Kayne Anderson Energy Development Company Announces Results For The Quarter Ended August 31, 2011

Kayne Anderson Energy Development Company (the “Company”)(NYSE: KED) today announced its financial results for the quarter ended August 31, 2011.

HIGHLIGHTS
  • Net asset value: $22.01 per share
  • The Company declared a quarterly distribution of $0.38 per share
  • Net investment income: $0.3 million
  • Net realized gains: $2.3 million
  • Net unrealized losses: $7.3 million

RESULTS OF OPERATIONS – QUARTER ENDED AUGUST 31, 2011

Investment income totaled $2.9 million and consisted primarily of net dividends and distributions and interest income on the Company’s debt investments. The Company received $4.5 million of cash dividends and distributions, of which $2.9 million was treated as a return of capital during the period. During the quarter, the Company received $1.3 million of interest income, of which $0.4 million was paid-in-kind interest from ProPetro Services, Inc. (“ProPetro”). The Company also received $0.8 million of paid-in-kind dividends, of which $0.6 million was from VantaCore Partners LP (“VantaCore”). These paid-in-kind dividends are not included in investment income, but are reflected as an unrealized gain.

Operating expenses totaled $2.4 million, including $1.4 million of investment management fees; $0.5 million of interest expense and $0.5 million of other operating expenses. Interest expense included $0.1 million of amortization of debt issuance costs. Investment management fees were equal to an annual rate of 1.75% of average total assets.

The Company’s net investment income totaled $0.3 million and included a current income tax expense of $0.1 million and a deferred income tax expense of $0.1 million.

The Company had net realized gains from investments of $2.3 million, after taking into account a current income tax expense of $1.1 million and a deferred income tax expense of $0.1 million.

The Company had net unrealized losses of $7.3 million. The net unrealized loss consisted of $11.3 million of unrealized losses, primarily from investments in public MLPs and a deferred income tax benefit of $4.0 million.

The Company had a decrease in net assets resulting from operations of $4.7 million. This decrease is composed of a net investment income of $0.3 million; net realized gains of $2.3 million; and net unrealized loss of $7.3 million, as noted above.

NET ASSET VALUE

As of August 31, 2011, the Company’s net asset value was $227.3 million or $22.01 per share. This represents a decrease of $0.84 per share or 3.7% for the quarter.

As of August 31, 2011, the Company’s net asset value included current and deferred income tax liabilities of $7.1 million and $3.4 million, respectively.

PORTFOLIO

As of August 31, 2011, the Company had long-term investments of $298.4 million, consisting of 48 portfolio companies, of which approximately 59% were public MLPs and other public equity securities, 24% were private MLPs and other private equity securities and 17% were debt securities.

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2011, the Company had approximately $3.3 million in short-term investments in the form of a repurchase agreement. The Company’s repurchase agreement is collateralized by U.S. Treasury securities, and the Company’s counterparty is J.P. Morgan Securities Inc.

As of August 31, 2011, the Company had $70.0 million of borrowings under its credit facility (at an interest rate of 2.21%), which represented 56.6% of its borrowing base of $123.7 million (61.8% of its quoted borrowing base of $113.4 attributable to quoted securities). At the same date, the Company’s asset coverage ratio under the Investment Company Act of 1940 was 425%. The maximum amount that the Company can borrow under its credit facility is limited to the lesser of the commitment amount of $70.0 million or its borrowing base. As of October 14, 2011, the Company had $69.0 million of borrowings (at an interest rate of 2.24%), which represented 56.8% of the borrowing base of $121.6 million (62.1% of its borrowing base attributable to quoted securities).

INCOME TAX PAYMENTS

As of August 31, 2011, the Company has increased its estimated income tax payments for 2011 by $2.1 million from its estimate as of May 31, 2011 (from $19.0 million to $21.2 million), principally due to additional realized gains generated during the third quarter. The Company paid $14.1 million in such taxes during August and will pay the remaining $7.1 million in November. The Company anticipates funding such payment with the sale of portfolio securities.

