KCAP Financial, Inc. Announces Second Quarter 2014 Financial Results

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| Source: KCAP Financial, Inc.

NEW YORK, Aug. 6, 2014 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) announces its second quarter 2014 financial results.

Financial Highlights

  • Net investment income for the second quarter ended June 30, 2014 was approximately $8.0 million, or $0.24 per basic share, compared with approximately $6.6 million, or $0.20 per basic share in the quarter ended June 30, 2013.
  • KCAP Financial, Inc. declared a second quarter shareholder distribution of $0.25 per share.
  • At June 30, 2014, the fair value of KCAP's investments totaled approximately $437 million.
  • Net asset value per share of $7.67 as of June 30, 2014, compared with $7.51 at December 31, 2013.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "We are pleased with the continued development of both our direct lending and asset management businesses in the second quarter. While new deal activity moderated compared to the first quarter, we have a healthy pipeline and have continued to sustain positive momentum. In addition, our asset management business continued to add new assets under management with the closing of Catamaran CLO 2014-1 in the second quarter."

Operating Results

For the three months ended June 30, 2014, we reported total investment income of approximately $13.2 million, compared to approximately $11.2 million in the same period last year, an increase of 18%. Investment income from debt securities increased 73% to approximately $5.2 million from approximately $3.0 million in second quarter 2013. Distributions from investments in CLO fund securities in the second quarter of 2014 were consistent with the second quarter of 2013 at $4.9 million in each period, and distributions from our Asset Manager Affiliates in the second quarter of 2014 decreased to approximately $3 million from approximately $3.3 million in 2013.

For the three months ended June 30, 2014, total expenses were higher by approximately $525,000 as compared to the same period in 2013, primarily attributable to the increase in interest expense related to the higher average outstanding principal balance on our borrowings.

Net investment income for the second quarter of 2014 and 2013 was approximately $8.0 million and $6.6 million, or $0.24 per basic share and $0.20 per basic share, respectively. Net realized and unrealized appreciation on investments for the three months ended June 30, 2014 was approximately $4.2 million, as compared to approximately $1.9 million for the same period in 2013.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $437 million as of June 30, 2014. The composition of our investment portfolio at June 30, 2014 and December 31, 2013 at cost and fair value was as follows:

  June 30, 2014 (unaudited) December 31, 2013
Security Type Cost Fair Value Cost Fair Value
Money Market Accounts² $ 5,610,941 $ 5,610,941 2 $ 7,112,949 $ 7,112,949 3
Senior Secured Loan 159,600,198 153,304,076 60 175,021,272 168,188,453 67
Junior Secured Loan 47,500,076 45,264,099 18 50,831,407 48,443,384 19
Senior Unsecured Loan  27,013,567  27,013,567 10  23,000,000  23,000,000  9
First Lien Bond 2,952,225 2,398,500 1 2,948,332 2,546,400 2
Senior Subordinated Bond 4,272,110 4,293,098 2 1,037,707 1,051,540 --
Senior Unsecured Bond 10,946,659 11,433,738 4 10,855,804 11,381,100 5
Senior Secured Bond 1,517,375 1,605,000 1  1,519,072  1,619,550 1
CLO Fund Securities 113,748,903 91,730,898 35 101,696,950 79,452,220 32
Equity Securities 16,289,233 8,758,971 3 18,755,684 11,006,398 4
Preferred 10,104,717 10,711,000 4 10,000,000 10,600,000  4
Asset Manager Affiliates 83,924,720 75,302,000 29 83,378,741 76,148,000 30
Total $ 483,480,724 $ 437,425,888 169% $ 486,157,918 $ 440,549,994 176%
 
¹     Calculated as a percentage of Net Asset Value.
²     Includes restricted cash held under employee benefit plans.

Liquidity and Capital Resources

At June 30, 2014, we had unrestricted cash and money market balances of approximately $7.9 million, total assets of approximately $458.6 million and stockholders' equity of approximately $258.5 million. Our net asset value per common share was $7.67. As of June 30, 2014, we had $195.7 million (par value) of borrowings outstanding ($192.8 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 investment income generated by our investment portfolio. We announced a regular quarterly distribution of $0.25 per share for the quarter ended June 30, 2014. The record date for this distribution was July 3, 2014 and the distribution was paid on July 25, 2014. 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 2013 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, August 6, 2014 at 4:00 pm Eastern Daylight Time to discuss our second quarter 2014 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 August 6, 2014 until 11:59 p.m. on August 13, 2014. The dial in number for the replay is (855) 859-2056 and the conference ID is 83302124.

