KCAP Financial, Inc. Announces Second Quarter 2016 Financial Results

08/03/2016 16:16

NEW YORK, Aug. 03, 2016 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) (the “Company”) announces its second quarter 2016 financial results.

Financial Highlights

Net investment income for the second quarter ended June 30, 2016 was approximately $5.1 million, or $0.14 per basic share, compared with approximately $5.8 million, or $0.16 per basic share in the quarter ended June 30, 2015.
Taxable distributable income for the quarter was $0.12 per basic share.
KCAP Financial, Inc. declared a second quarter shareholder distribution of $0.15 per share.
At June 30, 2016, the fair value of KCAP's investments totaled approximately $373 million.
Net asset value per share of $5.45 as of June 30, 2016, compared with $5.82 at December 31, 2015.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, “Credit markets have continued to improve since the first quarter, and we remain cautiously optimistic about the economy, and our credit quality remains solid.”

Operating Results

For the three months ended June 30, 2016, we reported total investment income of approximately $9.6 million as compared to approximately $11.2 million in the same period last year, a decrease of 14%, which is primarily due to the deleveraging of our balance sheet. Investment income from debt securities decreased 11% to approximately $5.2 million from approximately $5.9 million in the second quarter of 2015. Investment income on CLO fund securities in the second quarter of 2016 decreased to $3.4 million from $4.0 million in 2015, and dividends from our Asset Manager Affiliates in the second quarter of 2016 decreased to $850,000 from $1.2 million in the second quarter of 2015.

For the three months ended June 30, 2016, total expenses were lower by approximately $868,000 as compared to the same period in 2015, primarily attributable to decreases in professional fees, as well as a decrease in interest expense due to the repurchase and repayments of the Convertible Notes throughout 2015 and the first quarter of 2016.

Net investment income for the second quarter of 2016 and 2015 was approximately $5.1 million and $5.8 million, or $0.14 and $0.16 per basic share, respectively. Net realized and unrealized depreciation on investments for the three months ended June 30, 2016 was approximately $2.0 million, as compared to approximately $4.6 million of unrealized depreciation for the same period in 2015.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $373 million as of June 30, 2016. The composition of our investment portfolio at June 30, 2016 and December 31, 2015 at cost and fair value was as follows:

	June 30, 2016 (unaudited)						December 31, 2015
Security Type	Cost/Amortized Cost		Fair Value		%¹		Cost/Amortized Cost		Fair Value		%¹
Money Market Accounts³	$	7,191,009	$	7,191,009	2		$	2,129,381	$	2,129,381	1
Senior Secured Loan		202,023,215		194,066,823	52			203,819,074		194,123,223	46
Junior Secured Loan		37,201,963		34,755,026	9			40,221,557		37,591,900	9
Senior Unsecured Loan		16,000,000		16,000,000	4			23,000,000		23,000,000	6
First Lien Bond		3,000,000		1,564,800	1			3,000,000		2,216,700	1
Senior Subordinated Bond		4,560,314		4,709,896	1			4,466,793		4,615,569	1
Senior Unsecured Bond		12,232,623		12,379,296	3			11,879,187		10,551,724	3
Senior Secured Bond		1,508,522		1,464,000	-			1,510,560		1,503,755	-
CLO Fund Securities		66,637,934		46,180,067	13			83,214,947		55,872,382	14
Equity Securities		10,467,787		9,231,202	3			10,467,787		9,548,488	2
Preferred Securities		-		-	-			10,411,673		11,036,373	3
Asset Manager Affiliates²		56,091,230		45,288,000	12			56,591,230		57,381,000	14

Total	$	416,914,597	$	372,830,119	100	%	$	450,712,189	$	409,570,495	100	%

¹ Represents percentage of total portfolio at fair value.
² Represents the equity investment in the Asset Manager Affiliates.
³ Includes restricted cash held under employee benefit plans.

Liquidity and Capital Resources

At June 30, 2016, we had unrestricted cash and money market balances of approximately $10.0 million, total assets of approximately $387.9 million, and stockholders' equity of approximately $202.2 million. Our net asset value per common share was $5.45. As of June 30, 2016, we had approximately $186.4 million (par value) of borrowings outstanding ($180.2 million net of discount and capitalized costs) with a weighted average interest rate of approximately 3.81%.

Subject to prevailing market conditions, we intend to grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. As a result, we may seek to enter into new agreements with other lenders or into other financing arrangements as market conditions permit. Such financing arrangements may include a new secured and/or unsecured credit facility or the issuance of unsecured debt or preferred stock.

Distributions

Generally, we seek to fund distributions to shareholders from current distributable earnings, primarily from net interest and dividend income generated by our investment portfolio and any distributions from our Asset Manager Affiliates (Trimaran Advisors and Katonah Debt Advisors). However, a portion of distributions paid to shareholders may be a return of capital. We announced a regular quarterly distribution of $0.15 per share for the quarter ended June 30, 2016. The record date for this distribution was July 7, 2016 and the distribution was paid on July 28, 2016. An estimate of the tax attributes of distributions made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year.

