Alcentra Capital Corporation

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Alcentra Capital Corporation Announces Third Quarter 2018 Financial Results

Nov 5, 2018

NEW YORK, Nov. 5, 2018 /PRNewswire/ -- Alcentra Capital Corporation (NASDAQ: ABDC) ("Alcentra" or the "Company"), a provider of debt financing solutions to middle-market companies based in the United States, today announced its financial results for the third quarter of 2018.

Third Quarter 2018 Highlights

  • Total investment income of $6.6 million
  • Net investment income of $3.0 million, or $0.22 per share
  • Invested $6.1 million of capital into one new portfolio company and one add on investment
  • Received proceeds from repayments, loan dispositions, and amortizations on investments of $4.6 million
  • Paid regular quarterly dividend for the second quarter of 2018 of $0.18 per share on October 4, 2018
  • The Company's Board of Directors declared a dividend of $0.18 per share for the fourth quarter of 2018, which is payable on January 3, 2019 to stockholders of record as of December 31, 2018
  • On November 5, 2018, the Company's Board of Directors approved a stock repurchase program.  Pursuant to the program, the Company is authorized to repurchase up to $10 million in the aggregate of its outstanding common stock in the open market.   The timing, manner, price and amount of any share repurchases will be determined by the Company's management, in its discretion, based upon the evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors.  The program will be in effect until the approved dollar amount has been used to repurchase shares. The program does not require the Company to repurchase any specific number of shares and the Company cannot assure you that any shares will be repurchased under the program.  The program may be suspended, extended, modified or discontinued at any time.
  • Net asset value of $149.8 million, or $11.08 per share
  • Weighted average debt portfolio yield – 10.9%
  • The Board of Directors elected to increase the size of the Board from three to five members by adding two independent directors, William H. Wright II and Frederick Van Zijl, effective September 16, 2018
  • Senior secured revolving credit facility amendments included reduction in interest expense, increase in financial flexibility and maturity extension, among other amendments

Vijay Rajguru, CEO of Alcentra, commented on the quarter: "We have continued to execute on our plan to shift our portfolio toward a more traditional private-equity focused, middle market, senior secured strategy.  Our goal remains to establish and maintain a more stable asset base and NAV, with appropriate risk/return characteristics that provide attractive dividends and returns to our shareholders. Our NAV per share has stabilized, increasing 0.6% since Q2 2018, and we expect our strategy to yield further stability as we continue our rotation into middle market senior secured loans.  This rotation is particularly important in market conditions which, while remaining healthy, require caution this late in the economic cycle."

Third Quarter 2018 Financial Results

For the three months ended September 30, 2018, total investment income was $6.6 million, a decrease of $1.0 million over the $7.6 million of total investment income for the three months ended September 30, 2017. This decrease was due to the continued transition of the portfolio to senior secured loans. For the three months ended September 30, 2018, interest and PIK income comprised $6.5 million and other non-recurring income was $0.1 million.

For the three months ended September 30, 2018, net expenses (total expenses less a management fee waiver) were $3.6 million, an increase of $0.8 million over the $2.8 million of net expenses for the three months ended September 30, 2017. While net expenses increased, total expenses decreased by $0.2 million due to lower management fees and the reversal of previously accrued incentive fees, partially offset by an increase in interest and credit facility expense.

Net investment income for the three months ended September 30, 2018 was $3.0 million or $0.22 per share as compared to $4.8 million or $0.34 per share for the three months ended September 30, 2017.

For the three months ended September 30, 2018, we recorded a net realized loss from portfolio investments of $0.04 million and a net increase in unrealized appreciation from portfolio investments of $0.1 million after the provision for taxes as compared to a net realized loss from portfolio investments of $10.4 million and a net change in unrealized depreciation from portfolio investments of $6.5 million after the provision for taxes for the three months ended September 30, 2017.  As a result, our net increase in net assets resulting from operations was $3.1 million after the provision for taxes for the three months ended September 30, 2018 as compared to our net decrease in net assets resulting from operations of $1.6 million after the benefit for taxes for the three months ended September 30, 2017.

Portfolio and Investment Activities

As of September 30, 2018, the fair value of our investment portfolio totaled $248.6 million and consisted of 34 investments in 28 companies, 5 broadly syndicated loans, and 1 rated debt security in a CLO. The average portfolio investment size on a cost basis was $6.9 million and equity investments constituted 10.8% of the portfolio.  We received proceeds from repayments, loan dispositions, and amortizations on investments of $4.6 million during the three months ended September 30, 2018.  This included the sale of Blue Mountain CLO and OZLM Funding IV Ltd CLO and various amortization payments from portfolio investments.

