KCAP Financial, Inc. Announces Fourth Quarter and Full Year 2013 Financial Results

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| Source: KCAP Financial, Inc.

NEW YORK, March 12, 2014 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) announces its fourth quarter and full year 2013 financial results.

Financial Highlights

  • Net investment income for the fourth quarter ended December 31, 2013 was approximately $7.9 million, or $0.24 per basic share. Net investment income for the year ended December 31, 2013 was approximately $29.0 million, or $0.90 per basic share, compared with $24.1 million, or $0.93 per basic share in 2012.
     
  • KCAP Financial, Inc. declared a fourth quarter shareholder distribution of $0.25 per share. 
     
  • At December 31, 2013, the fair value of KCAP's investments totaled approximately $441 million, an increase of 41% from $312 million at December 31, 2012. 
     
  • Net asset value per share of $7.51 as of December 31, 2013, compared with $7.85 at December 31, 2012.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "I am pleased with the continued improvement in our results, in part attributable to our focus on direct originations, executing our strategy of rotation into higher yielding assets, and the continued strong performance of our Asset Manager Affiliates."

Operating Results

For the year ended December 31, 2013, we reported total investment income of approximately $48.3 million as compared to approximately $38.6 million in the prior year, an increase of 25%. Investment income from debt securities increased 12% to approximately $14 million from approximately $12.5 million. Dividends from investments in CLO fund securities in 2013 were essentially unchanged from 2012, and dividends from our Asset Manager Affiliates increased 171% from $4.7 million to $12.8 million. The increase in dividends from the Asset Manager Affiliates is primarily attributable to greater incentive fees.

For the year ended December 31, 2013, total expenses were higher by approximately $4.8 million as compared to the same period in 2012, primarily attributable to the increase in interest expense related to the average outstanding principal balance on our borrowings as well as increased operating expenses.

Net investment income for the years ended 2013 and 2012 was approximately $29.0 million and $24.1 million, or $0.90 and $0.93 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2013 was approximately $11.2 million, as compared to net realized and unrealized appreciation on investments of $2.0 million for the same period in 2012. 

Portfolio and Investment Activity

The fair value of our portfolio was approximately $441 million as of December 31, 2013. The composition of our investment portfolio at December 31, 2013 and December 31, 2012 at cost and fair value was as follows:

  December 31, 2013 December 31, 2012
Security Type Cost Fair Value Cost Fair Value
Time Deposits $ --   $ --    --%  $ 1,942,834  $ 1,942,834 1%
Money Market Account 7,112,949 7,112,949 3 30,543,824 30,543,824 15
Senior Secured Loan 175,021,272 168,188,453 67 67,874,565 60,258,885 29
Junior Secured Loan 50,831,407 48,443,384 19 49,646,273 33,486,956 17
Senior Unsecured Loan 23,000,000 23,000,000 9  --   --   --
First Lien Bond 2,948,332 2,546,400 2 2,928,762 3,000,000 1
Senior Subordinated Bond 1,037,707 1,051,540 -- 2,729,088 2,735,881 1
Senior Secured Bond 1,519,072 1,619,550 1  --   --  --
Senior Unsecured Bond 10,855,804 11,381,100 5 10,798,463 11,185,000 5
CLO Fund Securities 101,696,950 79,452,220 32 90,146,410 83,257,507 40
Equity Securities 18,755,684 11,006,398 4 18,375,588 8,020,716 4
Preferred Stock 10,000,000 10,600,000  4 400,000 371,160  --
Asset Manager Affiliates 83,378,741 76,148,000 30 83,161,529 77,242,000 37
Total  $ 486,157,918  $ 440,549,994 176%  $ 358,547,336  $ 312,044,763 150%
             
¹ Calculated as a percentage of net asset value.

Liquidity and Capital Resources

At December 31, 2013, we had unrestricted cash and money market balances of approximately $10.5 million, total assets of approximately $459.2 million and stockholders' equity of approximately $250.4 million. Our net asset value per common share was $7.51. As of December 31, 2013, we had $195.7 million of borrowings outstanding ($192.5 million net of discount) with a weighted average interest rate of approximately 5.1%.

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 (Trimaran Advisors and Katonah Debt Advisors). However, a portion of distributions paid to shareholders may be a return of capital. We announced a regular quarterly distribution of $0.25 per share for the quarter ended December 31, 2013. The record date for this distribution was December 27, 2013 and the distribution was paid on January 27, 2014. Tax characteristics of all distributions paid by us in 2013 have been 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. 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 Thursday, March 13, 2014 at 4:00 p.m. Eastern Daylight Time to discuss our fourth quarter 2013 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 after 7:00 p.m. Eastern Daylight Time for approximately 90 days. 

A replay of this conference call will be available from 7:00 p.m. on March 13, 2014 until 11:59 p.m. on March 20, 2014. The dial in number for the replay is (800) 585-8367 and the conference ID is 9735357.

