GREENWICH, CT, Dec. 14, 2016 (GLOBE NEWSWIRE) -- Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) ("FSFR" or "we") today announced its financial results for the fourth fiscal quarter and year ended September 30, 2016.
Fourth Fiscal Quarter 2016 Financial Highlights
- Net investment income of $6.3 million, or $0.22 per share;
- Net asset value per share increased to $11.06 as of September 30, 2016;
- Closed $28.2 million of new investments; and
- Reported only one investment on non-accrual status at September 30, 2016, representing 1.3% of the portfolio at fair value.
Fiscal Year 2016 Financial Highlights
- Net investment income of $25.3 million, or $0.86 per share; and
- Closed $284.4 million of new investments.
“The September quarter was marked by credit stability and an increase in NAV driven by spread tightening in the middle market. We like the positioning of our portfolio, with very low exposure to cyclical industries and a focus on companies that operate in high cash flow sectors,” stated Ivelin M. Dimitrov, FSFR's Chief Executive Officer. “Looking ahead, we plan to continue operating within our target leverage range and further fund the FSFR Glick joint venture in an effort to deliver strong returns to our shareholders.”
Portfolio and Investment Activity
FSFR's Board of Directors determined the fair value of our investment portfolio at September 30, 2016 to be $573.6 million, as compared to $623.6 million at September 30, 2015. Total assets were $624.9 million at September 30, 2016, as compared to $697.7 million at September 30, 2015.
During the quarter ended September 30, 2016, we closed $28.2 million of investments in four new portfolio companies and funded $26.2 million across new and existing portfolio companies. This compares to closing $103.7 million of investments in 25 new and one existing portfolio companies, and funding $108.7 million across new and existing portfolio companies during the quarter ended September 30, 2015. During the quarter ended September 30, 2016, we received $25.6 million in connection with full repayments of four of our debt investments, all of which were exited at or above par, and an additional $28.2 million in connection with paydowns, syndications and sales of debt investments.
At September 30, 2016, our portfolio consisted of investments in 63 companies. At fair value, 87.6% of our portfolio consisted of senior secured floating rate debt investments, and 11.0% consisted of investments in the subordinated notes and LLC equity interests of FSFR Glick JV LLC ("FSFR Glick JV") and 1.4% consisted of equity investments. Our average portfolio company debt investment size at fair value was $8.9 million at September 30, 2016 versus $9.7 million at September 30, 2015. The average portfolio company EBITDA was $55.7 million at September 30, 2016, with only 0.7% of the portfolio's fair value invested in the energy sector and no exposure to CLO equity.
At September 30, 2016, FSFR Glick JV had $201.1 million in assets, including senior secured loans to 36 portfolio companies. The joint venture generated income of $2.1 million for FSFR during the fourth fiscal quarter, which represented an 11.7% weighted average annualized return on investment.
Our weighted average yield on debt investments at September 30, 2016, including the return on FSFR Glick JV, was 8.6%, and included a cash component of 8.3%. We utilized our attractively priced leverage and operated within our target leverage range of 0.8x to 0.9x debt-to-equity during the quarter, ending the quarter at 0.90x leverage.
Results of Operations
Total investment income for the quarters ended September 30, 2016 and September 30, 2015 was $13.2 million and $14.1 million, respectively. For the quarter ended September 30, 2016, the amount primarily consisted of $12.2 million of cash interest income from portfolio investments. For the quarter ended September 30, 2015, this amount primarily consisted of $11.7 million of cash interest income from portfolio investments.
Total investment income for the years ended September 30, 2016 and September 30, 2015 was $53.4 million and $51.5 million, respectively. For the year ended September 30, 2016, the amount primarily consisted of $47.5 million of cash interest income from portfolio investments. For the quarter ended September 30, 2015, this amount primarily consisted of $41.1 million of cash interest income from portfolio investments.
