Alcentra Capital Corporation Announces First Quarter 2019 Financial Results

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May 06, 2019, 17:25 ET

NEW YORK, May 6, 2019 /PRNewswire/ -- Alcentra Capital Corporation (NASDAQ: ABDC) (the "Company"), a provider of debt financing solutions to middle-market companies based primarily in the United States, today announced its financial results for the first quarter of 2019.

First Quarter Highlights

Total investment income of $6.4 million
Net investment income of $2.9 million, or $0.22 per share
Invested approximately $26.0 million of capital into 5 new portfolio investments
Received proceeds from repayments, loan dispositions and amortizations on investments of approximately $50.0 million
Net asset value of $143.9 million, or $11.17 per share
Weighted average debt portfolio yield of approximately 11.2%
Repurchased 229,729 shares during the quarter as part of the share repurchase program authorized on November 5, 2018; repurchased approximately 9.5% of shares outstanding since January 1, 2018

Vijay Rajguru, Chairman of the Company, stated, "The Board is pleased with the progress management continues to make in rotating our legacy assets and stabilizing book value per share. At the same time, as management continues to focus on increasing value for stockholders, the Board believes it is also important to explore additional options that may be available to further enhance the value of the Company. As a result, and as we previously announced, the Board decided to enter into a formal process to evaluate potential strategic alternatives and the process is currently ongoing."

Suhail A. Shaikh, Chief Executive Officer of the Company, stated, "We are pleased with our performance in the first quarter of 2019, including successfully exiting several of our legacy investments, reducing the size of our concentrated positions and adding new investments consistent with our revised strategy – all with the backdrop of a relatively light volume quarter in the direct lending market."

First Quarter 2019 Financial Results

For the three months ended March 31, 2019, total investment income was $6.4 million, a decrease of $1.8 million from the $8.2 million of total investment income for the three months ended March 31, 2018. This decrease was due primarily to two prepayment penalties ($1.4 million) received in the first quarter of 2018 along with the continued transition of the portfolio to lower-yielding senior secured loans. For the three months ended March 31, 2019, interest and PIK income comprised $6.2 million and other non-recurring income was $0.2 million. Net investment income for the three months ended March 31, 2019 was $2.9 million, or $0.22 per share, as compared to $3.8 million, or $0.27 per share, for the three months ended March 31, 2018.

For the three months ended March 31, 2019, total net expenses were $3.5 million, a decrease of $0.9 million from the $4.4 million of total net expenses for the three months ended March 31, 2018. Net expenses decreased primarily due to the permanent management fee reduction and temporary management fee waiver that commenced in May 2018. The base net management fee was $0.7 million and there was a reversal of previously accrued incentive fees of $0.5 million. For the three months ended March 31, 2019, higher professional fees and other general and administrative expenses totaled $1.6 million, an increase of $0.3 million from March 31, 2018. The increase was due primarily to an increase in professional, director and other of fees $0.5 million which was offset by a decrease in consulting fees of $0.2 million. The Company expects director fees, insurance fees, consulting fees and other professional expenses to increase on a go-forward basis in light of recent stockholder activist activities and the Board's formal review process to evaluate strategic alternatives for the Company.

For the three months ended March 31, 2019, the Company recorded a net realized loss and net change in unrealized depreciation from portfolio investments of $0.9 million after the provision for taxes. As a result, the Company's net increase in net assets resulting from operations was $2.0 million for the three months ended March 31, 2019.

Portfolio and Investment Activities

As of March 31, 2019, the fair value of the Company's investment portfolio totaled $213.7 million and consisted of 29 investments including 28 companies and 1 rated debt security in a CLO. The average portfolio investment size on a cost and fair market basis was $7.7 million and $7.5 million, respectively. The Company received proceeds from repayments, loan dispositions, and amortizations on investments of approximately $50.0 million during the three months ended March 31, 2019.

New and add-on investments totaling approximately $26.0 million during the quarter ended March 31, 2019 included the following:

Aegis Sciences Corporation – A first lien term loan ($7.3 million) at LIBOR + 5.50%. Aegis operates a forensic toxicology and healthcare sciences laboratory that provides science-driven drug testing and consulting services in the United States.
Cambium Learning Group – A second lien term loan ($4.7 million) at LIBOR + 8.50%. Cambium Learning Group is a leading provider of digital resources and instructional products for Pre-k through 12 schools, districts, teachers and students.
Clanwilliam Group Ltd. – Add-on first lien investment ($0.3 million) at EURIBOR + 7.00%. Clanwillian is an existing portfolio company.
Institutional Shareholder Services – A first lien term loan ($3.0 million) at LIBOR + 4.50% and a second lien term loan ($1.9 million) at LIBOR + 8.50%. ISS provides proxy advisory, corporate governance and ESG analytic solutions to financial market participants.
GGC Aperio Holdings – A first lien term loan ($8.5 million) at LIBOR + 5.0%. Aperio manages domestic and international equity portfolios for ultra-high net worth individuals via large financial intermediaries, including registered investment advisors, broker-dealers and family offices.