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.
BALANCE SHEETS
     
  As of
December 31, 2013
As of
December 31, 2012
     
ASSETS    
Investments at fair value:    
Time deposit (cost: 2013 - $0; 2012 - $1,942,834) $ —    $ 1,942,834
Money market accounts (cost: 2013 - $7,112,949; 2012 - $30,543,824) 7,112,949 30,543,824
Debt securities (cost: 2013 - $275,213,594; 2012 - $134,377,151) 266,830,427 111,037,882
CLO Fund Securities managed by affiliates (cost: 2013 - $88,979,585; 2012 - $79,659,387) 75,100,306 79,531,583
CLO Fund Securities managed by non-affiliates (cost: 2013 - $12,717,365; 2012 - $10,487,023) 4,351,914 3,725,924
Equity securities (cost: 2013 - $18,755,684; 2012 - $18,375,588) 11,006,398 8,020,716
Asset Manager Affiliates (cost: 2013 - $83,378,741; 2012 - $83,161,529) 76,148,000 77,242,000
Total Investments at Fair Value (cost: 2013 - $486,157,918; 2012 - $358,547,336) 440,549,994 312,044,763
Cash 3,433,675 738,756
Restricted cash 4,078,939 — 
Interest receivable 2,032,559 697,349
Accounts receivable 3,125,259 2,210,869
Other assets 5,951,963 3,568,736
     
Total Assets  $ 459,172,388  $ 319,260,473
     
LIABILITIES    
Convertible Notes  $ 49,008,000  $ 60,000,000
7.375% Notes Due 2019 41,400,000 41,400,000
Notes issued by KCAP Senior Funding I, LLC (net of discount: $3,065,627) 102,184,373 — 
Payable for open trades 3,980,000 — 
Accounts payable and accrued expenses 3,897,291 2,581,432
Dividend payable 8,333,031 7,403,382
     
Total Liabilities 208,802,695 111,384,814
     
     
STOCKHOLDERS' EQUITY    
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 33,332,123 and 26,470,408 common shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively  333,472  264,382
Capital in excess of par value  370,929,615  310,566,503
Accumulated (excess distribution) undistributed net investment income  (6,102,017)  103,484
Accumulated net realized losses  (68,662,689)  (56,035,375)
Net unrealized depreciation on investments  (46,128,688)  (47,023,335)
     
Total Stockholders' Equity 250,369,693 207,875,659
     
Total Liabilities and Stockholders' Equity  $ 459,172,388  $ 319,260,473
     
NET ASSET VALUE PER COMMON SHARE  $ 7.51  $ 7.85
     
See accompanying notes to financial statements.
 
 
KCAP FINANCIAL, INC.
STATEMENTS OF OPERATIONS
       
  For the Years Ended December 31,
  2013 2012 2011
       
Investment Income:      
Interest from investments in debt securities  $ 13,967,235  $ 12,504,569  $ 9,438,493
Interest from cash and time deposits  20,656  5,741  21,938
Dividends from investments in CLO Fund Securities managed by affiliates  19,902,348  19,207,401  12,413,797
Dividends from investments in CLO Fund Securities managed by non-affiliates  1,320,525  1,861,263  1,949,360
Dividends from Asset Manager Affiliates  12,750,000  4,700,000  1,910,000
Capital structuring service fees  305,376  304,882  86,057
Other Income  —    —    2,000,000
       
Total investment income  48,266,140  38,583,856  27,819,645
       
Expenses:      
Interest and amortization of debt issuance costs  10,116,271  6,976,018  4,588,482
Compensation  4,630,481  3,172,814  3,907,900
Professional fees  2,191,305  2,453,945  2,010,253
Insurance  552,568  546,989  493,305
Administrative and other  1,819,876  1,343,677  987,381
       
Total expenses  19,310,501  14,493,443  11,987,321
       
Net Investment Income  28,955,639  24,090,413  15,832,324
Realized And Unrealized Gains (Losses) On Investments:      
Net realized loss from investment transactions  (12,090,503)  (3,232,975)  (18,476,608)
Net change in unrealized appreciation (depreciation) on:      
Debt securities  14,956,103  (3,701,536)  15,864,850
Equity securities  2,605,586  163,843  (1,724,319)
CLO Fund Securities managed by affiliates  (13,751,478)  8,316,279  (4,420,194)
CLO Fund Securities managed by non-affiliates  (1,604,352)  2,884,983  1,058,464
Asset Manager Affiliates investments  (1,311,212)  (2,395,228)  (484,973)
       
Total net unrealized gain from investment transactions  894,647  5,268,341  10,293,828
Net realized and unrealized appreciation (depreciation) on investments  (11,195,856)  2,035,366  (8,182,780)
       
Realized losses on extinguishments of Debt  (536,811)  —    —  
       
Net Increase In Stockholders' Equity Resulting From Operations  $ 17,222,972  $ 26,125,779  $ 7,649,544
       
Net Increase in Stockholders' Equity Resulting from Operations per Common Share:      
Basic:  $ 0.53  $ 1.00  $ 0.33
Diluted:  $ 0.53  $ 0.95  $ 0.33
Net Investment Income Per Common Share:      
Basic:  $ 0.90  $ 0.93  $ 0.69
Diluted:  $ 0.86  $ 0.89  $ 0.69
       
Weighted Average Shares of Common Stock Outstanding—Basic 32,280,160 26,011,517 22,868,648
Weighted Average Shares of Common Stock Outstanding—Diluted 32,295,005 33,379,594 22,880,674
       
See accompanying notes to financial statements.

KCAP-G

KCAP Financial, Inc.
Investor Relations
Denise Rodriguez
(212) 455-8300