Net expenses for the quarters ended September 30, 2016 and September 30, 2015 were $6.9 million and $6.7 million, respectively. Total expenses increased for the quarter ended September 30, 2016 as compared to the quarter ended September 30, 2015, due primarily to a $0.3 million increase in interest expense and a $0.4 million increase in professional fees, partially offset by a $0.5 million decrease in base management fees and Part I incentive fees payable to our investment adviser.
Net expenses for the years ended September 30, 2016 and September 30, 2015 were $28.1 million and $23.2 million, respectively. Total expenses increased for the year ended September 30, 2016 as compared to the year ended September 30, 2015, due primarily to a $3.2 million increase in professional fees and a $0.6 million increase in interest expense.
Net realized and unrealized gains (losses) on our investment portfolio for the quarters ended September 30, 2016 and September 30, 2015 were $2.3 million and ($7.1 million), respectively. Net realized and unrealized gains (losses) on our investment portfolio for the years ended September 30, 2016 and September 30, 2015 were ($29.8 million) and ($12.4 million), respectively.
Liquidity and Capital Resources
At September 30, 2016, we had $28.8 million of cash and cash equivalents (including $9.0 million of restricted cash), portfolio investments (at fair value) of $573.6 million, $4.6 million of interest, dividends and fees receivable, $12.9 million of receivables from unsettled transactions, $107.4 million of borrowings outstanding under our revolving credit facilities, $180.0 million of borrowings outstanding under our debt securitization, $5.0 million of secured borrowings and unfunded commitments of $52.8 million. Our regulatory leverage ratio was 0.90x debt-to-equity.
At September 30, 2015, we had $52.7 million of cash and cash equivalents (including $11.3 million of restricted cash), portfolio investments (at fair value) of $623.6 million, $2.8 million of interest, dividends and fees receivable, $1.7 million of net receivables from unsettled transactions, $136.7 million of borrowings outstanding under our revolving credit facility, $186.4 million of borrowings outstanding under our debt securitization and $76.8 million of unfunded commitments. Our regulatory leverage ratio was 0.91x debt-to-equity.
Dividend Declaration
In addition to our previously declared dividend of $0.075 per share, which was paid on November 30, 2016 to stockholders of record on November 15, 2016, our Board of Directors met on October 19, 2016 and declared the following distributions:
- $0.075 per share, payable on December 30, 2016 to stockholders of record on December 15, 2016;
- $0.075 per share, payable on January 31, 2017 to stockholders of record on January 13, 2017; and
- $0.075 per share, payable on February 28, 2017 to stockholders of record on February 15, 2017.
Dividends are paid primarily from distributable (taxable) income. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividend distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders. Our Board of Directors determines dividends based on estimates of distributable (taxable) income, which differ from book income due to temporary and permanent differences in income and expense recognition and changes in unrealized appreciation and depreciation on investments.
Portfolio Asset Quality
We utilize the following investment ranking system for our investment portfolio:
- Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.
- Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.
- Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring. To the extent that the underlying agreement has a PIK interest provision, investments with a ranking of 3 are generally those on which we are not accruing PIK interest.
- Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.
At September 30, 2016 and September 30, 2015, the distribution of our investments on the 1 to 4 investment ranking scale at fair value was as follows:
| Investment Ranking | September 30, 2016 | September 30, 2015 | |||||||||||||||||||
| Fair Value | % of Portfolio | Leverage Ratio | Fair Value | % of Portfolio | Leverage Ratio | ||||||||||||||||
| 1 | $ | 20,056,209 | 3.49 | % | 3.80 | — | — | — | |||||||||||||
| 2 | 533,951,690 | 93.09 | 4.20 | $ | 596,955,786 | 95.72 | % | 4.71 | |||||||||||||
| 3 | 12,440,322 | 2.17 | NM | (1 | ) | 26,691,688 | 4.28 | 5.87 | |||||||||||||
| 4 | 7,156,160 | 1.25 | NM | (1 | ) | — | — | — | |||||||||||||
| Total | $ | 573,604,381 | 100.00 | % | 4.19 | $ | 623,647,474 | 100.00 | % | 4.76 | |||||||||||
_____________
(1) Due to operating performance this ratio is not measurable and, as a result, is excluded from the total portfolio calculation.