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

June 30, 2014
As of
December 31, 2013
  (unaudited)  
ASSETS    
Investments at fair value:    
Money market accounts (cost: 2014 - $5,610,941; 2013 - $7,112,949)  $ 5,610,941  $ 7,112,949 
Debt securities (cost: 2014 -- $263,906,927; 2013 -- $275,213,594)  256,023,078  266,830,427
CLO Fund securities managed by affiliates (cost: 2014 -- $101,293,076; 2013 -- $88,979,585)  87,549,239  75,100,306
CLO Fund securities managed by non-affiliates (cost: 2014 -- $12,455,827; 2013 -- $12,717,365)  4,181,659  4,351,914
Equity securities (cost: 2014 -- $16,289,233; 2013 -- $18,755,684)  8,758,971  11,006,398
Asset Manager Affiliates (cost: 2014 -- $83,924,720; 2013 -- $83,378,741)  75,302,000  76,148,000
Total Investments at Fair Value (cost: 2014 -- $483,480,724; 2013 -- $486,157,918)  437,425,888  440,549,994
Cash  2,310,589  3,433,675
Restricted cash  4,777,960  4,078,939
Interest receivable  2,040,077  2,032,559
Receivable for open trades  2,943,835 — 
Due from affiliates  3,218,927  3,125,259
Other assets  5,853,972  5,951,962
Total Assets  $ 458,571,248  $ 459,172,388
     
LIABILITIES    
Convertible Notes  $ 49,008,000  $ 49,008,000
7.375% Notes Due 2019  41,400,000  41,400,000
Notes issued by KCAP Senior Funding I, LLC (net of discount: 2014 -- $2,847,139; 2013 -- $3,065,627)  102,402,861  102,184,373
Payable for open trades  3,940,000  3,980,000
Accounts payable and accrued expenses  3,306,332  3,897,291
Shareholder distribution payable —   8,333,031
Total Liabilities  200,057,193  208,802,695
       
STOCKHOLDERS' EQUITY    
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 33,725,223 and 33,332,123 common shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively  337,252  333,472
Capital in excess of par value  371,640,022  370,929,615
Accumulated undistributed (excess distribution) net investment income  1,530,282  (6,102,017)
Accumulated net realized losses  (68,417,904)  (68,662,689)
Net unrealized depreciation on investments  (46,575,597)  (46,128,688)
Total Stockholders' Equity  258,514,055  250,369,693
Total Liabilities and Stockholders' Equity $ 458,571,248 $ 459,172,388
NET ASSET VALUE PER COMMON SHARE $ 7.67 $ 7.51
     
 
 
KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
  Three Months Ended Six Months Ended
  June 30, June 30,
   2014 2013 2014 2013
Investment Income:        
Interest from investments in debt securities $ 5,173,514 $ 2,997,246 $ 10,420,750 $ 5,475,265
Interest from cash and time deposits 724 3,026 1,510 7,738
Distributions from investments in CLO Fund securities managed by affiliates 4,451,626 4,557,531 9,087,864 10,038,183
Distributions from investments in CLO Fund securities managed by non-affiliates 464,734 323,790 740,304 747,664
Distributions from Asset Manager Affiliates 3,000,000 3,300,000 6,000,000 6,300,000
Capital structuring service fees 125,116 52,753 352,199 59,326
Total investment income 13,215,714 11,234,346 26,602,627 22,628,176
           
Expenses:        
Interest and amortization of debt issuance costs 2,893,806 2,250,063 5,883,972 4,510,309
Compensation 1,227,651 1,110,409 2,490,088 2,020,122
Professional fees 545,913 652,644 1,217,123 1,294,971
Insurance 111,507 126,632 247,467 255,348
Administrative and other 399,315 513,085 867,597 1,019,556
Total expenses 5,178,192 4,652,833 10,706,247 9,100,306
           
Net Investment Income 8,037,522 6,581,513 15,896,380 13,527,870
Realized And Unrealized Gains (Losses) On Investments:        
Net realized (losses) gains from investment transactions (64,797) (1,562,529) 244,785 (1,645,466)
Net change in unrealized (depreciation) appreciation on:        
Debt securities 1,102,632 124,466 499,319 2,410,992
Equity securities 546,686 1,064,379 219,023 998,942
CLO Fund securities managed by affiliates 1,015,474 (3,768,238) 135,445 (8,347,397)
CLO Fund securities managed by non-affiliates 388,145 (820,826) 91,283 (1,188,235)
Asset Manager Affiliates investments 1,227,000 6,910,060 (1,391,979) 9,985,399
Total net change in unrealized appreciation (depreciation) 4,279,937 3,509,841 (446,909) 3,859,701
Net realized and unrealized appreciation (depreciation) on investments 4,215,140 1,947,312 (202,124) 2,214,235
           
Net Increase In Stockholders' Equity Resulting From Operations $ 12,252,662 $ 8,528,825 $ 15,694,256 $ 15,742,105
Net Increase In Stockholders' Equity Resulting from Operations per Common Share:        
Basic: $ 0.37 $ 0.26 $ 0.47 $ 0.51
Diluted: $ 0.34 $ 0.25 $ 0.45 $ 0.48
Net Investment Income Per Common Share:        
Basic: $ 0.24 $ 0.20 $ 0.48 $ 0.43
Diluted: $ 0.24 $ 0.20 $ 0.46 $ 0.42
Weighted Average Shares of Common Stock Outstanding—Basic 33,405,189 33,040,155 33,371,764 31,163,596
Weighted Average Shares of Common Stock Outstanding—Diluted 39,723,264 39,395,124 39,689,884 38,022,742
   

KCAP-G

Jamie Lillis

(203) 428-3223

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