CHARLOTTE, N.C., March 02, 2020 (GLOBE NEWSWIRE) -- Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala", the “Company”, “we”, “us”, or “our”) today announced its financial results for the fourth quarter and full year ended December 31, 2019.
Fourth Quarter Highlights
- Invested $29.0 million during the quarter, consisting of $27.4 million of first lien debt with a weighted average yield of 9.0%, and $1.6 million in equity investments
- Reduced equity concentration by partial exit of Nth Degree, Inc., generating a realized capital gain of $25.9 million, above the previous period valuation
- Ended 2019 with no non-accrual investments
- Net asset value per share of $9.14 at December 31, 2019, compared to $9.40 at September 30, 2019
- Amended our senior secured revolving credit facility as the Company is now subject to a 150% asset coverage test
- Class action lawsuit dismissed effective October 25, 2019 with no settlement
- Announced Mitsui USA minority investment in the Company’s investment adviser
Full Year Highlights
- Rebalanced the investment portfolio, as first lien debt investments represent 81% of the debt portfolio at December 31, 2019, compared to 51% at December 31, 2016, on a fair value basis
- Invested $77.8 million during 2019 consisting of $70.2 million in first lien debt, $4.5 million in second lien debt, and $3.1 million in equity
- Closed credit facility for Capitala Senior Loan Fund II, LLC, enhancing its ability to hold first out positions in certain unitranche debt investments
Management Commentary
In describing the Company’s fourth quarter and full year activities, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, “During 2019, management focused on positioning the Company for improved financial performance. Notably, our investment adviser announced a minority investment from and a strategic partnership with Mitsui USA; we enter 2020 with no non-accrual investments; we have reduced our equity concentration by partially exiting our largest holding; we continue to focus on first lien debt investments rather than riskier mezzanine investments; we enter 2020 with substantial liquidity to allow us to be active investors in the lower middle market; and our investment adviser continues to hire talented professionals across the platform.”
Fourth Quarter 2019 Financial Results
During the fourth quarter of 2019, the Company originated $29.0 million of new investments, and received $36.8 million of repayments. Debt investments, all first lien structures, totaled $27.4 million, with a weighted average yield of 9.0%. In addition, we invested $1.6 million in equity securities.
Total investment income was $9.6 million for the fourth quarter of 2019, compared to $11.3 million in the fourth quarter of 2018. The decline was attributable to lower interest and fee income, resulting primarily from a decrease in our debt portfolio and a decline in the weighted average yield on our portfolio from the continued shift to a first lien debt investment strategy.
Net investment income for the fourth quarter of 2019 was $1.9 million, or $0.12 per share, compared to $3.5 million, or $0.22 per share, for the same period in 2018.
Net realized gains totaled $1.2 million, or $0.07 per share, for the fourth quarter of 2019, compared to net realized losses of $14.6 million, or $0.91 per share, for the same period in 2018. During the fourth quarter of 2019, the Company realized a $25.9 million gain on a partial exit of Nth Degree, Inc., partially offset by realized losses on Vology, Inc. of $3.7 million, Portrait Studio, LLC of $6.2 million, CableOrganizer Acquisition, LLC of $12.8 million, and American Clinical Solutions, LLC of $1.9 million. Net realized gains during the fourth quarter of 2019 did not have a material impact on our net asset value per share, as the realized amounts were in line with our previously reported fair values.
Net unrealized depreciation totaled $3.1 million, or $0.19 per share, for the fourth quarter of 2019, compared to appreciation of $1.2 million for the fourth quarter of 2018.
The net decrease in net assets resulting from operations was $0.1 million for the fourth quarter of 2019, or $0.00 per share, compared to a net decrease of $9.2 million, or $0.57 per share, for the same period in 2018.
Full Year 2019 Financial Results
During 2019, the Company originated $77.8 million of new investments and received $128.1 million of repayments. New investments consisted of $70.2 million in first lien debt, $4.5 million in second lien debt, and $3.1 million in equity investments.
Total investment income was $44.0 million for the year ended December 31, 2019, compared to $47.3 million for the same period in 2018. Interest and fee income collectively declined $4.8 million, driven by a decrease in debt balances outstanding during the year, coupled with a decrease in the weighted average yield on the debt portfolio from the continued shift to a first lien debt investment strategy. Dividend income increased $2.9 million, partially offset by a $1.4 million decrease in PIK income.
Total expenses for the year ended December 31, 2019 were $31.0 million, a decrease of $0.3 million from the comparable period in 2018. Significant variances included (1) $1.1 million decrease in base management fees, (2) a $1.0 million increase in incentives fees, net of the waiver, and (3) a $0.2 million decrease in interest and financing expenses.
Net investment income for the year ended December 31, 2019 was $13.0 million, or $0.81 per share, compared to $16.0 million, or $1.00 per share, for the same period in 2018.
Net realized losses totaled $19.8 million, or $1.23 per share, for the year ended December 31, 2019, compared to losses of $34.8 million, or $2.18 per share, for the same period in 2018.