We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. As of September 30, 2016, we had modified the payment terms of our investments in five portfolio companies. Such modified terms may include increased PIK interest rates and reduced cash interest rates. These modifications, and any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified investments, which may, in turn, limit our ability to make distributions to our stockholders.
As of September 30, 2016, there was one investment on which we had stopped accruing cash and/or PIK interest or OID income that represented 1.3% of our debt portfolio at fair value.
Recent Developments
On December 8, 2016, our Board of Directors appointed Patrick J. Dalton as Chief Executive Officer and elected him as a member of the Board of Directors, effective January 2, 2017, succeeding Ivelin M. Dimitrov. In addition, Todd G. Owens will also step down from his roles as President and a member of the Board of Directors, effective January 2, 2017.
Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Assets and Liabilities
(audited)
| September 30, 2016 | September 30, 2015 | |||||||
| ASSETS | ||||||||
| Investments at fair value: | ||||||||
| Control investments (cost September 30, 2016: $71,117,506; cost September 30, 2015: $58,977,973) | $ | 63,316,667 | $ | 57,156,921 | ||||
| Affiliate investments (cost September 30, 2016: $15,953,798; cost September 30, 2015: $0) | 13,006,458 | — | ||||||
| Non-control/Non-affiliate investments (cost September 30, 2016: $513,397,659; cost September 30, 2015: $574,538,984) | 497,281,256 | 566,490,553 | ||||||
| Total investments at fair value (cost September 30, 2016: $600,468,963; cost September 30, 2015: $633,516,957) | 573,604,381 | 623,647,474 | ||||||
| Cash and cash equivalents | 19,778,841 | 41,433,301 | ||||||
| Restricted cash | 9,036,838 | 11,258,796 | ||||||
| Interest, dividends and fees receivable | 4,579,935 | 2,783,379 | ||||||
| Due from portfolio companies | 336,429 | 11,587 | ||||||
| Receivables from unsettled transactions | 12,869,092 | 13,541,056 | ||||||
| Deferred financing costs | 4,577,369 | 5,001,675 | ||||||
| Other assets | 148,492 | 33,216 | ||||||
| Total assets | $ | 624,931,377 | $ | 697,710,484 | ||||
| LIABILITIES AND NET ASSETS | ||||||||
| Liabilities: | ||||||||
| Accounts payable, accrued expenses and other liabilities | $ | 1,246,286 | $ | 1,911,599 | ||||
| Base management fee and incentive fee payable | 2,987,721 | 2,055,179 | ||||||
| Due to FSC CT LLC | 402,073 | 379,641 | ||||||
| Interest payable | 1,798,653 | 1,669,012 | ||||||
| Payables from unsettled transactions | — | 11,809,500 | ||||||
| Amounts payable to syndication partners | 18,750 | — | ||||||
| Director fees payable | 236,275 | 52,650 | ||||||
| Credit facilities payable | 107,426,800 | 136,659,800 | ||||||
| Notes payable | 180,000,000 | 186,366,000 | ||||||
| Secured borrowings at fair value (proceeds September 30, 2016: $5,000,000; proceeds September 30, 2015: $0) | 4,985,425 | — | ||||||
| Total liabilities | 299,101,983 | 340,903,381 | ||||||
| Commitments and contingencies | ||||||||
| Net assets: | ||||||||
| Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding at September 30, 2016 and September 30, 2015 | 294,668 | 294,668 | ||||||
| Additional paid-in-capital | 373,995,934 | 373,995,934 | ||||||
| Net unrealized depreciation on investments and secured borrowings | (26,850,007 | ) | (9,869,483 | ) | ||||
| Net realized gain (loss) on investments | (10,969,707 | ) | 1,800,070 | |||||
| Accumulated overdistributed net investment income | (10,641,494 | ) | (9,414,086 | ) | ||||
| Total net assets (equivalent to $11.06 and $12.11 per common share at September 30, 2016 and September 30, 2015, respectively) | 325,829,394 | 356,807,103 | ||||||
| Total liabilities and net assets | $ | 624,931,377 | $ | 697,710,484 | ||||
Fifth Street Senior Floating Rate Corp.