We have adopted a dividend reinvestment plan that provides for reinvestment of distributions in shares of our common stock, unless a stockholder elects to receive cash. As a result, if we declare a cash distribution, shareholders who have not "opted out" of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving cash. For more information regarding our distributions, please refer to our 2015 annual financial report. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Supplemental Information: Analysis of Shareholder Distributions

On a supplemental basis, we are providing information relating to our shareholder distributions. The Company believes that taxable distributable income as reported in our financial statement footnotes is an important measure for investors. The Company may not distribute all of its taxable distributable income, or may over-distribute during any period.

The following table¹ depicts the composition of shareholder distributions on a per share basis for the three and six months ended June 30, 2016 and 2015:

		Three Months Ended June 30,						Six Months Ended June 30,
		2016 ¹			2015 ¹			2016 ¹			2015 ¹
Net investment income		$	0.14		$	0.16		$	0.27		$	0.33
Tax Accounting Difference on CLO Equity Investments			0.01			0.01			0.03			0.02
Other tax accounting differences			(0.03	)		-			(0.02	)		-
Taxable distributable income			0.12			0.17			0.28			0.36
Cash distributed to the Company by Asset Manager Affiliates in excess of their taxable earnings			-			0.03			0.01			0.06
Available for distribution²			0.12			0.20			0.29			0.43
Distributed			0.15			0.21			0.30			0.42
Difference		$	(0.03	)	$	(0.01	)	$	(0.01	)	$	0.01

¹	Table may not foot due to rounding.
²	The "Available for distribution" financial measure is a non-GAAP financial measure that is calculated by including the cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings to the Company's taxable distributable income, which is the most directly comparable GAAP financial measure. In order to reconcile the "Available for distribution" financial measure to taxable distributable income per share in accordance with GAAP, the $0.00 and $0.01 per share of cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings is subtracted from the "Available for distribution" financial measure for the three and six months ended June, 30, 2016, respectively. The Company's management believes that the presentation of the non-GAAP "Available for distribution" financial measure provides useful information to investors.

Conference Call and Webcast

We will hold a conference call on Thursday, August 4, 2016 at 9:00 a.m. Eastern Time to discuss our second quarter 2016 financial results. Shareholders, prospective shareholders and analysts are welcome to listen to the call or attend the webcast.

The conference call dial-in number is (866) 757-5630. No password is required. A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on our Company's website www.kcapfinancial.com in the Investor Relations section under Events. The online archive of the webcast will be available after 7:00 p.m. Eastern Time for approximately 90 days.

A replay of this conference call will be available from 12:00 p.m. on August 4, 2016 until 11:59 p.m. on August 11, 2016. The dial in number for the replay is (855) 859-2056 and the conference ID is 56387763.

About KCAP Financial, Inc.

KCAP Financial, Inc. is a publicly traded, internally managed business development company. The Company's middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. The Company's wholly owned portfolio companies, Trimaran Advisors, L.L.C. and Katonah Debt Advisors, L.L.C., manage collateralized debt obligation funds that invest in broadly syndicated corporate term loans, high-yield bonds and other credit instruments.

Forward Looking Statements

This press release contains forward-looking statements. The matters discussed in this press release that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may,'' "will,'' "should,'' "expects,'' "plans,'' "anticipates,'' "could,'' "intends,'' "target,'' "projects,'' "contemplates,'' "believes,'' "estimates,'' "predicts,'' "potential'' or "continue'' or the negative of these terms or other similar words. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

KCAP FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS

	As of June 30, 2016			As of December 31, 2015
	(unaudited)
ASSETS
Investments at fair value:
Money market accounts (cost: 2016 - $7,191,009; 2015 - $2,129,381)	$	7,191,009		$	2,129,381
Debt securities (cost: 2016 - $276,526,638; 2015 - $298,308,845)		264,939,841			284,639,244
CLO Fund securities managed by affiliates (cost: 2016 - $61,341,828; 2015 - $77,764,568)		44,018,825			53,557,570
CLO Fund securities managed by non-affiliates (cost: 2016 - $5,296,106; 2015 - $5,450,379)		2,161,242			2,314,812
Equity securities (cost: 2016 - $10,467,786; 2015 - $10,467,786)		9,231,202			9,548,488
Asset Manager Affiliates (cost: 2016 - $56,091,230; 2015 - $56,591,230)		45,288,000			57,381,000
Total Investments at Fair Value (cost: 2016 - $416,914,597; 2015 - $450,712,189)		372,830,119			409,570,495
Cash		2,837,207			—
Restricted cash		6,420,566			7,138,272
Interest receivable		1,506,148			1,812,624
Receivable for open trades		2,390,625			—
Due from affiliates		1,469,812			2,117,095
Other assets		466,373			566,211

