Alcentra Capital Corporation

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Alcentra Capital Corporation Announces Third Quarter 2017 Financial Results, Dividend Policy, and Share Repurchase Plan

Nov 6, 2017

NEW YORK, Nov. 6, 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 third quarter of 2017.

Third Quarter 2017 Financial Highlights

  • Total investment income of $7.6 million
  • Net investment income of $4.8 million, or $0.34 per share based on weighted average shares of common stock outstanding, after management fee waivers of $1.2 million
  • Invested $28.1 million in debt and equity securities, inclusive of three add-on investments
  • Received proceeds from repayments of $3.9 million
  • Paid regular quarterly dividend for the third quarter of 2017 of $0.34 per share on October 5, 2017
  • The Company's Board of Directors declared a dividend of $0.25 per share for the fourth quarter of 2017, which is payable on January 4, 2018 to stockholders of record as of December 29, 2017
  • The Company's Board of Directors approved a $2.5 million open market stock repurchase program. The program is authorized through November 2, 2018
  • Net asset value of $174.8 million, or $12.27 per share, which is down from $12.73 in the second quarter of 2017
  • Weighted Average Portfolio Company Leverage – 3.59x
  • Weighted Average Debt Portfolio Yield – 11.5%

Management Commentary "During the quarter we led an investment in Carlton Group, a provider of turnkey solutions addressing employee incentives/rewards program administration which was acquired by HIG Growth Fund.  Subsequent to September 30, 2017 we led an acquisition financing for Cirrus, a specialized healthcare staffing company that was acquired by Webster Capital."

On November 2, 2017, the Board of Directors declared a dividend of $0.25 per share for the fourth fiscal quarter of 2017, which is payable on January 4, 2018.  David Scopelliti, the Company's CEO and CIO, stated, "The board's view on the dividend policy is to make distributions to shareholders in line with the earnings potential of the portfolio. The market environment has changed since the initial dividend rate of $0.34 per share following our IPO in May 2014. While it is still possible to find high yielding investments, we believe a single strategy of pursuing higher-yielding junior unsecured debt comes with a greater risk of principal loss or impairment in the current market environment.  While we will not abandon making junior capital investments we will continue to expand the senior and unitranche component of our portfolio in order to diversify and mitigate portfolio risk." Ellida McMillan, the Company's CFO and COO, commented that, "Although the earnings capability of the portfolio has been reduced due to recent performance of certain credits, the strategy going forward will allow us to generate income without reducing the quality of our portfolio or reaching for yield. Our adviser, Alcentra NY LLC, has waived $1.3 million of its management fees this fiscal year to-date to meet the $0.34/share dividend to our shareholders for the past two quarters." Mr. Scopelliti further stated, "The board and executive management team are committed to creating long-term shareholder value and believe that aligning the distribution with earnings power of the portfolio will provide our shareholders with more stable and consistent returns over the long-term."

Third Quarter 2017 Financial Results

For the three months ended September 30, 2017, total investment income was $7.6 million, a decrease of $1.5 million over the $9.1 million of total investment income for the three months ended September 30, 2016. This decrease was primarily attributable to the conversion of My Alarm Center, LLC to equity and the addition of GST AutoLeather Inc. and Media Storm, LLC to non-accrual status, along with a shift in timing of the closing of new deals. Interest and PIK income comprised $7.2 million and other income was $0.4 million. Net investment income for the three months ended September 30, 2017 was $4.8 million ($0.34 per share which is based on average shares outstanding of 14.2 million) and after a management fee waiver of $1.2 million.

For the three months ended September 30, 2017, net expenses were $2.8 million. Interest and financing expenses for the quarter was $1.8 million and the base management fee (net of a $1.2 million waiver) was $0.07 million. There were no incentive fees earned for the three months ended September 30, 2017. Professional fees and other general and administrative expenses totaled $0.8 million for the three months ended September 30, 2017.