New and add-on investments totaling $6.1 million during the quarter ended September 30, 2018 included the following:

  • Value-Based Care Solutions Group (since re-named Virence Health Technologies) - $6.0 million in L+8.125% 2nd lien secured debt
  • Envocore - $0.06 million of preferred equity

As of September 30, 2018, Alcentra had four debt investments, Black Diamond Rentals, Show Media, Inc., Southern Technical Institute, Inc. and Xpress Global Systems, LLC on non-accrual status.  

A risk rating of the portfolio companies is available in our website presentation (https://investors.alcentracapital.com/events-presentations) and in the MD&A section of the Form 10-Q for the quarter ended September 30, 2018 filed with the SEC.

Liquidity and Capital Resources

At September 30, 2018, Alcentra had $7.8 million in cash and cash equivalents, $54.5 million of borrowings outstanding on its $115 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.

Subsequent Events

  • On October 4, 2018, Alcentra paid a dividend of $0.18 per share to shareholders of record as of September 28, 2018.
  • On October 15, 2018, Alcentra sold Weight Watchers International for $1.9 million (Senior Secured L + 4.75%).
  • On October 16, 2018, Alcentra sold Lumileds and Asurion, LLC for $1.96 million and $3.1 million, respectively.  Lumileds and Asurion were both senior secured loans at L + 5.00% and L +6.00%, respectively.
  • On October 17, 2018, Alcentra invested $12.9 million in Impact Group (L + 6.25% 1st Lien).
  • On October 19, 2018, Acuity Technologies (fka QRC) repaid their debt (subordinated notes) in full in the amount of $10.0 million.
  • On October 22, 2018, Alcentra sold West Corporation and Mayfield Agency ("Feeco") for $1.76 million and $1.98 million, respectively.  Both loans were senior secured at L +3.50% and L + 8.50%, respectively.
  • On November 2, 2018, Alcentra invested $4.5 million in Sandvine Corporation (2nd Lien at L + 8.00%).
  • On November 2, 2018, Security Alarm Financing Enterprises, L.P. ("SAFE") repaid their debt (subordinated notes) for total proceeds of $10.4 million.
  • On November 5, 2018, the Company's Board of Directors declared a dividend of $0.18 per share for the third quarter of 2018, which is payable on January 3, 2019.

Third Quarter 2018 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 9:30 am ET on November 6, 2018. 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 1168456.  

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 6, 2019.

ABOUT ALCENTRA CAPITAL CORPORATION

Alcentra Capital Corporation provides customized debt and equity financing solutions to middle-market companies, which the Company generally defines as U.S. based companies having between $15.0 million and $75.0 million of EBITDA. 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, 2018
(Unaudited)


As of
December 31, 2017

Assets


Portfolio investments, at fair value


Non-controlled, non-affiliated investments, at fair value (cost of $224,244,959 and $265,675,598,
respectively)


$

217,130,492


$

252,325,403

Non-controlled, affiliated investments, at fair value (cost of $40,659,071 and $51,734,635, respectively)



16,499,213



19,972,905

Controlled, affiliated investments, at fair value (cost $15,336,406 and $15,806,301, respectively)



15,007,246



15,256,237

Cash



7,791,745



13,882,956

Dividends and interest receivable



1,400,706



1,942,300

Receivable for investments sold



644,733



669,733

Deferred financing costs



1,521,603



514,241

Deferred tax asset



5,365,469



4,934,962

Income tax asset



614,781



748,408

Prepaid expenses and other assets



143,986



79,005

Total Assets


$

266,119,974


$

310,326,150



Liabilities


Credit facility payable


$

54,457,145


$

89,703,273

Notes payable (net of deferred note offering costs of $950,726 and $1,252,165, respectively)



54,049,274



53,747,835

Other accrued expenses and liabilities



371,444



447,589

Directors' fees payable



78,500



68,917

Professional fees payable



318,505



548,455

Interest and credit facility expense payable



1,342,528



1,248,791

Management fee payable



1,712,974



1,265,172

Income-based incentive fees payable



1,251,180



1,294,985

Distributions payable



2,449,591



3,561,305

Unearned structuring fee revenue



275,020



725,653

Total Liabilities



116,306,161



152,611,975



Commitments and Contingencies (Note 12)




Net Assets


Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,517,234 and 14,222,945 shares
issued and outstanding, respectively)



