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KCAP Financial, Inc. Announces Full Year 2016 Financial Results

NEW YORK, March 08, 2017 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) announces its full year 2016 financial results.

Financial Highlights

Operating Results

For the year ended December 31, 2016, we reported total investment income of approximately $36.2 million as compared to approximately $45.5 million in the prior year, a decrease of 20%. Investment income from debt securities decreased 14% to approximately $20.8 million from approximately $24.1 million. Investment income from investments in CLO fund securities in 2016 decreased 15% to $13.3 million from $15.7 million in 2015, and dividends from our Asset Manager Affiliates decreased 74% from $5.3 million to $1.4 million.

For the year ended December 31, 2016, total expenses were lower by approximately $3.6 million as compared to the same period in 2015, primarily attributable to a decrease in interest expense related to the lower average outstanding principal balance on our borrowings during 2016.

Net investment income for the years ended 2016 and 2015 was approximately $18.5 million and $24.2 million, or $0.50 and $0.65 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2016 was approximately $19.4 million, as compared to net realized and unrealized depreciation on investments of $42.4 million for the same period in 2015.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $366.5 million as of December 31, 2016. The composition of our investment portfolio at December 31, 2016 and December 31, 2015, at cost and fair value, was as follows:

  December 31, 2016  December 31, 2015 
Security Type Cost/Amortized
Cost
 Fair Value   Cost/Amortized
Cost
 Fair Value  
Money Market Accounts² $28,699,269 $28,699,269 8% $2,129,381 $2,129,381 1%
Senior Secured Loan  207,701,078  200,322,152 55   203,819,074  194,123,223 46 
Junior Secured Loan  37,251,776  35,444,440 10   40,221,557  37,591,900 9 
Senior Unsecured Loan  -  - -   23,000,000  23,000,000 6 
First Lien Bond  3,060,919  1,089,338 -   3,000,000  2,216,700 1 
Senior Subordinated Bond  -  - -   4,466,793   4,615,569 1 
Senior Unsecured Bond  -  - -   11,879,187  10,551,724 3 
Senior Secured Bond  1,506,461  1,487,400 -   1,510,560  1,503,755 - 
CLO Fund Securities  76,851,317  54,174,350 15   83,214,947  55,872,382 14  
Equity Securities  10,389,007  5,056,355 1   10,467,787  9,548,488 2 
Preferred Securities  -  - -   10,411,673  11,036,373 3 
Asset Manager Affiliates³  55,341,230  40,198,000 11   56,591,230  57,381,000 14 
                   
Total $420,801,057 $366,471,304 100% $450,712,189 $409,570,495 100%
                   
¹  Represents percentage of total portfolio at fair value.
²  Includes restricted cash held under employee benefit plans.
³  Represents the equity investment in the Asset Manager Affiliates.

Liquidity and Capital Resources

At December 31, 2016, we had unrestricted cash and money market balances of approximately $30.0 million, total assets of approximately $381.4 million and stockholders' equity of approximately $194.9 million. Our net asset value per common share was $5.24. As of December 31, 2016, we had $180.9 million of borrowings outstanding ($175.6 million net of discount) with a weighted average interest rate of approximately 3.9%.

Generally we would look to grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. However, we may face difficulty in obtaining a new debt and equity financing as a result of current market conditions, and because our common stock has traded at a price below our current net asset value per share. 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 $0.12 per share for the quarter ended December 31, 2016. The record date for this distribution was January 6, 2017 and the distribution was paid on January 27, 2017. Tax characteristics of all distributions paid by us in 2016 have been 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. 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 Thursday, March 9, 2017 at 9:00 a.m. Eastern Time to discuss our full year 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 March 9, 2017 until 12:00 p.m. Eastern Time on March 16, 2017.  The dial in number for the replay is 855-859-2056 and the conference ID is 81098779.

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.

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
December 31, 2016
 As of
December 31, 2015
        
ASSETS      
Investments at fair value:      
 Money market accounts (cost: 2016 - $28,699,269; 2015 - $2,129,381) $28,699,269  $2,129,381 
 Debt securities (amortized cost: 2016 - $249,520,234; 2015 - $298,308,845)   238,343,330   284,639,244 
 CLO Fund Securities managed by affiliates (amortized cost: 2016 - $71,734,809; 2015 - $77,764,568)  51,908,784   53,557,570 
 CLO Fund Securities managed by non-affiliates (amortized cost: 2016 - $5,116,508; 2015 - $5,450,379)  2,265,566    2,314,812 
 Equity securities (cost: 2016 - $10,389,007; 2015 - $10,467,786)  5,056,355    9,548,488 
          
