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KCAP Financial, Inc. Announces Third Quarter 2017 Financial Results

NEW YORK, Nov. 07, 2017 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) (the "Company") announces its third quarter 2017 financial results.

Financial Highlights

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "We are taking a series of actions to extend and increase our assets under management, reduce leverage and expand our borrowing capacity.  We are confident that utilizing our disciplined investment process to invest our liquidity, we will over the next few quarters, enhance returns to our shareholders."

Operating Results

For the three months ended September 30, 2017, we reported total investment income of approximately $6.3 million as compared to approximately $7.7 million in the second quarter of 2017. Investment income from debt securities decreased to approximately $2.4 million from approximately $4.8 million in the second quarter of 2017. Investment income on CLO Fund Securities in the third quarter of 2017 remained flat at $2.8 million compared with the second quarter of 2017. We received distributions from our Asset Manager Affiliates of $880,000 in the third quarter of 2017, $700,000 of which was a return of capital. The Asset Manager Affiliates distributed $650,000 in the second quarter of 2017, all of which was a return of capital.

For the three months ended September 30, 2017, total expenses decreased by approximately $1.3 million as compared to the second quarter of 2017, primarily attributable to lower interest expense due to the redemption of the KCAP Senior Funding debt liabilities in July 2017 and lower professional fees.

Net investment income for the third quarter of 2017 and the second quarter of 2017 was approximately $2.5 million and $2.6 million, respectively, or $0.07 and $0.07 per basic share, respectively. Net realized and unrealized gains on investments for the three months ended September 30, 2017 was approximately $816,000, compared to net realized and unrealized gains of approximately $20 thousand for the second quarter of 2017. 

Portfolio and Investment Activity

The fair value of our portfolio was approximately $317 million as of September 30, 2017. The composition of our investment portfolio at September 30, 2017 and December 31, 2016 at cost and fair value was as follows:

      
  September 30, 2017 (unaudited)
 December 31, 2016 
 
Security Type Cost/
Amortized Cost
 Fair Value  Cost/
Amortized Cost
 Fair Value  
Short-term Investments² $57,024,828 $57,024,828 18  $ 28,699,269 $28,699,269 8  
Senior Secured Loan  49,982,415  46,124,914 15   207,701,078  200,322,152 55  
Junior Secured Loan  59,490,855  58,343,554 18   37,251,776  35,444,440 10  
Senior Unsecured Loan  20,000,000   20,000,000 6   -  - 
-  
First Lien Bond  3,054,337  1,063,762 -   3,060,919  1,089,338 -  
Senior Secured Bond  1,503,404  1,494,600 -   1,506,461    1,487,400 -  
CLO Fund Securities  78,544,739  51,843,344 16   76,851,317  54,174,350 15  
Equity Securities  10,389,007  4,450,177 1   10,389,007  5,056,355 1  
Asset Manager Affiliates³  53,341,230  39,679,000 13   55,341,230  40,198,000 11  
Joint Venture  36,738,873  36,591,122 13   -  - -  
                    
Total $370,069,689 $316,615,300 100% $420,801,057 $366,471,304 100% 
                    
¹  Represents percentage of total portfolio at fair value.                  
²  Includes money market accounts and U.S. treasury bills.             
³  Represents the equity investment in the Asset Manager Affiliates.             
              

Liquidity and Capital Resources

At September 30, 2017, we had unrestricted cash and short-term investments of approximately $59.0 million, total assets of approximately $322.8 million and stockholders' equity of approximately $184.8 million. Our net asset value per common share was $4.95. As of September 30, 2017, we had approximately $104.4 million (par value) of borrowings outstanding ($101.3 million net of discount and capitalized costs) with a weighted average interest rate of approximately 6.4%.

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. However, a portion of distributions paid to shareholders may be a return of capital. We announced a regular quarterly distribution of $0.12 per share for the quarter ended September 30, 2017. The record date for this distribution was October 10, 2017 and the distribution was paid on October 26, 2017. 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 2016 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 Tuesday, November 7, 2017 at 4:00 p.m. Eastern Time to discuss our third quarter 2017 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 7:00 p.m. on November 7, 2017 until 7:00 p.m. on November 15, 2017. The dial in number for the replay is (855) 859-2056 and the conference ID is 1989878.

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., Katonah Debt Advisors, L.L.C., and KCAP Management, 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
September 30, 2017
 As of
December 31, 2016
 
    (unaudited)
    
ASSETS       
Investments at fair value:       
Short-term investments (cost: 2017 - $57,024,828; 2016 - $28,699,269) $ 57,024,828   $ 28,699,269   
Debt securities (cost: 2017 - $134,031,011; 2016 - $249,520,234)   127,026,829     238,343,330   
CLO Fund securities managed by affiliates (cost: 2017 - $73,495,563; 2016 - $71,734,809)   49,973,662     51,908,784   
CLO Fund securities managed by non-affiliates (cost: 2017 - $5,049,176; 2016 - $5,116,508)   1,869,682     2,265,566   
Equity securities (cost: 2017 - $10,389,008; 2016 - $10,389,007)    4,450,177     5,056,355   
Asset Manager Affiliates (cost: 2017 - $53,341,230; 2016 - $55,341,230)   39,679,000     40,198,000   
Joint Venture (cost: 2017 - $36,738,873; 2016 - $0)   36,591,122      
Total Investments at Fair Value (cost: 2017 - $370,069,689; 2016 - $420,801,057)   316,615,300     366,471,304   
Cash   1,936,300     1,307,257   
Restricted cash      8,528,298   
Interest receivable   923,344     1,033,917   
Receivable for open trades      2,950,658   
Accounts receivable   2,000,021       
Due from affiliates   1,159,759     612,854   
Other assets   173,185     467,695   
         