Consolidated Statements of Operations
(audited)
| Three months ended September 30, 2016 | Three months ended September 30, 2015 | Year ended September 30, 2016 | Year ended September 30, 2015 | |||||||||||||
| Interest income: | ||||||||||||||||
| Control investments | $ | 1,383,409 | $ | 1,015,914 | $ | 5,065,350 | $ | 1,770,130 | ||||||||
| Affiliate investments | 97,191 | — | 182,194 | — | ||||||||||||
| Non-control/Non-affiliate investments | 10,736,098 | 10,673,916 | 42,152,565 | 39,269,556 | ||||||||||||
| Interest on cash and cash equivalents | 15,319 | 12,344 | 68,630 | 28,571 | ||||||||||||
| Total interest income | 12,232,017 | 11,702,174 | 47,468,739 | 41,068,257 | ||||||||||||
| PIK interest income: | ||||||||||||||||
| Affiliate investments | 48,595 | — | 91,097 | — | ||||||||||||
| Non-control/Non-affiliate investments | 13,182 | — | 75,968 | — | ||||||||||||
| Total PIK interest income | 61,777 | — | 167,065 | — | ||||||||||||
| Fee income: | ||||||||||||||||
| Affiliate investments | 3,148 | — | 6,296 | — | ||||||||||||
| Non-control/Non-affiliate investments | 206,405 | 1,709,630 | 3,071,634 | 9,673,649 | ||||||||||||
| Total fee income | 209,553 | 1,709,630 | 3,077,930 | 9,673,649 | ||||||||||||
| Dividend and other income: | ||||||||||||||||
| Control investments | 700,000 | 656,250 | 2,712,500 | 730,625 | ||||||||||||
| Total dividend and other income | 700,000 | 656,250 | 2,712,500 | 730,625 | ||||||||||||
| Total investment income | 13,203,347 | 14,068,054 | 53,426,234 | 51,472,531 | ||||||||||||
| Expenses: | ||||||||||||||||
| Base management fee | 1,516,133 | 1,656,205 | 6,134,304 | 5,931,155 | ||||||||||||
| Part I incentive fee | 1,477,820 | 1,854,021 | 5,211,729 | 5,689,371 | ||||||||||||
| Part II incentive fee | — | — | — | (766,552 | ) | |||||||||||
| Professional fees | 664,247 | 227,179 | 4,193,532 | 985,607 | ||||||||||||
| Board of Directors fees | 81,275 | 95,150 | 546,300 | 359,700 | ||||||||||||
| Interest expense | 2,546,007 | 2,196,506 | 9,594,441 | 8,950,703 | ||||||||||||
| Administrator expense | 98,269 | 218,382 | 504,299 | 794,725 | ||||||||||||
| General and administrative expenses | 483,778 | 418,344 | 1,955,177 | 1,249,792 | ||||||||||||
| Total expenses | 6,867,529 | 6,665,787 | 28,139,782 | 23,194,501 | ||||||||||||
| Base management fee waived | (6,232 | ) | — | (6,232 | ) | — | ||||||||||
| Net expenses | 6,861,297 | 6,665,787 | 28,133,550 | 23,194,501 | ||||||||||||
| Net investment income | 6,342,050 | 7,402,267 | 25,292,684 | 28,278,030 | ||||||||||||
| Unrealized appreciation (depreciation) on investments: | ||||||||||||||||
| Control investments | (214,065 | ) | (1,249,342 | ) | (5,979,787 | ) | (1,821,052 | ) | ||||||||
| Affiliate investments | (566,607 | ) | — | (2,947,340 | ) | — | ||||||||||
| Non-control/Non-affiliate investments | 2,426,107 | (6,660,992 | ) | (8,067,972 | ) | (10,951,116 | ) | |||||||||
| Net unrealized appreciation (depreciation) on investments | 1,645,435 | (7,910,334 | ) | (16,995,099 | ) | (12,772,168 | ) | |||||||||
| Net unrealized depreciation on secured borrowings | 14,575 | — | 14,575 | — | ||||||||||||
| Realized gain (loss) on investments: | ||||||||||||||||
| Non-control/Non-affiliate investments | 590,889 | 795,399 | (12,769,777 | ) | 406,220 | |||||||||||
| Net realized gain (loss) on investments | 590,889 | 795,399 | (12,769,777 | ) | 406,220 | |||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 8,592,949 | $ | 287,332 | $ | (4,457,617 | ) | $ | 15,912,082 | |||||||
| Net investment income per common share — basic and diluted | $ | 0.22 | $ | 0.25 | $ | 0.86 | $ | 0.96 | ||||||||
| Earnings (loss) per common share — basic and diluted | $ | 0.29 | $ | 0.01 | $ | (0.15 | ) | $ | 0.54 | |||||||
