|Operating Results for the Quarter Ended June 30, 2014:|
|Net investment income per share: $0.22|
|Distributions declared per share: $0.21|
|Earnings per share: $0.41|
|Net asset value per share: $9.79|
|Net investment income: $16.4 million|
|Net realized and unrealized gains: $14.4 million|
|Net increase in net assets from operations: $30.9 million|
|Net investment income per share, as adjusted 1: $0.23|
|Net investment income, as adjusted 1: $16.8 million|
|Earnings per share, as adjusted 1: $0.42|
|Net increase in net assets from operations, as adjusted 1: $31.3 million|
- We sold our largest equity investment, Electrical Components International (“ECI”), for proceeds of $71.5 million and a realized gain of $48.4 million. Proceeds represented a further increase of $1.7 million above our mark for this investment at last quarter end. Subsequent to our sale, we invested $3.2 million in the Class A partnership interests of ECI Cayman Holdings, LP for a 2.35% ownership interest. When taken in conjunction with our other exits during the quarter, we are pleased to report a blended IRR, or cash on cash return, in excess of twenty-one percent, largely driven by ECI.
- We funded $43.0 million of our $45.0 million commitment in the U.S. Well Services, LLC (“U.S. Well”) first lien term loan and earned a 2.2% upfront fee, or $1.0 million. We were also taken out of our investment in the senior secured notes for a cash on cash return of 1.27x our initial investment, inclusive of a $1.5 million prepayment fee. U.S. Well is a Houston, Texas based oilfield services provider.
- We invested $21.0 million in the New Gulf Resources, LLC (“New Gulf”) senior secured notes at 99.1% of par and $4.0 million in the senior subordinated PIK toggle notes and associated warrants for a 1.2% share of the common equity. New Gulf is based in Tulsa, Oklahoma and was formed to acquire and develop oil and natural gas assets.
|Three months ended June 30, 2014||Three months ended June 30, 2013|
|Exits of commitments||192.5||199.1|
|Number of portfolio company investments at the end of period||44||41|
|Weighted average (“WA”) yield of debt and income producing equity securities, at cost||11.9||%||12.1||%|
|WA yield of senior secured loans, at cost||11.4||%||11.5||%|
|WA yield of other debt securities, at cost||12.9||%||13.2||%|
|Average investment by portfolio company, at amortized cost (excluding those below $5.0 million)||$||25.8||$||29.1|
- The composition of our portfolio invested in senior secured loans and unsecured or subordinated debt securities increased a respective 4% and 2% to a respective 48% and 19%, while our concentration in senior secured notes declined 6% to 9%, as compared to the prior quarter. Although our sale of Electrical Components International 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 $42.9 million decrease in the size of our overall portfolio during the quarter, resulting in a modest 4% decline in our equity investments to 17% at quarter end.
- Net unrealized appreciation decreased $34.6 million during the current quarter, due primarily to $48.6 million of unrealized appreciation reversals on investment exits. Removing such reversals, the current portfolio appreciated $14.0 million in value during the quarter. Taken in conjunction with $49.0 million of realized gains during the period, our net realized and unrealized gains of $14.4 million helped to drive our net asset value per share up another $0.20 for the quarter to $9.79 per share at June 30, 2014. This was a further increase over our $9.37 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 $5.9 million, or $0.08 per share, as compared to $0.9 million, or $0.01 per share for the prior quarter. Although there were only $4.5 million more exits during the current quarter as compared to the prior quarter, all three of the exits were accompanied by a prepayment fee, accounting for $4.7 million of the $5.9 million for the quarter. Removing fee income, our remaining investment income decreased from $28.7 million to $27.9 million during the second quarter of 2014.
- There was an additional $3.0 million accrual during the quarter for incentive management fees based on gains, driven by a $14.8 million increase in net realized and unrealized gains for the twelve month measurement period ending June 30, over a net $146.1 million as of last quarter end. 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. Taken in conjunction with $2.7 million of gross unrealized depreciation on a security by security basis over the same measurement period, $16.2 million of incentive management fees based on gains is earned and due at this time. Furthermore, while no incentive management fees based on income were earned and payable during the quarter, pro-forma incentive management fees earned were $2.6 million, had they been accrued ratably throughout the year.
- Our leverage, net of available cash, stood at 0.34 times at quarter end providing us with available debt capacity under our asset coverage requirements of $392.0 million and $380.0 million available under our senior secured, revolving credit facility.
- As compared to last year, our weighted average cost of debt decreased 49 basis points to 5.01% due to securing more favorable pricing with the amendment of our credit facility earlier this year. Average debt outstanding increased from $359.5 million last year to $449.6 million this year, resulting in a 7.4% increase in total borrowing costs during the quarter as compared to last year’s quarterly average.
- Our net investment income, as adjusted, was $0.23 per share, relative to distributions declared of $0.21 per share, resulting in net investment income dividend coverage of 108%. Realized gains during the quarter provided another $0.66 per share of earnings with no accompanying distribution requirement, resulting in $0.89 per share of combined net investment income and realized gains, for dividend coverage of 421%. 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.