Total Assets $ 322,807,909   $ 381,371,983   
        
LIABILITIES       
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: 2016 - $2,286,425 and $2,459,156, respectively) $  $ 142,604,419   
7.375% Notes due 2019 (net of offering costs of: 2017 - $306,073; 2016 - $550,774)    26,693,927     32,980,151   
6.125% Notes due 2022 (net of offering costs of: 2017 - $2,757,357)   74,649,843      
Payable for open trades   34,950,728     7,884,943   
Accounts payable and accrued expenses   1,649,529     2,047,405   
Accrued interest payable      930,086   
Due to affiliates   78,438     54   
        
Total Liabilities   138,022,465     186,447,058   
COMMITMENTS AND CONTINGENCIES (Note 8)        
STOCKHOLDERS' EQUITY       
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,485,993 issued, and 37,317,815 outstanding at September 30, 2017, and 37,282,296 issued, and 37,178,294 outstanding at December 31, 2016   373,178     371,783   
Capital in excess of par value   354,341,009     353,404,155   
Excess distribution of net investment income   (19,589,473)   (14,630,319) 
Accumulated net realized losses   (95,485,836)   (88,491,896) 
Net unrealized depreciation on investments   (54,853,434)   (55,728,798) 
          
Total Stockholders' Equity   184,785,444     194,924,925   
         
Total Liabilities and Stockholders' Equity $ 322,807,909   $ 381,371,983   
         
NET ASSET VALUE PER COMMON SHARE $4.95  $5.24  
         
See accompanying notes to consolidated financial statements.
         
         


 
KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
 Three Months Ended   Nine Months Ended 
September 30, September 30, 
 2017  2016  2017  2016 
              
Investment Income:               
Interest from investments in debt securities$2,439,671   $5,186,745   $11,764,702    $16,106,654  
Interest from cash and short-term investments 21,043    7,168    51,250    21,521  
Investment income on CLO Fund Securities managed by affiliates 2,693,547    3,307,950     8,378,785    9,595,522  
Investment income on CLO Fund Securities managed by non-affiliates 99,578    195,182    329,108    503,358  
Dividends from Asset Manager Affiliates 180,000         180,000    1,400,000  
Investment income - Joint Venture 685,000        685,000      
Capital structuring service fees 134,504    321,744    298,629    481,456  
                 
Total investment income 6,253,343    9,018,789    21,687,474     28,108,510  
                
Expenses:               
Interest and amortization of debt issuance costs 1,371,953     2,122,325    5,790,242    6,960,355  
Compensation 1,072,812    1,199,412    3,473,841    3,212,886  
Professional fees 802,507    699,607    2,545,195    1,913,722  
Insurance 80,794    102,254    256,473    315,307  
Administrative and other 395,783    372,164    1,265,317    1,310,424  
                 
Total expenses 3,723,849    4,495,762    13,331,068    13,712,694  
                
Net Investment Income 2,529,495    4,523,027     8,356,404    14,395,816  
Realized And Unrealized Gains (Losses) On Investments:                
Net realized (losses) gains from investment transactions (1,906,537)   4,647,841    (2,871,941)   (6,046,199) 
Net change in unrealized appreciation (depreciation) on:               
Debt securities 1,759,152    456,530    4,172,723    2,539,345  
Equity securities (186,368)   (4,579,566)   (606,179)   (4,896,852) 
CLO Fund securities managed by affiliates (1,590,062)   (993,011)   (3,695,876)   5,890,984  
CLO Fund securities managed by non-affiliates (34,655)   (137,193)   (328,552)   (136,490) 
Asset Manager Affiliates investments 2,922,000    (1,113,000)   1,481,000    (12,706,000) 
Joint Venture investment (147,751)       (147,751)     
Total net change in unrealized appreciation (depreciation) 2,722,316    (6,366,240)   875,365    (9,309,013) 
                 
Net realized and unrealized appreciation (depreciation) on investments 815,779    (1,718,399)   (1,996,576)   (15,355,212) 
                
Realized losses on extinguishments of debt (4,014,723)   (88,015)   (4,121,998)   (159,206) 
Net Increase (Decrease) In Stockholders' Equity Resulting From Operations$(669,449)  $2,716,613   $2,237,830   $(1,118,601 ) 
                 
Net Increase (Decrease) In Stockholders' Equity Resulting from Operations per Common Share:                
Basic:$(0.02)  $0.07   $0.06   $(0.03) 
Diluted:$(0.02)  $0.07   $ 0.06   $(0.03) 
Net Investment Income Per Common Share:               
Basic:$0.07   $0.12   $0.23   $0.39  
Diluted:$0.07   $0.12   $0.23   $0.39  
                 
Weighted Average Shares of Common Stock Outstanding—Basic 37,196,621    37,152,622    37,202,011    37,142,002  
Weighted Average Shares of Common Stock Outstanding—Diluted 37,196,621    37,152,622    37,202,011    37,142,002  
                
See accompanying notes to consolidated financial statements.
          

KCAP-G

Ted Gilpin
gilpin@kcapinc.com
(212) 455-8300

Source: KCAP Financial, Inc.

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