| Weighted average common shares outstanding — basic and diluted | 29,466,768 | 29,466,768 | 29,466,768 | 29,466,768 | ||||||||||||
| Distributions per common share | $ | 0.225 | $ | 0.18 | $ | 0.90 | $ | 1.07 | ||||||||
Conference Call Information
We will hold a conference call at 10:00 a.m. (Eastern Time) on Wednesday, December 14, 2016, to discuss our financial results. All interested parties are welcome to participate. Domestic callers can access the conference call by dialing (877) 359-2861. International callers can access the conference call by dialing +1 (540) 318-1180. All callers will need to enter the Conference ID Number 48926580 and reference "Fifth Street Senior Floating Rate Corp." after being connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. An archived replay of the call will be available approximately four hours after the end of the conference call and will be available through December 21, 2016 to domestic callers by dialing (855) 859-2056 and to international callers by dialing +1 (404) 537-3406. For all replays, please reference Conference ID Number 48926580. An archived replay will also be available online on the "Investor Relations" section of our website under the "News & Events - Calendar of Events" section. FSFR's website can be accessed at fsfr.fifthstreetfinance.com.
About Fifth Street Senior Floating Rate Corp.
Fifth Street Senior Floating Rate Corp. is a specialty finance company that provides financing solutions in the form of floating rate senior secured loans to mid-sized companies, primarily in connection with investments by private equity sponsors. FSFR's investment objective is to maximize its portfolio's total return by generating current income from its debt investments while seeking to preserve its capital. FSFR has elected to be regulated as a business development company and is externally managed by a subsidiary of Fifth Street Asset Management Inc. (NASDAQ:FSAM), a nationally recognized credit-focused asset manager with over $5 billion in assets under management across multiple public and private vehicles. Having committed approximately $10 billion of loans over its 18-year track record, Fifth Street's platform has the ability to hold loans up to $250 million and structure and syndicate transactions up to $500 million. Fifth Street received the 2015 ACG New York Champion's Award for "Lender Firm of the Year," and other previously received accolades include the ACG New York Champion's Award for "Senior Lender Firm of the Year," "Lender Firm of the Year" by The M&A Advisor and "Lender of the Year" by Mergers & Acquisitions. FSFR's website can be found at fsfr.fifthstreetfinance.com.
Forward-Looking Statements
Some of the statements in this press release constitute forward-looking statements, because they relate to future events or our future performance or financial condition. Forward-looking statements may include statements as to the future operating results, dividends and business prospects of FSFR. Words such as "believes," "expects," "seeks," "plans," "should," "estimates," "project," and "intend" indicate forward-looking statements, although not all forward-looking statements include these words. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those implied or expressed in these forward-looking statements for any reason. Such factors are identified from time to time in FSFR's filings with the Securities and Exchange Commission and include changes in the economy and the financial markets and future changes in laws or regulations and conditions in FSFR's operating areas. FSFR undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.