Alcentra Capital Corporation

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Alcentra Capital Corporation Announces Second Quarter 2017 Earnings and Declares Regular Dividend of $0.34 Per Share

Aug 3, 2017

NEW YORK, Aug. 3, 2017 /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 second quarter of 2017.

Second Quarter 2017 Financial Highlights

  • Total investment income of $8.3 million
  • Net investment income of $4.8 million, or $0.36 per share based on weighted average shares of common stock outstanding
  • Invested $11.4 million in debt and equity securities, inclusive of three add-on investments and one refinancing
  • Received proceeds from repayments of $14.5 million
  • Equity issuance of 808,161 shares for net proceeds of $10.8 million
  • Paid regular quarterly dividend of $0.34 per share on July 6, 2017
  • Net asset value of $181.3 million, or $12.73 per share, which is down from $13.43 in the first quarter of 2017;
  • Weighted Average Portfolio Company Leverage – 3.68x, which is flat from last quarter
  • Weighted Average Debt Portfolio Yield – 11.6%

Management Commentary

"We are pleased to announce that during the 2nd quarter Alcentra Capital led a $72 million refinancing for LRI Holding, Inc. (a.k.a. Integrated Efficiency Solutions), a DFW Capital Partners portfolio company, and made an incremental investment of $7.3 million in the refinancing. We also provided incremental capital to NTI Holdings, LLC for a follow-on acquisition.  Both companies are performing in line with expectations at this juncture.

While the pace of pre-payments outpaced our redeployment of capital for this quarter with prospective Q2 investments being pushed into Q3, we have a number of new investments in the pipeline that we are pursuing that we look to close during Q3.  The number of write-ups also exceeded the number of write-downs, although we marked down a higher dollar amount of the portfolio. Total unrealized gains on the portfolio were $3.7 million which was offset by $13.7 million of unrealized losses for a net unrealized loss of $9.9 million.  The largest contributor to the unrealized loss was a $8.4 million write-down on our investment in My Alarm Center, LLC. On July 14, 2017, as part of a recapitalization and change of control transaction of My Alarm Center, LLC, we invested an additional $1.9 million into new securities pari-passu with the company's new owner, funds managed by Oaktree Capital Management, L.P., and converted our existing debt into various classes of equity securities. Our decision to invest an additional $1.9 million in My Alarm was made with a view that with a new owner and recapitalized balance sheet we may be able to not only realize an appropriate return, but recoup some portion of our original debt investment which has now been converted to equity. We also took additional write-downs of several other companies – largely in the automotive and for profit education sectors – as we work through various business and credit related matters with these borrowers.

Lastly, we continue to maintain a disciplined underwriting process which can, at times, impact the velocity of our capital deployment. While economic conditions are steady and the capital markets continue to show strength, we recognize that we are in the mid-to-late innings of the current credit cycle and take these factors into consideration when selecting investments and sectors which to pursue."

Second Quarter 2017 Financial Results

For the three months ended June 30, 2017, total investment income was $8.3 million, a decrease of $2.3 million over the $10.6 million of total investment income for the three months ended June 30, 2016. This decrease was primarily attributable to lower prepayment fee income in the second quarter of 2017 as opposed to the $1.8 million of prepayment fee income in the second quarter of 2016. There was also a shift in timing of the closing of new deals. Interest and PIK income comprised $7.7 million and other income was $0.6 million.

Net investment income for the three months ended June 30, 2017 was $4.8 million ($0.36 per share which is based on average shares outstanding of 13.6 million)

For the three months ended June 30, 2017, net expenses were $3.5 million. Interest and financing expenses for the quarter was $1.5 million and the base management fee (net of a $0.2 million waiver) was $1.1 million. There were no incentive fees earned for the three months ended June 30, 2017. Professional fees and other general and administrative expenses totaled $0.5 million for the three months ended June 30, 2017.

During the three months ended June 30, 2017, we recorded a net realized gain on investments of $0.03 million.  During the quarter, we also recorded a net change in unrealized depreciation from portfolio investments of $9.9 million attributable to net unrealized depreciation on our debt investments, in particular from the write-down of our debt investment in My Alarm Center, LLC.

As a result of these events, our net decrease in net assets resulting from operations during the three months ended June 30, 2017 was $5.2 million.

