Capitala Finance Corp. Reports First Quarter 2016 Results

May 09, 2016

Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala" or the “Company”) today announced its financial results for first quarter ended March 31, 2016.

First Quarter Highlights

  • Net investment income of $7.4 million, or $0.47 per common share
  • Paid $0.47 of distributions per share during the quarter
  • External manager continues to permanently waive incentive fees in support of distribution coverage
  • Originated $27.5 million of gross investments during the quarter with a weighted average yield on debt investments of 13.5%
  • Net asset value per share of $16.29 compared to $17.04 at year end
  • Energy investments, based on fair values, comprise 6.3% of the portfolio at March 31, 2016, compared to 12.3% at December 31, 2014

Management Commentary

In describing the Company’s first quarter activities, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, “We are pleased to report that for the third quarter in a row, distributions were covered by net investment income. This remains a high priority for our team. In addition, our portfolio group remains actively engaged in an effort to reduce the level of non-accrual investments, most notably in the energy sector. Lastly, we remain focused on making quality investments with proper risk adjusted returns.”

First Quarter 2016 Financial Results

Total investment income was $17.4 million for the first quarter of 2016, compared to $14.0 million for the same period in 2015, an increase of $3.4 million. Interest, fee and payment-in-kind income collectively were $2.5 million higher in the first quarter of 2016 compared to 2015, resulting from a larger investment portfolio. All other income, including dividend income, increased by $0.9 million for the comparable period.

Total expenses for the first quarter of 2016 were $10.0 million, compared to $9.2 million for the comparable period in 2015. The $0.8 million increase is primarily attributable to (1) an increase in interest and financing expenses of $0.4 million, (2) an increase of $0.3 million in management fees, and (3) an increase of $0.2 million related to general and administrative expenses.

Net investment income for the first quarter of 2016 was $7.4 million, or $0.47 per share, compared to $4.8 million, or $0.37 per share, for the same period in 2015.

Net realized losses totaled $2.3 million, or $0.14 per share, for the first quarter of 2016, compared to net realized gains of $9.3 million for the same period in 2015. During the quarter, the Company realized a $2.5 million loss related to Source Recycling, LLC, and was partially offset by $0.2 million in realized gains.

Net unrealized depreciation totaled $9.3 million, or $0.59 per share, for the first quarter of 2016, compared to net unrealized depreciation of $4.3 million for the first quarter of 2015. During the first quarter of 2016, energy investments depreciated by approximately $14.0 million, while the remainder of the portfolio collectively appreciated by approximately $4.7 million.

The net decrease in net assets resulting from operations was $4.2 million for the first quarter of 2016, or $0.27 per common share, compared to a net increase of $9.9 million, or $0.76 per common share, for the same period in 2015.

First Quarter 2016 Investment Activity

During the first quarter of 2016, the Company originated $27.5 million of investments. The weighted average yield on first quarter 2016 debt investments was 13.5%. During the period, we received $10.2 million in repayments, for net deployments of $17.3 million.

Investment Portfolio

As of March 31, 2016, the Company’s portfolio consisted of investments in 56 companies with a fair market value of $599.7 million and a cost basis of $586.8 million. Senior secured debt investments represented 36.2% of the portfolio, subordinated debt investments represented 44.4% of the portfolio, equity/warrant investments represented 16.3% of the portfolio, and the investment in Capitala Senior Liquid Loan Fund I, LLC represented 3.1% of the portfolio, based on fair values at March 31, 2016.

The fair value of the Company’s five energy investments totaled $37.9 million at March 31, 2016, representing 6.3% of the portfolio, as compared 8.8% of the portfolio at December 31, 2015. During the first quarter of 2016, the Company recorded unrealized depreciation of $14.0 million on its energy investments. In the aggregate, the fair value of our energy investments is 51.0% of the cost basis, as of March 31, 2016.

At March 31, 2016, we had debt investments in four portfolio companies on non-accrual status with a fair value and cost basis of $12.7 million and $42.4 million, respectively. Non-accrual loans, on a fair value and cost basis, represent 2.1% and 7.2%, respectively, of the portfolio at March 31, 2016. At December 31, 2015, the fair value and cost basis of non-accrual investments was $28.0 million and $47.1 million, respectively.

Liquidity and Capital Resources

At March 31, 2016, the Company had $14.3 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $182.2 million with an annual weighted average interest rate of 3.43%, and $113.4 million of fixed rate notes bearing an interest rate of 7.125%. At March 31, 2016, the Company had $73.0 million outstanding and $47.0 million available under its senior secured revolving credit facility, which is priced at LIBOR plus 3.0% and matures on October 17, 2018.

First Quarter 2016 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 8:30 a.m. on Tuesday May 10, 2016. To participate in the conference call, please dial 1-877-312-5507 approximately 10 minutes prior to the call. A live webcast of the conference will be available at http://investor.CapitalaGroup.com.

About Capitala Finance Corp.

Capitala Finance Corp. is a business development company that invests primarily in traditional mezzanine, senior subordinated and unitranche debt, as well as senior and second-lien loans and, to lesser extent, equity securities issued by lower and traditional middle-market companies. The Company is managed by Capitala Investment Advisors, LLC. For more information on Capitala, or to automatically receive email notifications of Company financial information, press releases, stock alerts, or other corporate filings, please visit the Investor Relations section of our website at www.CapitalaGroup.com.

Forward-Looking Statements

This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

SOURCE: Capitala Finance Corp.
Capitala Finance Corp.
Stephen Arnall, Chief Financial Officer
704-376-5502
sarnall@capitalagroup.com

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