Alcentra Capital Corporation

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Alcentra Capital Corporation Announces Third Quarter 2016 Financial Results and Announces Quarterly Dividend of $0.34 Per Share

Nov 3, 2016

NEW YORK, Nov. 3, 2016 /PRNewswire/ -- Alcentra Capital Corporation (NASDAQ: ABDC) ("Alcentra" or the "Company"), a provider of customized debt and equity financing solutions primarily to lower middle-market companies based in the United States, today announced its financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Financial Highlights

  • Total investment income of $9.1 million
  • Net investment income of $4.8 million, or $0.35 per share
  • Net decrease in net assets resulting from operations of $1.8 million, or $(0.14) per share
  • Invested $51.9 million in debt and equity securities, including investments in 3 new portfolio companies
  • Received proceeds from repayments and amortizations of $30.1 million
  • Paid regular quarterly dividend of $0.34 per share on October 6, 2016
  • Net asset value (NAV) of $184.7 million, or $13.69 per share
  • Weighted Average Portfolio Leverage – 4.34x, which is up from the prior quarter of 3.88x
  • Weighted Average Portfolio Yield – 11.8%, in line with the prior quarter

Management Commentary

"We had another good quarter with net investment income meeting expectations of $0,35 cents per share. We made a strategic decision to reduce our equity portfolio via a secondary sale of select equity investments (Tunnel Hill, Media Storm  and Dentistry for Children), thus positioning the portfolio favorably to maintain or grow net investment income going forward; as well as reduce some of the volatility in the equity portfolio.

The reduction of equity exposure in our portfolio positions us favorably to redeploy capital into new debt investments. Including the value of our warrant in DBI, we will have redeemed approximately $24 million of equity, which can be redeployed into approximately $48 million of debt investments. While the secondary sale came at the cost of a slight discount to our June FMV, it positions the portfolio favorably for the future."

Originations in the third quarter improved from the first two quarters consistent with an improved M&A climate for lower middle market companies. We closed three new deals in the quarter totaling  $51.9 million of invested capital, thus representing a moderate increase in assets under management for the quarter. We continue to see attractive opportunities to deploy capital in growth companies across a variety of industry sectors.

Weighted Average Leverage increased above 4.0x due largely to two portfolio companies that have been on our Watch List for the past several quarters. Excluding these two companies, weighted average leverage would be 3.68x.

We experienced some renewed volatility in our remaining equity portfolio, specifically within our remediation company whose performance is highly related to weather-related events. Absent this portfolio company event, and the previously mentioned secondary sale, the market-to-market changes were relatively modest."

Third Quarter 2016 Financial Results

For the three months ended September 30, 2016, total investment income was $9.1 million. This is an increase from the same period in the prior year mainly due to an increase in portfolio investments as well as repayment fees. Interest and PIK income comprised $8.6 million and other income comprised $0.5 million, including prepayment and amendment fee income.

For the three months ended September 30, 2016, total expenses were $4.3 million. Interest and financing expenses for the quarter were $1.9 million and the base management fee was $1.3 million. The income based incentive fee for the three months ended September 30, 2016 was $0.6 million and there was no capital gains incentive fee accrual. Professional fees and other general and administrative expenses totaled $0.5 million for the three months ended September 30, 2016.

Net investment income for the three months ended September 30, 2016 was $4.8 million ($0.35 per share).

During the three months ended September 30, 2016, we recorded a net realized gain on investments of $8.9 million and a net change in unrealized depreciation on investments of $19.0 million.

The net decrease in net assets resulting from operations during the three months September 30, 2016, was $1.8 million, or $(0.14) per share.

Per share results for the second quarter ended September 30, 2016 are based on average shares outstanding of 13.49 million.

Portfolio and Investment Activities

As of September 30, 2016, Alcentra had debt and equity investments in 35 portfolio companies with a total fair market value of $305.9 million. The average portfolio investment on a cost basis was $9.1 million and equity constituted 11% of the portfolio, down from 29% at the time of the IPO. During the third quarter ending September 30, 2016, Alcentra made investments of $51.9 million, including investments in 3 new portfolio companies and add on financings, and received proceeds from repayments and amortizations of investments of $30.1 million. As of September 30, 2016, the weighted average yield on debt investments was 11.8%, which was a slight increase in the weighted average yield from the June 30, 2016 reporting period of 11.7%.

Third quarter 2016 investment activity included the following new portfolio company investments:

  • Limbach Holdings ("Limbach") provides building infrastructure services, including the design, installation, and maintenance of HVAC and mechanical, electrical, and plumbing systems for commercial and institutional building owners.  Alcentra invested $13.0 million in Senior Subordinated Notes on July 20, 2016.
  • Lighting Retrofit International ("LRI") is a leading provider of lighting and water building efficiency services to government, institutional, and commercial customers.  Alcentra invested $18.0 million in First Lien Notes and $1.0 million of equity on September 28, 2016.
  • NextCare Holdings ("NextCare") is one of the nation's largest privately-owned providers of urgent care and occupational medicine services.  NextCare operates over 100 clinics nationwide and represents 10 brands across 11 states. Alcentra invested $15.0 million in Senior Subordinated Notes on August 31, 2016.