During the three months ended September 30, 2017, we recorded a net realized loss on investments of $10.4 million due to My Alarm Center, LLC.  During the quarter, we also recorded a net change in unrealized depreciation from portfolio investments of $1.3 million attributable to unrealized depreciation of our debt investments in GST AutoLeather Inc. and Southern Technical Institute, Inc offset by the reversal of the unrealized on My Alarm Center, LLC.   The net decrease in net assets resulting from operations post benefit for taxes during the three months ended September 30, 2017 was $1.6 million.

Portfolio and Investment Activities

As of September 30, 2017, the fair value of our investment portfolio totaled $282.3 million and consisted of 30 portfolio companies. The average portfolio investment on a cost basis was $10.4 million and equity constituted 9.0% of the portfolio.  During the third quarter, we invested $28.1 million in debt and equity investments, including three add-on investments and received proceeds from repayments and amortizations on investments of $3.9 million. As of September 30, 2017, the weighted average yield on debt investments was 11.5%.

New and add-on investments during the quarter included the following:

  • Carlton Group- $9.8 million in 8.0% 1st lien – tranche A notes and $13.4 million in 12.5% 1st lien – tranche B notes
  • Lugano - $2.0 million additional investment in 1st lien notes
  • Black Diamond Rentals - $1.0 million additional investment in tranche C super senior notes
  • My Alarm Center, LLC - $1.9 million additional investment in preferred equity

As of September 30, 2017, Alcentra had three debt investments, Show Media, Inc., GST AutoLeather Inc. and Media Storm, LLC on non-accrual status.

During the quarter the investment team instituted a new Risk Rating system that will be disclosed quarterly to investors in an effort to provide more transparency into the overall state of the portfolio. Details of this rating system may be found in our website presentation (https://investors.alcentracapital.com/events-presentations) and in the MD&A section of the 10Q.

Liquidity and Capital Resources

At September 30, 2017, Alcentra had $4.9 million in cash and cash equivalents, $59.7 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 5, 2017, Alcentra paid a dividend to shareholders of record as of September 30, 2017 of $0.34 per share
  • On October 19, 2017, Alcentra invested $19.3 million in Cirrus Medical Staffing, Inc. (L + 8.25% First Lien debt)
  • On November 3, 2017, Nation Safe Drivers repaid their investment in the amount of $11.7 million

Fourth Quarter 2017 Dividend

On November 2, 2017, the Company's Board of Directors declared a regular quarterly dividend of $0.25 per share for the fourth quarter of 2017, which is payable on January 4, 2018 to stockholders of record as of December 29, 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.

Third Quarter 2017 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 9:00 am ET on November 7, 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 7779105#.

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 7, 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
September 30,
2017
(Unaudited)


As of
December 31,
2016

Assets

Portfolio investments, at fair value

Non-controlled, non-affiliated investments, at fair value (cost of $257,885,158 and
$248,479,039, respectively)


$

246,751,971


$

239,722,117

Non-controlled, affiliated investments, at fair value (cost of $38,927,216 and
$29,734,859, respectively)



20,143,071



22,094,203

Controlled, affiliated investments, at fair value (cost $15,633,464 and $15,122,171,
respectively)



15,443,922



14,456,630

Cash



4,925,485



3,891,606

Dividends and interest receivable



2,783,875



3,240,640

Receivable for investments sold



720,983



2,139,463

Deferred financing costs



620,533



1,287,807

Deferred tax asset



6,782,823



1,264,811

Income tax asset



796,241



Prepaid expenses and other assets



143,993



100,770

Total Assets


$

299,112,897


$

288,198,047


Liabilities

Credit facility payable


$

59,783,273


$

39,133,273

Notes payable (net of deferred note offering costs of $1,332,553 and $1,495,062,
respectively)



53,667,447



53,504,938

Other accrued expenses and liabilities



477,496



282,165

Directors' fees payable



85,417



95,000

Professional fees payable



389,280



331,867

Interest and credit facility expense payable



1,620,034



1,008,127

Management fee payable



1,130,191



1,301,591

Income-based incentive fees payable



1,294,985



2,071,661

Distributions payable



4,843,375



4,586,816

Unearned structuring fee revenue



1,000,653



1,175,319

Income tax liability





182,699

Total Liabilities


$

124,292,151


$

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



(12,604,552)



(776,548)

