Kayne Anderson Energy Development Company Announces Results For The Quarter Ended August 31, 2013 And Provides An Update On Recent Events For Its Portfolio Investments

(NYSE:KED) Kayne Anderson Energy Development Company (the “Company”) today announced its financial results for the quarter ended August 31, 2013 and provided an update on recent events for its Portfolio Investments.

FISCAL THIRD QUARTER HIGHLIGHTS
  • The Company increased its quarterly distribution to $0.455 per share, up 3.4% from the prior quarter
  • Net asset value of $27.84 per share; up $1.40 per share (5.3%) from the prior quarter
  • Net investment loss of $1.1 million
  • Net realized gains of $4.6 million
  • Net unrealized gains of $15.6 million

RECENT EVENTS

ProPetro Services, Inc. On September 30, 2013, ProPetro Services, Inc. (“ProPetro”) repaid in full the First Lien Term B Loan held by the Company ($9.7 million of principal and accrued interest). The Company no longer has an investment in ProPetro following this repayment.

Plains All American GP. On October 21, 2013, Plains GP Holdings, L.P. (“Plains GP”) completed its initial public offering and trades on the New York Stock Exchange under the ticker “PAGP”. Plains GP was formed to own a portion of the general partner of Plains All American Pipeline, L.P. All of the Company’s holdings in Plains All American GP LLC are exchangeable into shares of Plains GP on a one-for-one basis at the Company’s option. As part of the IPO, the Company agreed to a 15-month lock-up on its Plains GP shares.

RESULTS OF OPERATIONS – QUARTER ENDED AUGUST 31, 2013

Investment income totaled $1.0 million for the quarter and consisted primarily of net dividends and distributions and interest income on the Company’s debt investments. The Company received $6.8 million of dividends and distributions during the quarter, of which $6.3 million was treated as a return of capital. Interest and other income was $0.5 million. Return of capital was increased by $0.3 million during the quarter due to 2012 tax reporting information that the Company received in the fiscal third quarter 2013. The Company received $0.3 million of paid-in-kind dividends during the quarter, which are not included in investment income, but are reflected as an unrealized gain.

Operating expenses totaled $2.8 million, including $1.8 million of investment management fees, $0.6 million of interest expense and $0.4 million of other operating expenses. Interest expense included $0.1 million of amortization of debt offering costs.

The Company’s net investment loss totaled $1.1 million and included a current income tax benefit of $0.2 million and a deferred income tax benefit of $0.5 million.

The Company had net realized gains from investments of $4.7 million, after taking into account a deferred income tax expense of $2.5 million and a current income tax expense of $0.3 million.

The Company had a net increase in unrealized gains of $15.6 million. The net increase consisted of $24.8 million of unrealized gains from investments and a deferred income tax expense of $9.2 million.

The Company had an increase in net assets resulting from operations of $19.2 million. This increase was comprised of net investment loss of $1.1 million, net realized gains of $4.7 million, and net unrealized gains of $15.6 million, as noted above.

NET ASSET VALUE

As of August 31, 2013, the Company’s net asset value was $290.8 million or $27.84 per share.

PORTFOLIO

As of August 31, 2013, the Company had long-term investments of $433.2 million, of which approximately 86% were public MLPs and other public equity securities, 10% were private MLPs and other private equity securities and 4% were debt securities. The Company’s long-term investments consisted of 52 portfolio companies.

UPDATES ON PRIVATE PORTFOLIO COMPANIES

Updates on the Company’s private portfolio companies are available on the Company’s website at www.kaynefunds.com/ked/portfolio-companies/.

LIQUIDITY AND CAPITAL RESOURCES

As of October 24, 2013, the Company had $89.0 million of borrowings under its credit facility (at an interest rate of 2.27%), which represented 46.9% of its borrowing base of $189.8 million (47.0% of its borrowing base attributable to quoted securities). At the same date, the Company’s asset coverage ratio under the Investment Company Act of 1940 was 444%. The maximum amount that the Company can borrow under its credit facility is limited to the lesser of the commitment amount of $95.0 million and its borrowing base.

QUARTERLY DISTRIBUTION

On September 26, 2013, the Company declared a distribution of $0.455 per share for the quarter ended August 31, 2013, which was paid on October 18, 2013 to stockholders of record as of October 11, 2013.