As of March 31, 2019, the Company had one debt investment (Southern Technical Institute, Inc.) on non-accrual status.

A risk rating of the portfolio companies is available on the Company's website presentation (https://investors.alcentracapital.com/events-presentations) and in the MD&A section of the Form 10-Q for the quarter ended March 31, 2019 filed with the SEC.

Liquidity and Capital Resources

At March 31, 2019, the Company had $4.4 million in cash, $28.6 million of borrowings outstanding on its $115.0 million senior secured revolving credit facility and $55.0 million outstanding of Alcentra Capital InterNotes.

Review of Strategic Alternatives

The Company's Board, led by its Committee of Independent Directors, continues to explore a variety of strategic alternatives to enhance long-term stockholder value, including a sale of part or all of the Company, a business combination and other strategic transactions. To assist the Company in this process, the Committee of Independent Directors has retained Houlihan Lokey as its financial advisor. There is no assurance that the review will lead to a transaction. No specific timetable has been set and the Company does not expect to comment further on the review of strategic alternatives or periodically provide updates to the market with additional information unless and until the Board has approved a specific transaction or otherwise deems disclosure to be appropriate or required by law.

Subsequent Events

On April 1 and 2, 2019, the Company received total funds of $7.0 million in connection with a debt and equity repayment from Champion ONE, (consisting of $1.1 million in equity value and the principal amount of $5.9 million, respectively).
On April 3, 2019, Superior Controls, Inc. repaid its debt and equity for $8.5 million (consisting of the principal amount of $7.1 million and $1.4 million in equity value).
On April 4, 2019, the Company paid a dividend to stockholders of record as of March 29, 2019 of $0.18 per share.
On April 4, 2019, the Board announced that it had entered into a formal review process to evaluate strategic alternatives for the Company, including a sale of the Company, a business combination and other strategic transactions. The Board authorized its Committee of Independent Directors to lead the process.
On April 10, 2019, the Company sold $5.0 million of the first lien loan of Impact Group at 99.5% of par value.
On May 3, 2019, the Board approved the 2019 second quarter dividend of $0.18 per share for stockholders of record as of June 28, 2019, payable July 3, 2019. The Board also approved a special spillover dividend of $0.15 per share for the stockholders of record as of June 28, 2019, payable July 3, 2019. The special dividend was declared by the Board as a result of overearning the quarterly dividend in 2018.
On May 3, 2019, the Adviser agreed to a continued temporary waiver of 25 basis points across all of the base management fee breakpoints under the Investment Advisory Agreement, effective from May 1, 2019 to April 30, 2020.

First Quarter 2019 Financial Results Conference Call

Management will host a conference call to discuss the Company's operating and financial results at 9:30 am ET on May 7, 2019. 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 3891513#.

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 May 7, 2020.

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. The Company's investment objective is to provide attractive risk-adjusted returns by generating current income from its debt investments. The Company 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 Capital Corporation 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, the Company has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code.

FORWARD-LOOKING STATEMENTS

Statements included herein may constitute "forward-looking statements," which relate to future events, including in connection with the exploration of strategic alternatives, or the Company's future performance or financial condition. These statements speak only as of the date of this press release, are based on the Company's current plans, expectations, estimates, projections, beliefs and assumptions and involve risks and uncertainties that could cause actual future events or results to be different than those described in or implied by such forward-looking statements, including those relating to the impact of activist stockholder activities and the strategic alternatives review process on, among other things, the Company's professional and consulting fees and expenses and on management distractions, the nature and timing of any possible transaction or other strategic alternative, or of any potential or anticipated benefits from any such transaction or other alternative, as well as those risks and uncertainties described in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 12, 2019 and in the Company's other filings made with the SEC from time to time. As a result, any forward-looking statements are not guarantees and there can be no assurance that the strategic alternatives review process will result in a transaction or change in the Company's announced strategy. In addition, there is no assurance that the Company will purchase additional shares at any specific discount levels or in any specific amounts under its repurchase program. There is no assurance that the market price of the Company's shares, either absolutely or relative to net asset value, will increase as a result of any share repurchases, or that any repurchase program will enhance stockholder value over the long term. You should not place undue reliance on any forward-looking statements. Except as required by applicable law or regulation, the Company does not undertake any obligation to update its forward-looking statements to reflect future events or circumstances.