Alcentra had one investment on non-accrual at the end of the third quarter,–Xpress Global Systems, LLC – which has been on our Watch List and represents less than 1% of our portfolio.

Liquidity and Capital Resources

At September 30, 2016, Alcentra had $6.7 million in cash and cash equivalents.  Alcentra had $70.8 million of borrowings outstanding on its $135 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.

Subsequent Events

  • On October 19, 2016, Alcentra sold its interest in Tunnel Hill Partners in a secondary sale for $10.2 million.
  • On October 21, 2016, Alcentra assigned $8.0 million of its interest in LRI to a third party.
  • On October 21, 2016, Alcentra sold its equity interest in Media Storm and Dentistry for Children in a secondary sale for $3.8 million.
  • On October 24, 2016, Alcentra invested $6.0 million in Lugano Diamond and Jewelry, Inc. (Libor + 10.75 Senior Secured Notes)
  • On October 27, 2016, Alcentra invested $10.0 million in Safe Security (13.0% cash/1.0% PIK Subordinated Notes)
  • On October 28, 2016 Aphena Pharma repaid its debt investment in the amount of $1.1 million.

Fourth Quarter 2016 Dividend of $0.34 Per Share Declared

On November 3, 2016, the Company's Board of Directors declared a regular quarterly dividend of $0.34 per share for the fourth quarter of 2016 payable on January 5, 2017 to stockholders of record as of December 31, 2016.

Alcentra has adopted a dividend reinvestment plan ("DRIP") that provides for reinvestment of dividends on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, when the Company declares a cash dividend, stockholders who have not "opted out" of the DRIP at least three days prior to the dividend payment date will have their cash dividends automatically reinvested in additional shares of the Company's common stock. Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends in cash by notifying their broker or other financial intermediary of their election.

Third Quarter 2016 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 10:00 am ET on Friday, November 4, 2016. To participate in the conference call, please dial (844) 832-0218 approximately 10 minutes prior to the call. International callers should dial (484) 756-4314. Please reference conference ID # 12049925.

A live webcast of the conference call will be available at http://investors.alcentracapital.com/events-presentations. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

An archived webcast replay will be available on the Company's website until November 4, 2017.

ABOUT ALCENTRA CAPITAL CORPORATION

Alcentra Capital Corporation provides customized debt and equity financing solutions to lower middle-market companies, which the Company generally defines as U.S. based companies having revenues between $10.0 million and $100.0 million. Alcentra' investment objective is to provide attractive risk-adjusted returns by generating both current income from our debt investments and capital appreciation from our equity related investments. Alcentra seeks to partner with business owners, management teams and financial sponsors by providing customized financing for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.

Alcentra is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended. In addition, for tax purposes, Alcentra has elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

FORWARD-LOOKING STATEMENTS

This press release may contain certain forward-looking statements. Any such statements, other than statements of historical fact, are based on management's current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company's control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including those described from time to time in Alcentra' filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and Alcentra undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.


 

Alcentra Capital Corporation and Subsidiary


Consolidated Statements of Assets and Liabilities



As of
September 30,
2016
(Unaudited)


As of
December 31,
2015

Assets


Portfolio investments, at fair value


Non-controlled, non-affiliated investments, at fair value (cost of $285,609,124 and $219,715,263, respectively)


$

269,067,466


$

221,349,073

Non-controlled, affiliated investments, at fair value (cost of $29,583,292 and $56,426,475, respectively)



23,066,462



59,243,999

Controlled, affiliated investments, at fair value (cost $14,954,174 and $27,289,995, respectively)



13,814,627



15,748,539

Total of portfolio investments, at fair value (cost $330,146,590 and $303,431,733, respectively)



305,948,555



296,341,611

Cash



6,708,245



4,866,972

Dividends and interest receivable



1,572,352



2,607,205

Receivable for investments sold



1,364,550



Deferred financing costs



1,501,745



2,183,881

Deferred tax asset



5,994,993



1,382,408

Prepaid expenses and other assets



174,886



113,730

Total Assets


$

323,265,326


$

307,495,807



Liabilities


Credit facility payable


$

70,872,238


$

63,504,738

Notes payable (net of deferred note offering costs of $1,548,824 and $1,156,622, respectively)



53,451,176



38,843,378

Other accrued expenses and liabilities



743,521



271,801

Directors' fees payable



117,000



37,025

Professional fees payable



365,894



481,333

Interest and credit facility expense payable



1,471,876



813,222

Management fee payable



1,335,294



1,302,213

Income-based incentive fees payable



1,914,909



1,081,797

Distributions payable



4,586,816



4,595,700

Unearned structuring fee revenue



1,373,992



689,577

Income tax liability



2,374,417



842,812

Total Liabilities



138,607,133



112,463,596



Commitments and Contingencies (Note 12)