GUIDANCE

The Company estimates its portfolio will generate dividends, distributions, and interest income of approximately $6.6 million in the next quarter. The Company’s guidance is pro forma for the $7.1 million tax payments mentioned above. For the purpose of providing guidance, the Company has assumed that the payment will be funded through the sale of traded debt securities in its portfolio. This estimate includes a cash distribution of $0.45/quarter per common unit that Direct Fuels is expected to pay for the remainder of 2011 and $0.8 million per quarter ($0.475/quarter per common and Class A preferred units) from VantaCore. The Company expects that substantially all of the VantaCore distribution will be in the form of additional preferred units during the Company’s fourth fiscal quarter. The Company’s guidance does not reflect any changes in cash distributions made by MLPs or changes in interest rates based on the movement in LIBOR rates since August 31, 2011.
Portfolio Category    

AmountInvested($ in millions)
   

Average AnnualYield(1)(2)
Private MLPs(3)     $ 65     14.4 %
Public MLPs, MLP Affiliates and Other Public Equity       175     7.0  
Debt Investments(4)(5)       45     10.6  

(1)
 

Average yields include return of capital distributions. Return of capital distributions are reported as a reduction to gross dividends and distributions to arrive at net investment income reported under generally accepted accounting principles.
 

(2)

Average yields for Public MLPs, MLP Affiliates and Other Public Equity are based on the most recently declared distributions as of August 31, 2011. Amounts invested for Private MLPs are based on August 31, 2011 valuations. Average yields reflect quarterly distributions of $0.45 per common unit for Direct Fuels and $0.475 per unit for VantaCore.
 

(3)

The amount invested excludes the Company’s equity investment in ProPetro (valued at $5.5 million as of August 31, 2011) which does not pay a dividend or distribution.

 

(4)

The average yield includes straight-line amortization of the purchase price discounts/premiums through the expected maturity.
 

(5)

The amount invested is pro forma for the sale of $7.1 million of traded debt securities to fund the November 2011 tax payments.
 

Management Fees and Other Operating Expenses – Management fees are estimated to be approximately $1.31 million per quarter. Other operating expenses are estimated to be approximately $0.48 million per quarter.

Interest Expense – Interest expense is estimated to be approximately $0.39 million per quarter based on $70 million borrowed under the Company’s credit facility, assuming a 30-day LIBOR rate of 0.22% and a spread of 2.00%.

Based on the foregoing assumptions, the Company is expected to generate NDI per share of $0.415 $0.425 in the fourth quarter.

DISTRIBUTION AND DISTRIBUTION GUIDANCE

On October 5, 2011, the Company declared a distribution of $0.38 per share for the quarter ended August 31, 2011 that is payable on October 28, 2011 to stockholders of record on October 19, 2011. “While the Company generated NDI well in excess of the $0.38 dividend, we feel it is prudent to maintain the dividend at $0.38 for the time being,” said Kevin McCarthy, the Company’s President and CEO. “We believe the $0.38 dividend is sustainable under a variety of different events that could occur at our three largest private investments. As we get more clarity on these investments over the next few quarters, we will reassess our dividend guidance at that time.”

CONFERENCE CALL

The Company will host a conference call at 4 p.m. Central time, on Tuesday, October 18, 2011 to discuss its results. All interested parties are welcome to participate. You can access the conference call by dialing (877) 563-8315 approximately 5-10 minutes prior to the call. International callers should dial (706) 679-4383. All callers should reference "Conference ID #15207107." For the convenience of the Company’s stockholders, an archived replay of the call will be available on the Company’s website ( http://www.kaynefunds.com/webcasts.php).

AVAILABLE INFORMATION

The Company’s filings with the Securities and Exchange Commission, press releases and other financial information are available on the Company’s website at www.kaynefunds.com.

