|Operating Results for the Quarter Ended March 31, 2014:|
|Net investment income per share: $0.15|
|Distributions declared per share: $0.26|
|Earnings per share: $0.31|
|Net asset value per share: $9.59|
|Net investment income: $11.1 million|
|Net realized and unrealized gains: $11.8 million|
|Net increase in net assets from operations: $22.9 million|
|Net investment income per share, as adjusted 1: $0.19|
|Net investment income, as adjusted 1: $14.3 million|
|Earnings per share, as adjusted 1: $0.35|
|Net increase in net assets from operations, as adjusted 1: $26.1 million|
- We exercised two tranches of our Arclin Cayman Holdings Ltd. (“Arclin”) warrants and subsequently entered an agreement to sell our entire debt and equity positions as well as our two remaining tranches of warrants for aggregate proceeds of $59.2 million and a realized gain of $37.2 million. Expected proceeds represent a further increase of $7.0 million above our year-end mark for this investment.
- We provided a $30.0 million second lien term loan to Crimson Energy Partners III, LLC (“Crimson”) with $0.6 million in capital structuring fees earned. Crimson is a Texas based E&P operator with 29 producing wells.
- We invested $15.0 million in a new second lien term loan to TriMark USA, LLC, and subsequently exited our senior secured second lien term note at par of $52.1 million. TriMark is one of the country's largest full-service providers of design services, equipment and supplies to the food service industry.
|Portfolio and Investment Activity|
|(dollar amounts in millions)|
|Three months ended March 31, 2014||Three months ended March 31, 2013|
|Exits of commitments||188.0||104.2|
|Number of portfolio company investments at the end of period||46||44|
|Weighted average (“WA”) yield of debt and income producing equity securities, at cost||12.0||%||12.4||%|
|WA yield of senior secured loans, at cost||11.4||%||11.5||%|
|WA yield of other debt securities, at cost||12.9||%||13.6||%|
|Average investment by portfolio company, at amortized cost (excluding those below$5.0 million)||$||25.8||$||27.6|
- The composition of our portfolio invested in senior secured loans and unsecured or subordinated debt securities each increased 1% to a respective 44% and 17%, while our concentration in senior secured notes declined 3% to 15%, as compared to the prior quarter. Although our sale of Arclin during the quarter removed a significant amount of fair value from our equity investments, this was offset primarily by continued appreciation in our existing investments as well as a $96.3 million decrease in the size of our overall portfolio during the quarter, resulting in a modest 1% decline in our equity investments to 21% at quarter end. This represents a 5% increase in our non-income producing securities from 16% at this time last year, driving the 40 basis point decrease in our total portfolio yield between the two periods. We are pleased that our total portfolio yield remained unchanged at 12.0% as compared to year end.
- Net unrealized appreciation decreased $22.0 million during the current quarter, due primarily to $28.6 million of unrealized appreciation reversals on investment exits. Removing such reversals, the current portfolio appreciated $6.6 million in value during the quarter. Taken in conjunction with $33.8 million of realized gains during the period, our net realized and unrealized gains of $11.8 million helped to drive our net asset value per share up another $0.05 for the quarter to $9.59 per share at March 31, 2014. This was a further increase over our $9.47 net asset value per share at this time last year.
- For the quarter, fee income earned due to capital structuring, commitment, administration and amendment fees, as well as prepayment penalties and fees earned in connection with the early repayment of certain investments totaled $0.9 million, or $0.01 per share, as compared to $4.8 million, or $0.06 per share for the prior quarter. Although there were $64.7 million more exits during the current quarter, only one of these exits was accompanied by a prepayment fee. Removing fee income, our remaining investment income increased from $28.2 million to $28.7 million for the first quarter of 2014.
- Incentive management fees based on gains was $3.5 million for the quarter, driven by continued unrealized appreciation in the portfolio, as well as $33.8 million of net gains realized thus far for the twelve month measurement period ending June 30. A hypothetical liquidation is performed each quarter end possibly resulting in an additional accrual if the amount is positive, however the resulting fee accrual is not due and payable until June 30, if at all. While no incentive management fees based on income were earned during the quarter, pro-forma incentive management fees earned were $0.3 million, had they been accrued ratably throughout the year.
- Our leverage, adjusted to remove the receivable for the sale of Arclin, stood at 0.56 times at quarter end providing us with available debt capacity under our asset coverage requirements of $252.1 million and $250.0 million available under our senior secured, revolving credit facility.
- As compared to last year, our weighted average cost of debt decreased 59 basis points to 4.91% due to securing more favorable pricing with the amendment of our credit facility during the quarter. Average debt outstanding increased from $359.5 million last year to $482.4 million this year, resulting in a 3.7% increase in total borrowing costs during the quarter.
- Our net investment income, as adjusted, was $0.19 per share, relative to distributions declared of $0.26 per share, resulting in net investment income dividend coverage of 74%. Realized gains during the quarter provided another $0.45 per share of earnings with no accompanying distribution requirement, resulting in $0.64 per share of combined net investment income and realized gains, for dividend coverage of 248%. We expect to reinvest these proceeds in attractive opportunities.
- Tax characteristics of all 2013 distributions were reported to stockholders on Form 1099 after the end of the calendar year. Our 2013 distributions of $1.04 per share were comprised of ordinary income of $0.60 and a $0.44 return of capital, bringing our return of capital distributions since inception to $1.70 per share. As part of our strategic tax planning, from time to time we are able to reduce our investment company taxable income by losses taken on ordinary assets, thus minimizing the amount of taxable income to be reported by our shareholders. For more information on our GAAP distributions, please refer to the Section 19 Notice that will be posted within the Distribution History section of our website.
- We intend to continue to make timely distributions sufficient to satisfy the annual distribution requirements to maintain our qualification as a RIC. We also intend to make distributions of net realized capital gains, if any, at least annually. We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. We will accrue excise tax on estimated undistributed taxable income as required. There was no undistributed taxable income carried forward from 2013.