NEW YORK, March 08, 2017 (GLOBE NEWSWIRE) — KCAP Financial, Inc. (Nasdaq:KCAP) announces its full year 2016 financial results.

Financial Highlights

  • Net investment income for the year ended December 31, 2016 was approximately $ 18.5 million, or $ 0.50 per basic share, compared with $ 24.2 million, or $ 0.65 per basic share in 2015.
  • KCAP Financial, Inc. declared a fourth quarter shareholder distribution of $ 0.12 per share.
  • At December 31, 2016, the fair value of KCAP’s investments totaled approximately $ 366.5 million.
     
  • Net asset value per share of $ 5.24 as of December 31, 2016, compared with $ 5.82 at December 31, 2015.

    Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, “After significant repayments in the first three quarters of 2016, we had a strong fourth quarter of originations and still ended the year with additional dry powder. We were also pleased to close our latest CLO in December.”

Operating Results

For the year ended December 31, 2016, we reported total investment income of approximately $ 36.2 million as compared to approximately $ 45.5 million in the prior year, a decrease of 20%. Investment income from debt securities decreased 14% to approximately $ 20.8 million from approximately $ 24.1 million. Investment income from investments in CLO fund securities in 2016 decreased 15% to $ 13.3 million from $ 15.7 million in 2015, and dividends from our Asset Manager Affiliates decreased 74% from $ 5.3 million to $ 1.4 million.

For the year ended December 31, 2016, total expenses were lower by approximately $ 3.6 million as compared to the same period in 2015, primarily attributable to a decrease in interest expense related to the lower average outstanding principal balance on our borrowings during 2016.

Net investment income for the years ended 2016 and 2015 was approximately $ 18.5 million and $ 24.2 million, or $ 0.50 and $ 0.65 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2016 was approximately $ 19.4 million, as compared to net realized and unrealized depreciation on investments of $ 42.4 million for the same period in 2015.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $ 366.5 million as of December 31, 2016. The composition of our investment portfolio at December 31, 2016 and December 31, 2015, at cost and fair value, was as follows:

    December 31, 2016     December 31, 2015  
Security Type   Cost/Amortized
Cost
  Fair Value       Cost/Amortized
Cost
  Fair Value    
Money Market Accounts²   $ 28,699,269   $ 28,699,269   8 %   $ 2,129,381   $ 2,129,381   1 %
Senior Secured Loan     207,701,078     200,322,152   55       203,819,074     194,123,223   46  
Junior Secured Loan     37,251,776     35,444,440   10       40,221,557     37,591,900   9  
Senior Unsecured Loan                 23,000,000     23,000,000   6  
First Lien Bond     3,060,919     1,089,338         3,000,000     2,216,700   1  
Senior Subordinated Bond                 4,466,793     4,615,569   1  
Senior Unsecured Bond                 11,879,187     10,551,724   3  
Senior Secured Bond     1,506,461     1,487,400         1,510,560     1,503,755    
CLO Fund Securities     76,851,317     54,174,350   15       83,214,947     55,872,382   14  
Equity Securities     10,389,007     5,056,355   1       10,467,787     9,548,488   2  
Preferred Securities                 10,411,673     11,036,373   3  
Asset Manager Affiliates³     55,341,230     40,198,000   11       56,591,230     57,381,000   14  
                                     
Total   $ 420,801,057   $ 366,471,304   100 %   $ 450,712,189   $ 409,570,495   100 %
                                     
¹  Represents percentage of total portfolio at fair value.
²  Includes restricted cash held under employee benefit plans.
³  Represents the equity investment in the Asset Manager Affiliates.

Liquidity and Capital Resources

At December 31, 2016, we had unrestricted cash and money market balances of approximately $ 30.0 million, total assets of approximately $ 381.4 million and stockholders’ equity of approximately $ 194.9 million. Our net asset value per common share was $ 5.24. As of December 31, 2016, we had $ 180.9 million of borrowings outstanding ($ 175.6 million net of discount) with a weighted average interest rate of approximately 3.9%.

Generally we would look to grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. However, we may face difficulty in obtaining a new debt and equity financing as a result of current market conditions, and because our common stock has traded at a price below our current net asset value per share. 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 $ 0.12 per share for the quarter ended December 31, 2016. The record date for this distribution was January 6, 2017 and the distribution was paid on January 27, 2017. Tax characteristics of all distributions paid by us in 2016 have been 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. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Conference Call and Webcast

We will hold a conference call on Thursday, March 9, 2017 at 9:00 a.m. Eastern Time to discuss our full year 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 March 9, 2017 until 12:00 p.m. Eastern Time on March 16, 2017.  The dial in number for the replay is 855-859-2056 and the conference ID is 81098779.

