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KCAP Financial, Inc. Announces First Quarter 2016 Financial Results

NEW YORK, May 04, 2016 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) (the "Company") announces its first quarter 2016 financial results.

Financial Highlights

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "Challenging market conditions persisted in the first quarter. We continued to manage our balance sheet and resources during the quarter, with the repayment of the remainder of our convertible debt at maturity, and with prudent risk management, asset selection and expense control. We will continue this approach and actively pursue opportunities to enhance shareholder value in the future."

Operating Results

For the three months ended March 31, 2016, we reported total investment income of approximately $9.5 million as compared to approximately $12.3 million in the same period last year, a decrease of 23%. Investment income from debt securities decreased 8% to approximately $5.7 million from approximately $6.2 million in the first quarter of 2015. Investment income on CLO fund securities in the first quarter of 2016 decreased to $3.2 million from $4.6 million in 2015, and dividends from our Asset Manager Affiliates in the first quarter of 2016 decreased 61% to $550,000 from $1.4 million in the first quarter of 2015.

For the three months ended March 31, 2016, total expenses were lower by approximately $1.1 million as compared to the same period in 2015, primarily attributable to decreases in professional fees and compensation expense, as well as a decrease in interest expense due to the repurchase and repayments of the Convertible Notes throughout 2015 and the first quarter of 2016.

 Net investment income for the first quarter of 2016 and 2015 was approximately $4.8 million and $6.5 million, or $0.13 and $0.18 per basic share, respectively. Net realized and unrealized depreciation on investments for the three months ended March 31, 2016 was approximately $11.6 million, as compared to approximately $1.2 million appreciation for the same period in 2015. 

Portfolio and Investment Activity

The fair value of our portfolio was approximately $378 million as of March 31, 2016. The composition of our investment portfolio at March 31, 2016 and December 31, 2015 at cost and fair value was as follows:

  March 31, 2016 (unaudited)  December 31, 2015 
Security Type Cost Fair Value    Cost Fair Value  
Money Market Accounts³ $1,665,993 $1,665,993 -  $2,129,381 $2,129,381  1 
Senior Secured Loan  205,077,628  193,931,052 52   203,819,074  194,123,223 46 
Junior Secured Loan  39,250,916  36,586,051 11   40,221,557  37,591,900  9 
Senior Unsecured Loan  16,000,000  16,000,000 4   23,000,000  23,000,000 6 
First Lien Bond  3,000,000  1,825,800 -   3,000,000  2,216,700  1 
Senior Subordinated Bond  4,513,571  4,662,751 1   4,466,793   4,615,569 1 
Senior Unsecured Bond  12,053,460  11,557,863 3   11,879,187  10,551,724  3 
Senior Secured Bond  1,509,541  1,440,000 -   1,510,560  1,503,755 - 
CLO Fund Securities  73,610,853  49,358,283 13   83,214,947  55,872,382  14  
Equity Securities  10,467,787  10,927,901 3   10,467,787  9,548,488 2 
Preferred  -  - -    10,411,673  11,036,373  3 
Asset Manager Affiliates²  56,091,230   50,348,000 13   56,591,230  57,381,000 14 
                   
Total $423,240,979 $378,303,694 100% $450,712,189 $409,570,495 100%
                   
¹  Represents percentage of total portfolio at fair value.         
²  Represents the equity investment in the Asset Manager Affiliates.          
³  Includes restricted cash held under employee benefit plans.         


Liquidity and Capital Resources

At March 31, 2016, we had unrestricted cash and money market balances of approximately $2.3 million, total assets of approximately $388 million and stockholders' equity of approximately $204 million. Our net asset value per common share was $5.50. As of March 31, 2016, we had approximately $188.8 million (par value) of borrowings outstanding ($182 million net of discount and capitalized costs) with a weighted average interest rate of approximately 3.8%.

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 $0.15 per share for the quarter ended March 31, 2016. The record date for this distribution was April 7, 2016 and the distribution was paid on April 28, 2016. 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 2015 annual financial report. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Supplemental Information: Analysis of Shareholder Distributions

On a supplemental basis, we are providing information relating to our shareholder distributions. The Company believes that taxable distributable income as reported in our financial statement footnotes is an important measure for investors. The Company may not distribute all of its taxable distributable income, or may over-distribute during any period.

The following table¹ depicts the composition of shareholder distributions on a per share basis for the three months ended March 31, 2016 and 2015:

  Quarter-ended March 31,
  2016 ¹ 2015¹
Net investment income  $  0.13  $  0.18 
Tax Accounting Difference on CLO Equity Investments    0.02     0.01 
Other tax Accounting differences   0.01    - 
Taxable distributable income    0.16     0.19 
Cash distributed to the Company by Asset Manager Affiliates in excess of their taxable earnings    0.01     0.03 
Available for distribution²    0.17     0.23 
Distributed $  0.15   $  0.21 
Difference $  (0.02) $  (0.02)
       
1 Table may not foot due to rounding.
2 The "Available for distribution" financial measure is a non-GAAP financial measure that is calculated by including the cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings to the Company's taxable distributable income, which is the most directly comparable GAAP financial measure.  In order to reconcile the "Available for distribution" financial measure to taxable distributable income per share in accordance with GAAP, the $0.01 and $0.03 per share of cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings is subtracted from the "Available for distribution" financial measure, for the three months ended March 31, 2016 and 2015, respectively.  The Company's management believes that the presentation of the non-GAAP "Available for distribution" financial measure provides useful information to investors.

Conference Call and Webcast

We will hold a conference call on Thursday, May 5, 2016 at 9:00 am Eastern Time to discuss our first quarter 2016 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 Time for approximately 90 days.