Portfolio and Investment Activities

As of June 30, 2017, the fair value of our investment portfolio totaled $271.4 million and consisted of 30 portfolio companies. The average portfolio investment on a cost basis was $10.0 million and equity constituted 8.8% of the portfolio.  During the second quarter, we invested $11.4 million in debt and equity investments, including three add-on investments and one refinancing, and received proceeds from repayments and amortizations on investments of $14.5 million. As of June 30, 2017, the weighted average yield on debt investments was 11.6%.

Add-on investments during the quarter included the following:

  • NTI Holdings, LLC - $3.5 million additional investments in 1st lien notes and $0.1 million of equity
  • Black Diamond Rentals - $0.3 million investment in tranche C super senior notes
  • My Alarm Center, LLC - $0.3 million investment in second lien notes
  • LRI Holding, Inc. – $7.2 million additional investments in 1st lien notes and $0.1 million of equity

As of June 30, 2017, Alcentra had two investments, Show Media, Inc. and My Alarm Center, LLC, on non-accrual status.

Liquidity and Capital Resources

At June 30, 2017, Alcentra had $3.8 million in cash and cash equivalents, $35.1 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 July 3, 2017, NWN Corporation repaid its 1st lien debt totaling $3,856,608.
  • On July 5, 2017, Superior Controls, Inc. repaid $825,000 of its 1st lien debt.
  • On July 6, 2017, Alcentra paid a dividend to shareholders of record as of June 30, 2017 of $0.34 per share.
  • On July 7, 2017, Superior Controls, Inc. repaid an additional $175,000 of its 1st lien debt.
  • On July 11, 2017, Alcentra funded an additional $2.0 million in Lugano Diamonds & Jewelry, Inc.
  • On July 14, 2017, Alcentra funded an additional $1.9 million in My Alarm Center, LLC as part of the recapitalization and change of control transaction described above in the Management Commentary.

Third Quarter 2017 Regular Dividend of $0.34 Per Share Declared

On August 3, 2017, the Company's Board of Directors declared a regular quarterly dividend of $0.34 per share for the third quarter of 2017, which is payable on October 5, 2017 to stockholders of record as of September 30, 2017.

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.

Second Quarter 2017 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 10:30 am ET on Friday, August 4, 2017. 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 63896338#.

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 August 4, 2018.

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 $250.0 million. Alcentra's 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. In addition, for tax purposes, Alcentra has elected to be treated as a regulated investment company, under Subchapter M of the Internal Revenue Code of 1986.

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's 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
June 30, 2017
(Unaudited)


As of
December 31, 2016

Assets


Portfolio investments, at fair value


Non-controlled, non-affiliated investments, at fair value (cost of $253,680,500 and $248,479,039, respectively)


$

235,723,168


$

239,722,117

Non-controlled, affiliated investments, at fair value (cost of $31,005,209 and $29,734,859, respectively)



20,377,820



22,094,203

Controlled, affiliated investments, at fair value (cost $15,459,015 and $15,122,171, respectively)



15,269,000



14,456,630

Total of portfolio investments, at fair value (cost $300,144,724 and $293,336,069, respectively)



271,369,988



276,272,950

Cash



3,802,620



3,891,606

Dividends and interest receivable



1,070,251



3,240,640

Receivable for investments sold



470,983



2,139,463

Deferred financing costs



848,054



1,287,807

Deferred tax asset



1,498,264



1,264,811

Income tax asset



795,364



Prepaid expenses and other assets



209,428



100,770

Total Assets


$

280,064,952


$

288,198,047



Liabilities


Credit facility payable


$

35,133,273


$

39,133,273

Notes payable (net of deferred note offering costs of $1,436,280 and $1,495,062, respectively)



53,563,720



53,504,938

Other accrued expenses and liabilities



375,037



282,165

Directors' fees payable



73,000



95,000

Professional fees payable



246,602



331,867

Interest and credit facility expense payable



1,132,888



1,008,127

Management fee payable



1,060,125



1,301,591

Income-based incentive fees payable



1,310,651



2,071,661

Distributions payable



4,843,375



4,586,816

Unearned structuring fee revenue



1,050,677



1,175,319

Income tax liability





182,699

Total Liabilities


$

98,789,348


$

103,673,456



Commitments and Contingencies (Note 12)




Net Assets


Common stock, par value $0.001 per share (100,000,000 shares authorized, 14,245,220 and 13,451,633 shares issued and outstanding, respectively)



14,245



13,452

Additional paid-in capital



206,977,643



196,290,348

Accumulated net realized loss



(2,198,897)