Undistributed net investment income



4,914,082



4,890,065

Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for
taxes of $5,626,202 and $1,170,393 as of September 30, 2017 and December 31, 2016,
respectively



(24,480,672)



(15,892,726)

Total Net Assets



174,820,746



184,524,591

Total Liabilities and Net Assets


$

299,112,897


$

288,198,047


Net Asset Value Per Share


$

12.27


$

13.72








 

 

Alcentra Capital Corporation and Subsidiary




Consolidated Statements of Operations





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


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


For the nine
months ended
September 30, 2017
(Unaudited)


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


Investment Income:


From non-controlled, non-affiliated investments:


Interest income from portfolio investments

$

5,374,814


$

6,306,358



$

18,567,193


$

16,743,520


Paid-in-kind interest income from portfolio investments


226,519



409,638




876,901



2,769,251


Other income from portfolio investments


377,071



158,048




1,574,818



1,729,498


Dividend income from portfolio investments


30,661



52,021




87,230



52,021


From non-controlled, affiliated investments:


Interest income from portfolio investments


405,892



827,500




937,704



2,522,867


Paid in-kind income from portfolio investments


609,854



462,161




1,375,173



1,947,325


Other income from portfolio investments




336,679






2,287,616


From controlled, affiliated investments:


Interest income from portfolio investments


411,262



398,185




1,219,767



1,162,820


Paid in-kind income from portfolio investments


174,448



165,878




511,292



487,910


Other income from portfolio investments










Total investment income


7,610,521



9,116,468




25,150,078



29,702,828




Expenses:


Management fees


1,230,961



1,335,294




3,710,178



3,908,093


Income-based incentive fees




607,739




638,244



2,324,624


Professional fees


368,909



273,965




862,097



1,000,502


Valuation services


41,346



57,722




211,087



199,769


Interest and credit facility expense


1,549,462



1,476,911




4,589,436



4,120,365


Amortization of deferred financing costs


232,807



299,932




806,418



848,367


Directors' fees


112,281



83,313




254,761



232,608


Insurance expense


57,232



65,915




181,815



198,296


Amortization of deferred note offering costs


111,726



91,852




315,554



91,852


Other expenses


223,318



37,032




631,542



488,321


Total expenses


3,928,042



4,329,675




12,201,132



13,412,797


Waiver of management fees


(1,160,896)






(1,330,420)




Net expenses


2,767,146



4,329,675




10,870,712



13,412,797


Net investment income


4,843,375



4,786,793




14,279,366



16,290,031




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


Net realized gain (loss) on:


Non-controlled, non-affiliated investments


(10,477,819)



(361,060)




(11,497,056)



1,539,380


Non-controlled, affiliated investments


72,164



9,334,765




72,164



11,356,462


Controlled, affiliated investments




(109,512)






(11,264,007)


Net realized gain (loss) from portfolio investments


(10,405,655)



8,864,193




(11,424,892)



1,631,835


Net change in unrealized appreciation (depreciation) on:


Non-controlled, non-affiliated investments


6,824,145



(8,615,042)




(2,376,265)



(18,175,468)


Non-controlled, affiliated investments


(8,156,756)



(9,685,943)




(11,143,489)



(9,334,354)


Controlled, affiliated investments


473



(742,006)




475,999



10,401,909


Net change in unrealized appreciation
(depreciation) from portfolio investments


(1,332,138)



(19,042,991)




(13,043,755)



(17,107,913)


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


5,282,934



3,549,478




4,455,809



3,052,447


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


(6,454,859)



(6,629,320)




(20,012,838)



(12,423,631)


Net Increase (Decrease) in Net Assets Resulting from
Operations

$

(1,611,484)


$

(1,842,527)



$

(5,733,472)


$

3,866,400




Basic and diluted:


Net investment income per share

$

0.34


$

0.35



$

1.03


$

1.21


Earnings per share

$

(0.11)


$

(0.14)



$

(0.41)


$

0.29


Weighted Average Shares of Common Stock Outstanding


14,245,220



13,490,636




13,825,432



13,502,152


Dividends declared per common share

$

0.340


$

0.340



$

1.050


$

1.020



















 

 

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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