A replay of this conference call will be available from 12:00 p.m. on May 5, 2016 until 11:59 p.m. on May 12, 2016. The dial in number for the replay is (855) 859-2056 and the conference ID is 4157207.

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
March 31, 2016
 As of
December 31, 2015
 
    (unaudited)    
ASSETS       
Investments at fair value:       
 Money market accounts (cost: 2016 - $1,665,993; 2015 - $2,129,381) $  1,665,993  $  2,129,381  
 Debt securities (cost: 2016 - $281,405,117; 2015 - $298,308,845)    266,003,517     284,639,244  
 CLO Fund Securities managed by affiliates (cost: 2016 - $68,235,255; 2015 - $77,764,568)    47,298,797     53,557,570  
 CLO Fund Securities managed by non-affiliates (cost: 2016 - $5,375,598; 2015 - $5,450,379)    2,059,486     2,314,812  
 Equity securities (cost: 2016 - $10,467,786; 2015 - $10,467,786)    10,927,901     9,548,488  
 Asset Manager Affiliates (cost: 2016 - $56,091,230; 2015 - $56,591,230)    50,348,000     57,381,000  
Total Investments at Fair Value (cost: 2016 - $423,240,979; 2015 - $450,712,189)    378,303,694     409,570,495  
Cash    626,236    -  
Restricted cash    4,273,754     7,138,272  
Interest receivable    1,732,514     1,812,624   
Due from affiliates    2,835,649     2,117,095  
Other assets    505,466     566,211  
        
Total Assets $  388,277,313  $  421,204,697  
        
LIABILITIES       
7.375% Notes Due 2019 (net of offering costs of: 2016 - $837,746; 2015 - $890,344) $  40,562,255  $  40,509,656  
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: 2016 - $2,753,854 and $2,961,017,
respectively; 2015 - $2,907,595 and $3,126,009, respectively)
    141,635,129     141,316,396  
Convertible Notes (net of offering costs of: 2015 - $21,292)        19,277,709  
Accounts payable and accrued expenses    850,628     2,218,065  
Accrued interest payable    841,484     1,228,068  
Due to affiliates    89     554,333  
        
Total Liabilities    183,889,585      205,104,227  
COMMITMENTS AND CONTINGENCIES (Note 8)        
         
STOCKHOLDERS' EQUITY       
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,166,781 issued, and 37,130,433
outstanding at March 31, 2016, and 37,136,353 issued, and 37,100,005 outstanding at December 31, 2015
    371,304     371,000  
Capital in excess of par value    362,588,974     361,962,511  
Excess distribution of net investment income    (22,370,226)    (21,638,184) 
Accumulated net realized losses    (89,865,993)    (82,054,107) 
Net unrealized depreciation on investments    (46,336,331)    (42,540,750) 
          
Total Stockholders' Equity    204,387,728     216,100,470  
          
Total Liabilities and Stockholders' Equity $  388,277,313  $  421,204,697  
         
NET ASSET VALUE PER COMMON SHARE $ 5.50  $ 5.82  
         
 



KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
  Three Months Ended 
 March 31, 
  2016  2015 
        
Investment Income:       
 Interest from investments in debt securities$ 5,705,577   $ 6,197,828   
 Interest from cash and time deposits  7,372     701  
 Investment income on CLO Fund Securities managed by affiliates  3,051,816     4,340,143  
 Investment income on CLO Fund Securities managed by non-affiliates  152,317     227,679  
 Dividends from Asset Manager Affiliates  550,000     1,413,975  
 Capital structuring service fees  43,239     161,803  
         
 Total investment income  9,510,321     12,342,129  
         
Expenses:       
 Interest and amortization of debt issuance costs  2,573,440     2,967,154  
 Compensation  966,588     1,072,822  
 Professional fees  651,939     1,171,441  
 Insurance  106,223     112,439  
 Administrative and other  447,361     511,325  
         
 Total expenses  4,745,551      5,835,181  
         
Net Investment Income  4,764,770      6,506,948  
Realized And Unrealized Gains (Losses) On Investments:       
 Net realized (losses) gains from investment transactions  (7,811,888)    72,356  
 Net change in unrealized (depreciation) appreciation on:       
 Debt securities  (1,731,990)    1,250,211   
 Equity securities  1,379,413     (56,123) 
 CLO Fund Securities managed by affiliates  3,270,541     (658,871 ) 
 CLO Fund Securities managed by non-affiliates  (180,545)    73,744  
 Asset Manager Affiliates investments  (6,533,000)    484,025  
         
 Total net change in unrealized (depreciation) appreciation  (3,795,581)    1,092,986  
         
 Net realized and unrealized (depreciation) appreciation on investments  (11,607,469)    1,165,342  
         
Net (Decrease) Increase In Stockholders' Equity Resulting From Operations$ (6,842,699)  $ 7,672,290  
         
 Net (Decrease) Increase In Stockholders' Equity Resulting from Operations per Common Share:       
 Basic:$ (0.18)  $ 0.21  
 Diluted:$ (0.18)  $ 0.20  
 Net Investment Income Per Common Share:        
 Basic:$ 0.13   $  0.18  
 Diluted:$ 0.13   $ 0.18  
         
 Weighted Average Shares of Common Stock Outstanding—Basic  37,109,735     36,834,266  
 Weighted Average Shares of Common Stock Outstanding—Diluted  37,109,735     36,843,382  


KCAP-G

Ted Gilpin

gilpin@kcapinc.com

(212) 455-8300

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Source: KCAP Financial, Inc.

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