Capitala Finance Corp. Reports Third Quarter 2016 Results

November 08, 2016

CHARLOTTE, N.C.-- Capitala Finance Corp. (Nasdaq:CPTA) ("Capitala", the "Company", "we", "us", or "our") today announced its financial results for the third quarter of 2016.

Third Quarter Highlights

  • Net investment income of $7.4 million, or $0.47 per common share
  • Investment advisor waived $0.3 million of incentive fees for the quarter, cumulative waiver exceeds $2.7 million since fourth quarter of 2015
  • First close on Capitala Private Credit Fund V, LP, providing co-investment opportunities for the Company
  • Recent repayments and sales provide liquidity for the Company to fund investments currently in the pipeline
  • Weighted average yield on debt portfolio at quarter end of 12.7%

Management Commentary

In describing the Company's third quarter activities, Joseph B. Alala, III, Chairman and Chief Executive Officer, stated, "For the fifth consecutive quarter, distributions were covered by net investment income. New investment activity, during the quarter and subsequent to quarter-end, is a testament to our direct origination capabilities. The Company now has adequate liquidity to co-invest pro-rata with Capitala Private Credit Fund V, LP, allowing the Capitala platform to underwrite investment opportunities from $10 million to $50 million per investment."

Third Quarter 2016 Financial Results

Total investment income was $17.4 million for the third quarter of 2016, compared to $18.3 million for the same period in 2015, a decrease of $0.9 million. Fee income for the third quarter of 2016 was $1.2 million lower than the comparable period in 2015. All other income collectively was $0.3 million higher in the third quarter of 2016 compared to 2015.

Total expenses for the third quarter of 2016 were $9.9 million, compared to $10.5 million for the comparable period in 2015, with no material variances.

Net investment income for the third quarter of 2016 was $7.4 million, or $0.47 per share, compared to $7.8 million, or $0.48 per share, for the same period in 2015.

Net realized losses totaled $17.0 million, or $1.08 per share, for the third quarter of 2016, compared to net realized losses of $16.0 million for the same period in 2015. During the quarter, the Company realized a $28.3 million loss related to TCE Holdings, Inc., partially offset by gains related to MTI Holdings, LLC of $8.6 million, STX Healthcare Management Services, Inc. of $1.4 million, and $1.3 million in net realized gains on other investments.

Net unrealized appreciation totaled $8.5 million, or $0.54 per share, for the third quarter of 2016, compared to net unrealized appreciation of $16.2 million for the third quarter of 2015. For the third quarter of 2016, the Company recorded $0.9 million of depreciation related to the written call option exercisable on Eastport Holdings, LLC membership units. The net loss (realized and unrealized) amounted to $9.5 million for the third quarter of 2016.

The net decrease in net assets resulting from operations was $2.0 million for the third quarter of 2016, or $0.13 per common share, compared to a net increase of $8.0 million, or $0.49 per common share, for the same period in 2015.

Total net assets were $248.4 million at September 30, 2016, or $15.68 per share, compared to $17.04 per share at December 31, 2015.

Investment Activity

During the third quarter of 2016, the Company originated $26.0 million of investments, with a weighted average yield on debt investments of 12.1%. The Company received $64.3 million in repayments in the ordinary course of business. In addition, the Company sold $47.6 million in investments to a third party, based on the Company's June 30, 2016 fair values.

Investment Portfolio

At September 30, 2016, the Company's portfolio consisted of investments in 51 companies with a fair market value of $503.8 million and a cost basis of $477.0 million. Senior secured debt investments represented 41.5% of the portfolio, subordinated debt investments represented 38.1% of the portfolio, equity/warrant investments represented 16.4% of the portfolio, and the investment in Capitala Senior Liquid Loan Fund I, LLC represented 4.0% of the portfolio, based on fair values at September 30, 2016.

At September 30, 2016, we had debt investments in two portfolio companies on non-accrual status with a fair value and cost basis of $9.5 million and $13.3 million, respectively. 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 September 30, 2016, the Company had $60.6 million in cash and cash equivalents. In addition, the Company had SBA debentures outstanding totaling $170.7 million with an annual weighted average interest rate of 3.29%, and $113.4 million of fixed rate notes bearing an interest rate of 7.125%. At September 30, 2016, the Company had $38.0 million outstanding and $82.0 million available under its senior secured revolving credit facility, which is priced at LIBOR plus 3.0% and matures on October 17, 2018.

Subsequent Events

On November 3, 2016, the Company invested $22.5 million in the senior secured debt of Vintage Stock, Inc. The senior secured debt has a cash rate of LIBOR + 12.5% with a 0.5% floor and PIK rate of 3.0%.

Third 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 Wednesday November 9, 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.

About Capitala Group

Capitala Group is a leading provider of capital to lower and traditional middle market companies, through its family of credit focused funds. Since 1998, Capitala Group's managed funds have participated in over 133 transactions, representing over $1.2 billion of investments in a variety of industries throughout North America. Capitala Group manages both public capital (Capitala Finance Corp.) (Nasdaq:CPTA) and private capital (Capitala Private Credit Fund V, LP) and CapitalSouth Partners SBIC Fund IV, LP) for institutional and individual investors, and seeks to partner with strong management teams to create value and serve as long term partners. For more information, please visit 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.

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