Total Assets	$	387,920,850		$	421,204,697

LIABILITIES
7.375% Notes Due 2019 (net of offering costs of: 2016 - $738,853; 2015 - $890,344)	$	38,261,497		$	40,509,656
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: 2016 - $2,599,083 and $2,794,883, respectively; 2015 - $2,907,595 and $3,126,009, respectively)		141,956,034			141,316,396
Convertible Notes (net of offering costs of: 2015 - $21,292)		—			19,277,709
Payable for open trades		3,008,395			—
Accounts payable and accrued expenses		1,564,043			2,218,065
Accrued interest payable		906,056			1,228,068
Due to affiliates		90			554,333

Total Liabilities		185,696,115			205,104,227

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,240,591 issued, and 37,136,898 outstanding at June 30, 2016, and 37,136,353 issued, and 37,100,005 outstanding at December 31, 2015		371,369			371,000
Capital in excess of par value		362,924,515			361,962,511
Excess distribution of net investment income		(22,768,289	)		(21,638,184	)
Accumulated net realized losses		(92,819,337	)		(82,054,107	)
Net unrealized depreciation on investments		(45,483,523	)		(42,540,750	)

Total Stockholders' Equity		202,224,735			216,100,470

Total Liabilities and Stockholders' Equity	$	387,920,850		$	421,204,697

NET ASSET VALUE PER COMMON SHARE	$	5.45		$	5.82


KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2016			2015			2016			2015

Investment Income:
	Interest from investments in debt securities	$	5,214,331		$	5,879,930		$	10,919,908		$	12,077,758
	Interest from cash and time deposits		6,981			3,657			14,353			4,358
	Investment income on CLO Fund Securities managed by affiliates		3,235,756			3,599,699			6,287,572			7,939,842
	Investment income on CLO Fund Securities managed by non-affiliates		155,859			396,398			308,176			624,077
	Dividends from Asset Manager Affiliates		850,000			1,235,439			1,400,000			2,649,414
	Capital structuring service fees		116,473			56,263			159,711			218,066

	Total investment income		9,579,400			11,171,386			19,089,720			23,513,515

Expenses:
	Interest and amortization of debt issuance costs		2,264,590			2,990,782			4,838,030			5,957,969
	Compensation		1,046,886			1,057,452			2,013,473			2,130,273
	Professional fees		562,176			705,132			1,214,115			1,876,574
	Insurance		106,830			107,094			213,053			219,533
	Administrative and other		490,898			478,674			938,260			989,966

	Total expenses		4,471,380			5,339,134			9,216,931			11,174,315

Net Investment Income			5,108,020			5,832,252			9,872,789			12,339,200
Realized And Unrealized Gains (Losses) On Investments:
	Net realized (losses) gains from investment transactions		(2,882,152	)		26,050			(10,694,039	)		98,406
	Net change in unrealized appreciation (depreciation) appreciation on:
	Debt securities		3,814,803			(2,502,825	)		2,082,813			(1,252,614	)
	Equity securities		(1,696,700	)		(207,148	)		(317,286	)		(263,271	)
	CLO Fund securities managed by affiliates		3,613,455			(4,970,933	)		6,883,996			(5,629,804	)
	CLO Fund securities managed by non-affiliates		181,248			(222,252	)		703			(148,508	)
	Asset Manager Affiliates investments		(5,060,000	)		3,277,561			(11,593,000	)		3,761,586

	Total net change in unrealized appreciation (depreciation)		852,806			(4,625,597	)		(2,942,774	)		(3,532,611	)

	Net realized and unrealized depreciation on investments		(2,029,346	)		(4,599,547	)		(13,636,813	)		(3,434,205	)

Realized losses on extinguishments of debt			(71,190	)		—			(71,190	)		—
Net Increase (Decrease) In Stockholders’ Equity Resulting From Operations		$	3,007,484		$	1,232,705		$	(3,835,214	)	$	8,904,995

	Net Increase (Decrease) In Stockholders' Equity Resulting from Operations per Common Share:
	Basic:	$	0.08		$	0.03		$	(0.10	)	$	0.24
	Diluted:	$	0.08		$	0.03		$	(0.10	)	$	0.24
	Net Investment Income Per Common Share:
	Basic:	$	0.14		$	0.16		$	0.27		$	0.33
	Diluted:	$	0.14		$	0.16		$	0.27		$	0.33

	Weighted Average Shares of Common Stock Outstanding—Basic		37,163,534			36,886,129			37,136,634			36,860,341
	Weighted Average Shares of Common Stock Outstanding—Diluted		37,163,534			36,891,931			37,136,634			36,867,887

KCAP-G

Ted Gilpin 
gilpin@kcapinc.com 
(212) 455-8300

08/03/2016 16:16

© Copyright Globe Newswire. All rights reserved. The information contained in this news report may not be published, broadcast or otherwise distributed without the prior written authority of Globe Newswire.