 Asset Manager Affiliates (cost: 2016 - $55,341,230; 2015 - $56,591,230)  40,198,000   57,381,000 
Total Investments at Fair Value (cost: 2016 - $420,801,057; 2015 - $450,712,189)  366,471,304   409,570,495 
Cash  1,307,257   - 
Restricted cash  8,528,298   7,138,272 
Interest receivable  1,033,917   1,812,624 
Receivable for open trades  2,950,658    
Due from affiliates  612,854   2,117,095 
Other assets  467,695   566,211 
       
Total Assets $381,371,983  $421,204,697 
       
        
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; 2015 - $2,907,595 and $3,126,009, respectively) $142,604,419  $141,316,396 
7.375% Notes Due 2019 (net of offering costs of: 2016 - $550,774; 2015 - $890,344)  32,980,151   40,509,656 
Convertible Notes (net of offering costs of: 2015 - $21,291)     19,277,709 
Payable for open trades   7,884,943    
Accounts payable and accrued expenses  2,047,405   2,218,065 
Accrued interest payable  930,086   1,228,068 
Due to affiliates  54   554,333 
       
Total Liabilities  186,447,058   205,104,227 
       
COMMITMENTS AND CONTINGENCIES (Note 8)      
        
STOCKHOLDERS' EQUITY      
       
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,282,296 issued, and 37,178,294 outstanding at December 31, 2016, and 37,136,353 issued, and 37,100,005 outstanding at December 31, 2015   371,783   371,000 
Capital in excess of par value   353,404,155   361,962,511 
Excess distribution of net investment income  (14,630,319)   (21,638,184)
Accumulated net realized losses  (88,491,896)  (82,054,107)
Net unrealized depreciation on investments  (55,728,798)  (42,540,750)
        
Total Stockholders' Equity  194,924,925   216,100,470 
        
Total Liabilities and Stockholders' Equity $381,371,983  $421,204,697 
        
NET ASSET VALUE PER COMMON SHARE $5.24  $5.82 
        


KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
    For the Years Ended December 31,
   2016  2015  2014
              
Investment Income:           
 Interest from investments in debt securities $20,828,916   $24,101,257   $21,386,432 
 Interest from cash and time deposits  29,383     10,239    3,452 
 Investment income on CLO Fund Securities managed by affiliates  12,642,625    14,691,428    12,367,581 
 Investment income on CLO Fund Securities managed by non-affiliates  630,647    1,008,634    1,045,225 
 Dividends from Asset Manager Affiliates  1,400,000    5,348,554    5,467,914 
 Capital structuring service fees  668,527    366,859    934,871 
              
  Total investment income  36,200,098    45,526,971    41,205,475 
              
Expenses:           
 Interest and amortization of debt issuance costs  9,110,603    11,727,880     11,538,179 
 Compensation  4,103,558     3,843,799    4,951,745 
 Professional fees  2,391,038    3,520,461    2,614,479 
 Insurance  412,764    433,561    471,276 
 Administrative and other  1,692,140    1,818,480    1,509,228 
               
  Total expenses  17,710,103    21,344,181    21,084,907 
              
Net Investment Income  18,489,995     24,182,790    20,120,568 
Realized And Unrealized Gains (Losses) On Investments:           
 Net realized losses from investment transactions  (6,167,467)   (6,202,289)   (10,384,415)
 Net change in unrealized (depreciation) appreciation on:           
  Debt securities  2,492,707    (10,748,262)   5,641,403 
  Equity securities  (4,413,354)    (210,167)   7,040,155 
  CLO Fund Securities managed by affiliates  4,380,974    (12,990,404)   (11,584,257)
  CLO Fund Securities managed by non-affiliates  284,625    (977,483)   2,884,109 
  Asset Manager Affiliates investments  (15,933,000)   (11,243,554)   2,064,107 
               
 Total net (depreciation) appreciation from investment transactions  (13,188,048)   (36,169,870)    6,045,517 
 Net realized and unrealized loss on investments  (19,355,515)   (42,372,159)   (4,338,898)
              
 Realized losses on extinguishments of debt  (174,211)   (445,189)   (748,076)
              
Net (Decrease) Increase In Stockholders' Equity Resulting From Operations $(1,039,731)  $(18,634,558)  $15,033,594 
              
 Net (Decrease) Increase in Stockholders' Equity Resulting from Operations per Common Share:           
 Basic: $(0.03)  $(0.50)  $0.44 
 Diluted: $(0.03)  $(0.50)  $0.43 
 Net Investment Income Per Common Share:           
 Basic: $0.50    $0.65   $0.59 
 Diluted:  $0.50   $0.65   $0.58 
              
 Weighted Average Shares of Common Stock Outstanding—Basic  37,149,663    36,964,444    34,248,346 
 Weighted Average Shares of Common Stock Outstanding—Diluted  37,149,663     36,964,444    34,259,977 
              

KCAP-G

CONTACT:

Ted Gilpin

gilpin@kcapinc.com

(212) 455-8300

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Source: KCAP Financial, Inc.

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