Net unrealized depreciation totaled $20.3 million, or $1.26 per share, for the year ended December 31, 2019, compared to net unrealized appreciation of $0.8 million, or $0.05 per share, for the same period in 2018.
During 2019, the Company recorded a tax provision of $0.6 million, compared to a tax benefit of $1.9 million in 2018.
The net decrease in net assets resulting from operations was $27.6 million, or $1.72 per share, for the year ended December 31, 2019, compared to a net decrease in net assets resulting from operations of $16.0 million, or $1.00 per share, for the same period in 2018.
Net assets at December 31, 2019 were $148.1 million, or $9.14 per share, compared to $190.6 million, or $11.88 per share, at December 31, 2018.
Investment Portfolio
As of December 31, 2019, our portfolio consisted of 43 companies with a fair market value of $362.5 million and a cost basis of $353.9 million. First lien debt investments represented 63.8% of the portfolio, second lien and subordinated debt investments collectively represented 14.8% of the portfolio, equity/warrant investments represented 17.6% of the portfolio, and our investment in CSLF II represented 3.8% of the portfolio, based on fair values at December 31, 2019. The weighted average yield on our debt portfolio was 11.5% at December 31, 2019.
At December 31, 2019, the Company had no non-accrual balances, compared to 2.1% and 4.9%, on a fair value and cost basis, respectively, at December 31, 2018.
Liquidity and Capital Resources
At December 31, 2019, the Company had $62.3 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $150.0 million with an annual weighted average interest rate of 3.16%, $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 December 31, 2019, the Company had $0 drawn and $60.0 million available under its senior secured revolving credit facility, which is priced at LIBOR plus 3.0%.
Fourth Quarter 2019 Financial Results Conference Call
Management will host a conference call to discuss the operating and financial results at 8:30 a.m. on Tuesday, March 3, 2020. 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 lien loans, subordinated debt and, to a 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 $3.0 billion asset management firm that has been providing capital to lower middle market companies through its credit, growth, and equity investment strategies throughout North America for twenty years. Since its inception in 1998, Capitala Group has invested in over 160 companies and seeks to partner with strong management teams to create value and generate superior risk-adjusted returns for its individual and institutional investors. For more information, definition and details visit Capitala Group’s website at 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
CFO|COO
sarnall@capitalagroup.com
| Capitala Finance Corp. | |||||||||
| Consolidated Statements of Assets and Liabilities | |||||||||
| (in thousands, except share and per share data) | |||||||||
| As of | |||||||||
| December 31, 2019 | December 31, 2018 | ||||||||
| ASSETS | |||||||||
| Investments at fair value | |||||||||
| Non-control/non-affiliate investments (amortized cost of $250,433 and $280,114, respectively) | $ | 241,046 | $ | 286,843 | |||||
| Affiliate investments (amortized cost of $80,756 and $72,300, respectively) | 98,763 | 92,939 | |||||||
| Control investments (amortized cost of $22,692 and $67,556, respectively) | 22,723 | 69,145 | |||||||
| Total investments at fair value (amortized cost of $353,881 and $419,970, respectively) | 362,532 | 448,927 | |||||||
| Cash and cash equivalents | 62,321 | 39,295 | |||||||
| Interest and dividend receivable | 1,745 | 3,778 | |||||||
| Prepaid expenses | 624 | 454 | |||||||
| Deferred tax asset, net | - | 628 | |||||||
| Other assets | 115 | 83 | |||||||
| Total assets | $ | 427,337 | $ | 493,165 | |||||
| LIABILITIES | |||||||||
| SBA Debentures (net of deferred financing costs of $1,006 and $1,688, respectively) | $ | 148,994 | $ | 164,012 | |||||
| 2022 Notes (net of deferred financing costs of $1,447 and $1,987, respectively) | 73,553 | 73,013 | |||||||
| 2022 Convertible Notes (net of deferred financing costs of $916 and $1,259, respectively) | 51,172 | 50,829 | |||||||
| Credit Facility (net of deferred financing costs of $1,165 and $983, respectively) | (1,165 | ) | 9,017 | ||||||
| Management and incentive fees payable | 3,713 | 2,487 | |||||||
| Interest and financing fees payable | 2,439 | 3,063 | |||||||
| Accounts payable and accrued expenses | 518 | 100 | |||||||
| Total liabilities | $ | 279,224 | $ | 302,521 | |||||
| NET ASSETS | |||||||||