Net Assets


Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,490,636 and 13,516,766 shares issued and outstanding, respectively)



13,491



13,517

Additional paid-in capital



197,181,027



197,652,086

Accumulated net realized gain



4,423,425



2,791,590

Undistributed net investment income



3,651,025



1,130,327

Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $3,587,260 and $534,813 as of September 30, 2016 and December 31, 2015, respectively



(20,610,775)



(6,555,309)

Total Net Assets



184,658,193



195,032,211

Total Liabilities and Net Assets


$

323,265,326


$

307,495,807



Net Asset Value Per Share


$

13.69


$

14.43










 

 

 

 

 

Alcentra Capital Corporation and Subsidiary




Consolidated Statements of Operations





For the three
months ended
September 30, 2016
(Unaudited)


For the three
months ended
September 30, 2015
 (Unaudited)


For the nine
months ended
September 30, 2016
(Unaudited)


For the nine
months ended
September 30, 2015
(Unaudited)


Investment Income:


From non-controlled, non-affiliated investments:


Interest income from portfolio investments

$

6,306,358


$

5,133,259



$

16,743,520


$

13,577,787


Paid-in-kind interest income from portfolio investments


409,638



439,608




2,769,251



2,341,772


Other income from portfolio investments


158,048



452,038




1,729,498



1,407,320


Dividend income from portfolio investments


52,021






52,021



302,874


From non-controlled, affiliated investments:


Interest income from portfolio investments


827,500



1,001,296




2,522,867



3,209,301


Paid in-kind income from portfolio investments


462,161



655,205




1,947,325



1,897,750


Other income from portfolio investments


336,679



23,435




2,287,616



72,320


From controlled, affiliated investments:


Interest income from portfolio investments


398,185



588,627




1,162,820



1,746,836


Paid in-kind income from portfolio investments


165,878



213,674




487,910



618,532


Other income from portfolio investments









64,843


Total investment income


9,116,468



8,507,142




29,702,828



25,239,335




Expenses:


Management fees


1,335,294



1,273,705




3,908,093



3,641,673


Income-based incentive fees


607,739



546,027




2,324,624



1,749,155


Capital gains incentive fees




(434,217)






1,001,467


Professional fees


273,965



167,356




1,000,502



527,291


Valuation services


57,722



89,822




199,769



312,737


Interest and credit facility expense


1,476,911



1,197,553




4,120,365



2,870,559


Amortization of deferred financing costs


299,932



229,716




848,367



608,973


Directors' fees


83,313



57,635




232,608



171,826


Insurance expense


65,915



67,449




198,296



204,990


Amortization of deferred note offering costs


91,852






91,852




Other expenses


37,032



170,052




488,321



383,564


Total expenses


4,329,675



3,365,098




13,412,797



11,472,235


Waiver of capital gains incentive fees









(1,001,467)


Net expenses


4,329,675



3,365,098




13,412,797



10,470,768


Net investment income


4,786,793



5,142,044




16,290,031



14,768,567




Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments


Net realized gain (loss) on:


Non-controlled, non-affiliated investments


(361,060)



244,000




1,539,380



97,551


Non-controlled, affiliated investments


9,334,765






11,356,462




Controlled, affiliated investments


(109,512)






(11,264,007)




Net realized gain (loss) from portfolio investments


8,864,193



244,000




1,631,835



97,551


Net change in unrealized appreciation (depreciation) on:


Non-controlled, non-affiliated investments


(8,615,042)



(744,397)




(18,175,468)



(1,280,386)


Non-controlled, affiliated investments


(9,685,943)



390,429




(9,334,354)



3,803,027


Controlled, affiliated investments


(742,006)



(2,874,502)




10,401,909



(3,256,533)


Net change in unrealized appreciation (depreciation) from portfolio investments


(19,042,991)



(3,228,470)




(17,107,913)



(733,892)


Benefit/(Provision) for taxes on unrealized gain on investments


3,549,478



1,096,875




3,052,447



527,770


Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments


(6,629,320)



(1,887,595)




(12,423,631)



(108,571)


Net Increase (Decrease) in Net Assets Resulting from Operations

$

(1,842,527)


$

3,254,449



$

3,866,400


$

14,659,996




Basic and diluted:


Net investment income per share

$

0.35


$

0.38



$

1.21


$

1.09


Earnings (loss) per share

$

(0.14)


$

0.24



$

0.29


$

1.08


Weighted Average Shares of Common Stock Outstanding


13,490,636



13,516,766




13,502,152



13,516,766


Dividends declared per common share

$

0.340


$

0.340



$

1.020


$

1.020



















 

SOURCE Alcentra Capital Corporation

For further information: Paul Echausse, Chief Executive Officer, Alcentra Capital, 212 922-8960; Ellida McMillan, Chief Accounting Officer, Alcentra Capital, 212 922-6644


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