GUIDANCE

The Company estimates its portfolio will generate dividends, distributions, and interest income of approximately $8.08 million in the next quarter. The estimate includes Emerge Energy Services LP’s (“Emerge”) recently announced distribution for its third quarter ($0.86 per unit) and includes distributions of $0.95 million per quarter from VantaCore. Distributions from VantaCore are based on only the cash distributions the Company expects to receive, on average, over the next four quarters of $0.345 per common unit, $0.345 per preferred A unit and $0.3825 per preferred B unit. The Company’s guidance does not include $0.33 million of non-cash distributions that the Company expects to receive on VantaCore’s common and preferred A units. The Company’s guidance does not reflect any changes in cash distributions made by MLPs (except the distribution from Emerge as noted above) or changes in interest rates based on the movement in LIBOR rates since August 31, 2013.
Portfolio Category   Amount Invested($ in millions)   Average AnnualYield(1)(2)
Public MLPs and Other Public Equity   $ 374   7.2 %
Private MLPs     44   9.8  
Debt Investments(3)(4)     15   7.8  
   

(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 and Other Public Equity are based on the most recently declared distributions as of August 31, 2013 (except Emerge, which is based on its distribution announced on October 25, 2013). Amounts invested and average yields for Private MLPs are based on August 31, 2013 valuations.

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

(4) Following ProPetro’s repayment of the First Lien Term B Loan on September 30, 2013, guidance assumes such proceeds are reinvested in debt securities with a 7.5% yield.

Management Fees and Other Operating Expenses – Management fees are estimated to be approximately $1.72 million per quarter. Other operating expenses are estimated to be approximately $0.37 million per quarter.

Interest Expense – Interest expense is estimated to be approximately $0.50 million per quarter based on $91.0 million borrowed under the Company’s credit facility, assuming a 30-day LIBOR rate of 0.19% and a spread of 2.00%.

Based on the foregoing assumptions, the Company expects to generate net distributable income (“NDI”) per share of $0.52 to $0.53 in the fourth quarter of fiscal 2013. The Company’s guidance incorporates a distribution of $0.86 per unit from Emerge, which is KED’s largest portfolio investment. Emerge is a variable rate MLP that pays quarterly distributions based on the amount of cash flow generated in such quarter. As a result, the Company’s NDI will vary based on quarterly distributions paid by Emerge.

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 COMPANY

STATEMENT OF ASSETS AND LIABILITIES

AUGUST 31, 2013

(amounts in 000’s, except share and per share amounts)

(UNAUDITED)
 
ASSETS
Investments, at fair value:
Non-affiliated (Cost — $238,037) $ 306,193
Affiliated (Cost — $77,061)   126,971  
Total investments (Cost — $315,098) 433,164
Cash 1,366
Income tax receivable 49
Interest, dividends and distributions receivable 388
Debt offering costs, prepaid expenses and other assets   478  
Total Assets   435,445  
LIABILITIES
Payable for securities purchased 613
Investment management fee payable 1,796
Accrued directors’ fees and expenses 73
Accrued expenses and other liabilities 568
Deferred income tax liability 57,596
Credit facility   84,000  
Total Liabilities   144,646  
NET ASSETS $ 290,799  
NET ASSETS CONSIST OF
Common stock, $0.001 par value (200,000,000 shares authorized; 10,445,358 shares issued and outstanding) $ 10
Paid-in capital 201,908
Accumulated net investment loss, net of income taxes, less dividends (51,285 )
Accumulated net realized gains on investments, net of income taxes 65,853
Net unrealized gains on investments, net of income taxes   74,313  
NET ASSETS $ 290,799  
NET ASSET VALUE PER SHARE $ 27.84  
 

KAYNE ANDERSON ENERGY DEVELOPMENT COMPANY

STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED AUGUST 31, 2013

(amounts in 000’s)

(UNAUDITED)
 
INVESTMENT INCOME
Income
Dividends and distributions:
Non-affiliated investments $ 4,297
Affiliated investments   2,536  
Total dividends and distributions 6,833
Return of capital   (6,275 )
Net dividends and distributions 558
Interest and other income — non-affiliated investments 450
Interest — affiliated investments
Total Investment Income   1,008  
Expenses
Investment management fees 1,796
Professional fees 154
Directors’ fees and expenses 93
Insurance 17
Administration fees 22
Other expenses   111  
Total Expenses — Before Interest Expense 2,193
Interest expense and amortization of offering costs   568  
Total Expenses   2,761  
Net Investment Loss — Before Income Taxes (1,753 )
Current income tax benefit 194
Deferred income tax benefit   474  
Net Investment Loss   (1,085 )
REALIZED AND UNREALIZED GAINS
Net Realized Gains
Investments — non-affiliated 9,082
Investments — affiliated (1,725 )
Current income tax expense (250 )
Deferred income tax expense   (2,458 )
Net Realized Gains   4,649  
Net Change in Unrealized Gains
Investments — non-affiliated 2,604
Investments — affiliated 22,174
Deferred income tax expense   (9,145 )
Net Change in Unrealized Gains   15,633  
Net Realized and Unrealized Gains   20,282  
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 19,197  
 

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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.

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