13,517



14,223

Additional paid-in capital



201,748,407



206,570,701

Accumulated net realized loss



(31,765,697)



(11,436,155)

Undistributed net investment income



7,215,213



4,449,122

Net unrealized appreciation (depreciation) on investments, net of benefit/(provision) for taxes of $4,205,858 and
3,778,273 as of September 30, 2018 and December 31, 2017, respectively



(27,397,627)



(41,883,716)

Total Net Assets



149,813,813



157,714,175

Total Liabilities and Net Assets


$

266,119,974


$

310,326,150



Net Asset Value Per Share


$

11.08


$

11.09

 

 

Alcentra Capital Corporation and Subsidiary




Consolidated Statements of Operations





For the three
months ended
September 30, 2018
(Unaudited)


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


For the nine
months ended
September 30, 2018
(Unaudited)


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

Investment Income:


From non-controlled, non-affiliated investments:


Interest income from portfolio investments

$

5,676,759


$

5,374,814



$

17,284,856


$

18,567,193

Paid-in-kind interest income from portfolio investments


107,164



226,519




352,295



876,901

Other income from portfolio investments


94,668



377,071




2,213,784



1,574,818

Dividend income from portfolio investments


30,756



30,661




92,268



87,230

From non-controlled, affiliated investments:


Interest income from portfolio investments


58,881



405,892




265,414



937,704

Paid in-kind income from portfolio investments


96,816



609,854




309,946



1,375,173

Other income from portfolio investments









From controlled, affiliated investments:


Interest income from portfolio investments


488,036



411,262




1,470,032



1,219,767

Paid in-kind income from portfolio investments




174,448






511,292

Other income from portfolio investments









Total investment income


6,553,080



7,610,521




21,988,595



25,150,078



Expenses:


Management fees


943,360



1,230,961




3,214,345



3,710,178

Income-based incentive fees


(43,805)






(43,805)



638,244

Professional fees


362,625



368,909




1,095,777



862,097

Valuation services


78,346



41,346




132,279



211,087

Interest and credit facility expense


1,705,992



1,549,462




5,146,364



4,589,436

Amortization of deferred financing costs


117,587



232,807




325,138



806,418

Directors' fees


87,076



112,281




300,104



254,761

Insurance expense


57,076



57,232




169,583



181,815

Amortization of deferred note offering costs


97,478



111,726




343,439



315,554

Consulting fees


54,152






535,892



Other expenses


284,764



223,318




810,583



631,542

Total expenses


3,744,651



3,928,042




12,029,699



12,201,132

Waiver of management fees


(157,227)



(1,160,896)




(266,508)



(1,330,420)

Net expenses


3,587,424



2,767,146




11,763,191



10,870,712

Net investment income


2,965,656



4,843,375




10,225,404



14,279,366



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


Net realized gain (loss) on:


Non-controlled, non-affiliated investments


(38,921)



(10,477,819)




(10,162,013)



(11,497,056)

Non-controlled, affiliated investments


(12)



72,164




(10,167,529)



72,164

Controlled, affiliated investments









Net realized gain (loss) from portfolio investments


(38,933)



(10,405,655)




(20,329,542)



(11,424,892)

Net change in unrealized appreciation (depreciation) on:


Non-controlled, non-affiliated investments


2,355,583



6,824,145




6,235,728



(2,376,265)

Non-controlled, affiliated investments


(1,610,661)



(8,156,756)




7,601,872



(11,143,489)

Controlled, affiliated investments




473




220,904



475,999

Net change in unrealized appreciation (depreciation) from
portfolio investments


744,922



(1,332,138)




14,058,504



(13,043,755)

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


(589,643)



5,282,934




427,585



4,455,809

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


116,346



(6,454,859)




(5,843,453)



(20,012,838)

Net Increase (Decrease) in Net Assets Resulting from Operations

$

3,082,002


$

(1,611,484)



$

4,381,951


$

(5,733,472)



Basic and diluted:


Net investment income per share

$

0.22


$

0.34



$

0.74


$

1.03

Earnings (loss) per share

$

0.23


$

(0.11)



$

0.32


$

(0.41)

Weighted Average Shares of Common Stock Outstanding


13,530,129



14,245,220




13,815,619



13,825,432

Dividends declared per common share

$

0.180


$

0.340



$

0.540


$

1.050

 

SOURCE Alcentra Capital Corporation

For further information: Vijay Rajguru, Chief Executive Officer, Alcentra Capital, 212 922-4215 or Ellida McMillan, Chief Financial Officer, Alcentra Capital, 212 922-6644


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