KAYNE ANDERSON ENERGY DEVELOPMENT COMPANYSTATEMENT OF ASSETS AND LIABILITIESAUGUST 31, 2011(amounts in 000’s, except share and per share amounts)(UNAUDITED)
 
ASSETS  
Investments, at fair value:
Non-affiliated (Cost — $198,429) $ 209,894
Affiliated (Cost — $112,382) 88,521
Short-term investments (Cost — $3,332)   3,332  
Total investments (Cost — $314,143) 301,747
Receivable for securities sold 1,247
Interest, dividends and distributions receivable 1,110
Other receivables 5,040
Debt issuance costs, prepaid expenses and other assets   788  
Total Assets   309,932  
LIABILITIES
Senior secured revolving credit facility 70,000
Current income tax liability 7,107
Deferred income tax liability 3,388
Payable for securities purchased 52
Investment management fee payable 1,402
Accrued directors’ fees and expenses 79
Accrued expenses and other liabilities   628  
Total Liabilities   82,656  
NET ASSETS $ 227,276  
NET ASSETS CONSIST OF
Common stock, $0.001 par value (200,000,000 shares authorized; 10,326,069 shares issued and outstanding) $ 10
Paid-in capital 199,115
Accumulated net investment loss, net of income taxes, less dividends (18,056 )
Accumulated net realized gains on investments, net of income taxes 54,964
Net unrealized losses on investments, net of income taxes   (8,757 )
NET ASSETS $ 227,276  
NET ASSET VALUE PER SHARE $ 22.01  
 

KAYNE ANDERSON ENERGY DEVELOPMENT COMPANYSTATEMENT OF OPERATIONSFOR THE THREE MONTHS ENDED AUGUST 31, 2011(amounts in 000’s)(UNAUDITED)
 
INVESTMENT INCOME  
Income
Dividends and Distributions:
Non-affiliated investments $ 2,764
Affiliated investments   1,720  
Total dividends and distributions 4,484
Return of capital   (2,899 )
Net dividends and distributions 1,585
Interest and other income — non-affiliated investments 871
Interest — affiliated investments   429  
Total investment income   2,885  
Expenses
Investment management fees 1,402
Professional fees 152
Directors’ fees and expenses 76
Administration fees 43
Insurance 35
Custodian fees 15
Other expenses   170  
Total expenses — before interest expense 1,893
Interest expense   474  
Total expenses   2,367  
Net Investment Income — Before Income Taxes 518
Current income tax expense (140 )
Deferred income tax expense   (43 )
Net Investment Income 335
REALIZED AND UNREALIZED GAINS (LOSSES)
Net Realized Gains (Losses)
Investments — non-affiliated 3,496
Investments — affiliated (11 )
Current income tax expense (1,083 )
Deferred income tax expense   (109 )
Net Realized Gains   2,293  
Net Change in Unrealized Losses
Investments — non-affiliated (9,029 )
Investments — affiliated (2,324 )
Deferred income tax benefit   4,018  
Net Change in Unrealized Losses   (7,335 )
Net Realized and Unrealized Losses   (5,042 )
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (4,707 )
 

The Company is a non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940. The Company's investment objective is to generate both current income and capital appreciation primarily through equity and debt investments. The Company will seek to achieve this objective by investing at least 80% of its net assets together with the proceeds of any borrowings (its "total assets") in securities of companies that derive the majority of their revenue from activities in the energy industry, including: (a) Midstream Energy Companies, which are businesses that operate assets used to gather, transport, process, treat, terminal and store natural gas, natural gas liquids, propane, crude oil or refined petroleum products; (b) Upstream Energy Companies, which are businesses engaged in the exploration, extraction and production of natural resources, including natural gas, natural gas liquids and crude oil, from onshore and offshore geological reservoirs; and (c) Other Energy Companies, which are businesses engaged in owning, leasing, managing, producing, processing and sale of coal and coal reserves; the marine transportation of crude oil, refined petroleum products, liquefied natural gas, as well as other energy-related natural resources using tank vessels and bulk carriers; and refining, marketing and distributing refined energy products, such as motor gasoline and propane to retail customers and industrial end-users.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains "forward-looking statements" as defined under the U.S. federal securities laws. Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from the Company's historical experience and its present expectations or projections indicated in any forward-looking statement. These risks include, but are not limited to, changes in economic and political conditions; regulatory and legal changes; energy industry risk; commodity pricing risk; leverage risk; valuation risk; non-diversification risk; interest rate risk; tax risk; and other risks discussed in the Company's filings with the SEC. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements made herein. There is no assurance that the Company's investment objectives will be attained.

Copyright Business Wire 2010

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