(776,548)

Undistributed net investment income



4,914,081



4,890,065

Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $343,268 and $1,170,393 as of June 30, 2017 and December 31, 2016, respectively



(28,431,468)



(15,892,726)

Total Net Assets



181,275,604



184,524,591

Total Liabilities and Net Assets


$

280,064,952


$

288,198,047



Net Asset Value Per Share


$

12.73


$

13.72










 

 

Alcentra Capital Corporation and Subsidiary


Consolidated Statements of Operations





For the three months ended June 30, 2017
(Unaudited)


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


For the six months ended June 30, 2017
(Unaudited)


For the six months ended June 30, 2016
(Unaudited)


Investment Income:


From non-controlled, non-affiliated investments:


Interest income from portfolio investments

$

6,187,702


$

5,169,619



$

13,192,379


$

10,437,162


Paid-in-kind interest income from portfolio investments


302,190



1,008,525




650,382



2,359,613


Other income from portfolio investments


587,782



652,786




1,197,747



1,571,450


Dividend income from portfolio investments


29,049






56,569




From non-controlled, affiliated investments:


Interest income from portfolio investments


594,972



785,044




846,750



1,695,367


Paid in-kind income from portfolio investments


63,345



634,025




450,381



1,485,164


Other income from portfolio investments




1,845,055






1,950,937


From controlled, affiliated investments:


Interest income from portfolio investments


573,069



382,888




978,904



764,635


Paid in-kind income from portfolio investments




162,027




166,445



322,032


Other income from portfolio investments










Total investment income


8,338,109



10,639,969




17,539,557



20,586,360




Expenses:


Management fees


1,229,648



1,283,763




2,479,217



2,572,799


Income-based incentive fees




926,158




653,911



1,716,885


Professional fees


226,849



372,535




493,188



726,537


Valuation services


68,345



71,061




169,741



142,047


Interest and credit facility expense


1,513,067



1,334,510




3,039,974



2,643,454


Amortization of deferred financing costs


288,048



283,805




573,611



548,435


Directors' fees


74,344



84,372




142,480



149,295


Insurance expense


60,102



65,771




124,583



132,381


Amortization of deferred note offering costs


105,418






203,828




Other expenses


98,437



319,648




392,557



451,289


Total expenses


3,664,258



4,741,623




8,273,090



9,083,122


Waiver of management fees


(169,524)






(169,524)




Net expenses


3,494,734



4,741,623




8,103,566



9,083,122


Net investment income


4,843,375



5,898,346




9,435,991



11,503,238




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


Net realized gain (loss) on:


Non-controlled, non-affiliated investments


30,002



23,802




(1,019,237)



1,900,440


Non-controlled, affiliated investments




1,626,964






2,021,697


Controlled, affiliated investments









(11,154,495)


Net realized gain (loss) from portfolio investments


30,002



1,650,766




(1,019,237)



(7,232,358)


Net change in unrealized appreciation (depreciation) on:


Non-controlled, non-affiliated investments


(8,084,209)



(3,575,425)




(9,200,410)



(9,560,426)


Non-controlled, affiliated investments


(2,168,452)



(2,228,352)




(2,986,733)



351,589


Controlled, affiliated investments


328,527



(62,999)




475,526



11,143,915


Net change in unrealized appreciation (depreciation) from portfolio investments


(9,924,134)



(5,866,776)




(11,711,617)



1,935,078


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


(102,309)



(287,167)




(827,125)



(497,031)


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


(9,996,441)



(4,503,177)




(13,557,979)



(5,794,311)


Net Increase (Decrease) in Net Assets Resulting from Operations

$

(5,153,066)


$

1,395,169



$

(4,121,988)


$

5,708,927




Basic and diluted:


Net investment income per share

$

0.36


$

0.44



$

0.68


$

0.85


Earnings per share

$

(0.38)


$

0.10



$

(0.30)


$

0.42


Weighted Average Shares of Common Stock Outstanding


13,612,059



13,500,429




13,783,414



13,507,973


Dividends declared per common share

$

0.340


$

0.340



$

0.710


$

0.680



















 

SOURCE Alcentra Capital Corporation

For further information: Paul Echausse, Chairman, Alcentra Capital, 212 922-8960; David Scopelliti, Chief Executive Officer, Alcentra Capital, 212 922-6237; Ellida McMillan, Chief Financial Officer, Alcentra Capital, 212 922-6644


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