized gain on investments (1,847,929) (2,416,867) 2,607,880 635,580
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments (17,413,043) (1,195,769) (37,425,881) (13,619,400)
Net Increase (decrease) in Net Assets from Operations ($13,368,270) $4,923,386 ($19,101,742) $8,789,786

Net Investment income per share 0.28 0.45 1.32 1.66
Net increase in net assets resulting from operation per share (0.94) 0.36 (1.37) 0.65
Weighted Average Shares Outstanding 14,235,806 13,490,636 13,928,869 13,496,128
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SOURCE Alcentra Capital Corporation

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