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Assets and Liabilities

	As of March 31, 2019 (Unaudited)		As of December 31, 2018
Assets
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $206,648,256 and $212,280,172, respectively)	$	199,599,456	$	205,411,779
Non-controlled, affiliated investments, at fair value (cost of $26,482,025 and $26,385,612, respectively)		14,149,845		12,980,016
Controlled, affiliated investments, at fair value (cost $0 and $15,212,562, respectively)		—		16,406,021
Cash		4,362,418		11,049,499
Dividends and interest receivable		1,241,095		454,883
Receivable for investments sold		7,797,809		644,733
Deferred financing costs		1,160,277		1,366,393
Deferred tax asset		5,132,895		5,385,694
Prepaid expenses and other assets		46,075		79,410
Total Assets	$	233,489,870	$	253,778,428

Liabilities
Credit facility payable	$	28,568,305	$	28,536,441
Notes payable (net of deferred note offering costs of $752,071 and $855,433, respectively)		54,247,929		54,144,567
Payable for investments purchased		—		18,550,000
Other accrued expenses and liabilities		466,521		535,096
Directors' fees payable		130,000		36,125
Professional fees payable		661,207		554,173
Interest and credit facility expense payable		1,529,992		1,069,139
Management fee payable		721,348		765,659
Income-based incentive fees payable		403,672		890,796
Distributions payable		2,433,102		2,433,102
Unearned structuring fee revenue		59,540		81,643
Income tax liability		412,944		379,155
Total Liabilities		89,634,560		107,975,896

Commitments and Contingencies (Note 12)

Net Assets
Common stock, par value $0.001 per share (100,000,000 shares authorized, 12,875,566 and 13,105,295 shares issued and outstanding, respectively)		12,876		13,105
Additional paid-in capital		197,118,476		198,594,662
Distributable earnings (accumulated loss)		(53,276,042)		(52,805,235)
Total Net Assets		143,855,310		145,802,532
Total Liabilities and Net Assets	$	233,489,870	$	253,778,428

Net Asset Value Per Share	$	11.17	$	11.13

Alcentra Capital Corporation and Subsidiary

Consolidated Statements of Operations

	For the three months ended March 31, 2019 (Unaudited)		For the three months ended March 31, 2018 (Unaudited)
Investment Income:
From non-controlled, non-affiliated investments:
Interest income from portfolio investments	$	5,806,309	$	5,742,386
Paid-in-kind interest income from portfolio investments		84,504		199,650
Other income from portfolio investments		107,757		1,507,304
Dividend income from portfolio investments		—		30,756
From non-controlled, affiliated investments:
Interest income from portfolio investments		36,479		77,453
Paid in-kind income from portfolio investments		96,413		123,126
Other income from portfolio investments		—		—
From controlled, affiliated investments:
Interest income from portfolio investments		208,538		500,890
Paid in-kind income from portfolio investments		—		—
Other income from portfolio investments		87,116		—
Total investment income		6,427,116		8,181,565

Expenses:
Management fees		865,618		1,234,863
Income-based incentive fees		(487,124)		—
Professional fees		625,229		354,070
Valuation services		71,250		63,971
Interest and credit facility expense		1,417,450		1,694,887
Amortization of deferred financing costs		206,116		103,981
Directors' fees		159,676		96,202
Insurance expense		55,835		55,988
Amortization of deferred note offering costs		133,363		126,694
Consulting fees		111,601		305,038
Excise tax		468,432		329,575
Other expenses		62,448		40,136
Total expenses		3,689,894		4,405,405
Waiver of management fees		(144,270)		—
Net expenses		3,545,624		4,405,405
Net investment income and foreign currency transactions		2,881,492		3,776,160

Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		(1,715,758)		(14,815)
Non-controlled, affiliated investments		—		—
Controlled, affiliated investments		1,193,458		—
Foreign currency transactions		40,416		—
Net realized gain (loss) from portfolio investments and foreign currency transactions		(481,884)		(14,815)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		(180,407)		(333,426)
Non-controlled, affiliated investments		1,073,416		(107,374)
Controlled, affiliated investments		(1,193,459)		220,904
Foreign currency translation		115,935		—
Net change in unrealized appreciation (depreciation) from portfolio investments and foreign currency translation		(184,515)		(219,896)
Benefit (Provision) for income taxes on unrealized gain (loss) on investments		(252,798)		(2,489)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio investments		(919,197)		(237,200)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	1,962,295	$	3,538,960

Basic and diluted:
Net investment income per share	$	0.22	$	0.27
Earnings (loss) per share	$	0.15	$	0.25
Weighted Average Shares of Common Stock Outstanding		12,906,379		14,198,651
Dividends declared per common share	$	0.180	$	0.180