| Common stock, par value $0.01, 100,000,000 common shares authorized, 16,203,769 and 16,051,547 common shares | |||||||||
| issued and outstanding, respectively | $ | 162 | $ | 161 | |||||
| Additional paid in capital | 237,886 | 241,757 | |||||||
| Total distributable loss | (89,935 | ) | (51,274 | ) | |||||
| Total net assets | $ | 148,113 | $ | 190,644 | |||||
| Total liabilities and net assets | $ | 427,337 | $ | 493,165 | |||||
| Net asset value per share | $ | 9.14 | $ | 11.88 | |||||
| Capitala Finance Corp. | |||||||||||||||||
| Consolidated Statements of Operations | |||||||||||||||||
| (in thousands, except share and per share data) | |||||||||||||||||
| For the Three Months Ended December 31, | For the Years Ended December 31, | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| INVESTMENT INCOME | (unaudited) | (unaudited) | |||||||||||||||
| Interest and fee income: | |||||||||||||||||
| Non-control/non-affiliate investments | $ | 6,563 | $ | 6,839 | $ | 27,659 | $ | 27,754 | |||||||||
| Affiliate investments | 1,773 | 2,074 | 8,351 | 7,945 | |||||||||||||
| Control investments | 145 | 1,117 | 1,566 | 6,702 | |||||||||||||
| Total interest and fee income | 8,481 | 10,030 | 37,576 | 42,401 | |||||||||||||
| Payment-in-kind interest and dividend income: | |||||||||||||||||
| Non-control/non-affiliate investments | 438 | 766 | 1,721 | 2,248 | |||||||||||||
| Affiliate investments | 258 | 133 | 869 | 1,251 | |||||||||||||
| Control investments | - | 134 | 372 | 849 | |||||||||||||
| Total payment-in-kind interest and dividend income | 696 | 1,033 | 2,962 | 4,348 | |||||||||||||
| Dividend income: | |||||||||||||||||
| Non-control/non-affiliate investments | 64 | - | 1,345 | 59 | |||||||||||||
| Affiliate investments | 25 | 151 | 50 | 238 | |||||||||||||
| Control investments | 320 | 25 | 1,904 | 100 | |||||||||||||
| Total dividend income | 409 | 176 | 3,299 | 397 | |||||||||||||
| Interest income from cash and cash equivalents | 48 | 69 | 198 | 147 | |||||||||||||
| Total investment income | 9,634 | 11,308 | 44,035 | 47,293 | |||||||||||||
| EXPENSES | |||||||||||||||||
| Interest and financing expenses | 4,371 | 4,269 | 17,121 | 17,283 | |||||||||||||
| Base management fee | 1,904 | 2,178 | 7,967 | 9,049 | |||||||||||||
| Incentive fees | - | - | 1,497 | 244 | |||||||||||||
| General and administrative expenses | 1,457 | 1,360 | 4,695 | 4,695 | |||||||||||||
| Expenses before incentive fee waiver | 7,732 | 7,807 | 31,280 | 31,271 | |||||||||||||
| Incentive fee waiver | - | - | (288 | ) | - | ||||||||||||
| Total expenses, net of incentive fee waiver | 7,732 | 7,807 | 30,992 | 31,271 | |||||||||||||
| NET INVESTMENT INCOME | 1,902 | 3,501 | 13,043 | 16,022 | |||||||||||||
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN CALL OPTION: | |||||||||||||||||
| Net realized gain (loss) on investments: | |||||||||||||||||
| Non-control/non-affiliate investments | 20,073 | 106 | 16,529 | (15,714 | ) | ||||||||||||
| Affiliate investments | - | 1,964 | 2,288 | 2,920 | |||||||||||||
| Control investments | (18,917 | ) | (16,696 | ) | (38,573 | ) | (22,010 | ) | |||||||||
| Net realized gain (loss) on investments | 1,156 | (14,626 | ) | (19,756 | ) | (34,804 | ) | ||||||||||
| Net unrealized appreciation (depreciation) on investments: | |||||||||||||||||
| Non-control/non-affiliate investments | (20,655 | ) | (2,360 | ) | (16,116 | ) | 16,487 | ||||||||||
| Affiliate investments | 1,087 | (11,709 | ) | (2,632 | ) | (5,982 | ) | ||||||||||
| Control investments | 16,441 | 15,262 | (1,558 | ) | (16,460 | ) | |||||||||||
| Net unrealized appreciation (depreciation) on investments | (3,127 | ) | 1,193 | (20,306 | ) | (5,955 | ) | ||||||||||
| Net unrealized appreciation (depreciation) on written call option | - | - | - | 6,795 | |||||||||||||
| Net realized and unrealized loss on investments and written call option | (1,971 | ) | (13,433 | ) | (40,062 | ) | (33,964 | ) | |||||||||
| Tax benefit (provision) | - | 731 | (628 | ) | 1,916 | ||||||||||||
| Total net realized and unrealized loss on investments and written call option, net of taxes | (1,971 | ) | (12,702 | ) | (40,690 | ) | (32,048 | ) | |||||||||
| NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (69 | ) | $ | (9,201 | ) | $ | (27,647 | ) | $ | (16,026 | ) | |||||
| NET DECREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS – BASIC AND DILUTED | $ | (0.00 | ) | $ | (0.57 | ) | $ | (1.72 | ) | $ | (1.00 | ) | |||||
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED | 16,176,507 | 16,029,884 | 16,117,719 | 15,993,436 | |||||||||||||
| DISTRIBUTIONS PAID PER SHARE | $ | 0.25 | $ | 0.25 | $ | 1.00 | $ | 1.00 | |||||||||