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
December 31, 2016
  As of
December 31, 2015
               
ASSETS            
Investments at fair value:            
  Money market accounts (cost: 2016 – $ 28,699,269; 2015 – $ 2,129,381)   $ 28,699,269     $ 2,129,381  
  Debt securities (amortized cost: 2016 – $ 249,520,234; 2015 – $ 298,308,845)     238,343,330       284,639,244  
  CLO Fund Securities managed by affiliates (amortized cost: 2016 – $ 71,734,809; 2015 – $ 77,764,568)     51,908,784       53,557,570  
  CLO Fund Securities managed by non-affiliates (amortized cost: 2016 – $ 5,116,508; 2015 – $ 5,450,379)     2,265,566       2,314,812  
  Equity securities (cost: 2016 – $ 10,389,007; 2015 – $ 10,467,786)     5,056,355       9,548,488  
                   
  Asset Manager Affiliates (cost: 2016 – $ 55,341,230; 2015 – $ 56,591,230)     40,198,000       57,381,000  
Total Investments at Fair Value (cost: 2016 – $ 420,801,057; 2015 – $ 450,712,189)     366,471,304       409,570,495  
Cash     1,307,257        
Restricted cash     8,528,298       7,138,272  
Interest receivable     1,033,917       1,812,624  
Receivable for open trades     2,950,658        
Due from affiliates     612,854       2,117,095  
Other assets     467,695       566,211  
             
Total Assets   $ 381,371,983     $ 421,204,697  
             
               
LIABILITIES            
             
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: 2016 – $ 2,286,425 and $ 2,459,156, respectively; 2015 – $ 2,907,595 and $ 3,126,009, respectively)   $ 142,604,419     $ 141,316,396  
7.375% Notes Due 2019 (net of offering costs of: 2016 – $ 550,774; 2015 – $ 890,344)     32,980,151       40,509,656  
Convertible Notes (net of offering costs of: 2015 – $ 21,291)           19,277,709  
Payable for open trades     7,884,943        
Accounts payable and accrued expenses     2,047,405       2,218,065  
Accrued interest payable     930,086       1,228,068  
Due to affiliates     54       554,333  
             
Total Liabilities     186,447,058       205,104,227  
             
COMMITMENTS AND CONTINGENCIES (Note 8)            
               
STOCKHOLDERS’ EQUITY            
             
Common stock, par value $ 0.01 per share, 100,000,000 common shares authorized; 37,282,296 issued, and 37,178,294 outstanding at December 31, 2016, and 37,136,353 issued, and 37,100,005 outstanding at December 31, 2015     371,783       371,000  
Capital in excess of par value     353,404,155       361,962,511  
Excess distribution of net investment income     (14,630,319 )     (21,638,184 )
Accumulated net realized losses     (88,491,896 )     (82,054,107 )
Net unrealized depreciation on investments     (55,728,798 )     (42,540,750 )
               
Total Stockholders’ Equity     194,924,925       216,100,470  
               
Total Liabilities and Stockholders’ Equity   $ 381,371,983     $ 421,204,697  
               
NET ASSET VALUE PER COMMON SHARE   $ 5.24     $ 5.82  
               
KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
        For the Years Ended December 31,
      2016     2015     2014
                           
Investment Income:                      
  Interest from investments in debt securities   $ 20,828,916       $ 24,101,257       $ 21,386,432  
  Interest from cash and time deposits     29,383         10,239         3,452  
  Investment income on CLO Fund Securities managed by affiliates     12,642,625         14,691,428         12,367,581  
  Investment income on CLO Fund Securities managed by non-affiliates     630,647         1,008,634         1,045,225  
  Dividends from Asset Manager Affiliates     1,400,000         5,348,554         5,467,914  
  Capital structuring service fees     668,527         366,859         934,871  
                           
    Total investment income     36,200,098         45,526,971         41,205,475  
                           
Expenses:                      
  Interest and amortization of debt issuance costs     9,110,603         11,727,880         11,538,179  
  Compensation     4,103,558         3,843,799         4,951,745  
  Professional fees     2,391,038         3,520,461         2,614,479  
  Insurance     412,764         433,561         471,276  
  Administrative and other     1,692,140         1,818,480         1,509,228  
                           
    Total expenses     17,710,103         21,344,181         21,084,907  
                           
Net Investment Income     18,489,995         24,182,790         20,120,568  
Realized And Unrealized Gains (Losses) On Investments:                      
  Net realized losses from investment transactions     (6,167,467 )       (6,202,289 )       (10,384,415 )
  Net change in unrealized (depreciation) appreciation on:                      
    Debt securities     2,492,707         (10,748,262 )       5,641,403  
    Equity securities     (4,413,354 )       (210,167 )       7,040,155  
    CLO Fund Securities managed by affiliates     4,380,974         (12,990,404 )       (11,584,257 )
    CLO Fund Securities managed by non-affiliates     284,625         (977,483 )       2,884,109  
    Asset Manager Affiliates investments     (15,933,000 )       (11,243,554 )       2,064,107  
                           
  Total net (depreciation) appreciation from investment transactions     (13,188,048 )       (36,169,870 )       6,045,517  
  Net realized and unrealized loss on investments     (19,355,515 )       (42,372,159 )       (4,338,898 )
                           
  Realized losses on extinguishments of debt     (174,211 )       (445,189 )       (748,076 )
                           
Net (Decrease) Increase In Stockholders’ Equity Resulting From Operations   $ (1,039,731 )     $ (18,634,558 )     $ 15,033,594  
                           
  Net (Decrease) Increase in Stockholders’ Equity Resulting from Operations per Common Share:                      
  Basic:   $ (0.03 )     $ (0.50 )     $ 0.44  
  Diluted:   $ (0.03 )     $ (0.50 )     $ 0.43  
  Net Investment Income Per Common Share:                      
  Basic:   $ 0.50       $ 0.65       $ 0.59  
  Diluted:   $ 0.50       $ 0.65       $ 0.58  
                           
  Weighted Average Shares of Common Stock Outstanding—Basic     37,149,663         36,964,444         34,248,346  
  Weighted Average Shares of Common Stock Outstanding—Diluted     37,149,663         36,964,444         34,259,977  
                           

KCAP-G

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

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