- Net investment income of $25.7 million, or $0.18 per share;
- Net asset value per share of $7.97;
- Closed $123.0 million of new investments; and
- Repurchased 2.0 million shares of common stock in the open market at an aggregate cost of $12.5 million.
- Net investment income of $106.7 million, or $0.72 per share, which covered the annual distributions to our stockholders of $0.72 per share;
- Closed $844.5 million of new investments; and
- Repurchased 7.0 million shares of common stock in the open market at an aggregate cost of $37.6 million.
At September 30, 2016, our portfolio consisted of investments in 129 companies, 110 of which were completed in connection with investments by private equity sponsors, one of which was in Senior Loan Fund JV I, LLC ("SLF JV I") and 18 of which were in private equity funds. At fair value, 91.2% of our portfolio consisted of debt investments and 78.0% of our portfolio consisted of senior secured loans. Our average portfolio company debt investment size at fair value was $19.7 million at September 30, 2016, versus $20.7 million at September 30, 2015, with only 0.8% of the portfolio's fair value invested in the energy sector and no exposure to CLO equity.At September 30, 2016, SLF JV I had $338.5 million in assets, including senior secured loans to 37 portfolio companies. The joint venture generated income of $4.5 million to FSC during the fourth fiscal quarter, which represented an 11.3% weighted average annualized return on investment. Our weighted average yield on debt investments at September 30, 2016, including the return on SLF JV I, was 10.4% and included a cash component of 9.6%. At September 30, 2016 and September 30, 2015, $1.6 billion and $1.7 billion, respectively, of our debt investments at fair value bore interest at floating rates, which represented 80.9% and 77.5%, respectively, of our total portfolio of debt investments at fair value. Results of Operations Total investment income for the quarters ended September 30, 2016 and September 30, 2015 was $59.2 million and $63.8 million, respectively. For the quarter ended September 30, 2016, the amount primarily consisted of $47.1 million of cash interest income from portfolio investments. For the quarter ended September 30, 2015, the amount primarily consisted of $52.0 million of cash interest income from portfolio investments. For the quarter ended September 30, 2016, payment-in-kind ("PIK") interest income net of PIK collected in cash represented 5.9% of total investment income.
Total investment income for the years ended September 30, 2016 and September 30, 2015 was $247.9 million and $265.5 million, respectively. For the year ended September 30, 2016, the amount primarily consisted of $197.2 million of cash interest income from portfolio investments. For the year ended September 30, 2015, the amount primarily consisted of $215.9 million of cash interest income from portfolio investments. For the year ended September 30, 2016, PIK interest income net of PIK collected in cash represented 4.8% of total investment income.Net expenses for the quarters ended September 30, 2016 and September 30, 2015 were $33.5 million and $35.6 million, respectively. Net expenses decreased for the quarter ended September 30, 2016 as compared to the quarter ended September 30, 2015, due primarily to a $2.5 million decrease in base management fees, which was attributable to the permanent fee reduction that we agreed to with our investment adviser effective January 1, 2016, partially offset by a $0.8 million increase in professional fees. Net expenses for the years ended September 30, 2016 and September 30, 2015 were $141.1 million and $150.5 million, respectively. Net expenses decreased for the year ended September 30, 2016 as compared to the year ended September 30, 2015, due primarily to a $9.9 million decrease in base management fees and a $6.5 million decrease in incentive fees paid to our investment adviser, partially offset by an $11.2 million increase in professional fees. Net realized and unrealized losses on our investment portfolio for the quarters ended September 30, 2016 and September 30, 2015 were $29.1 million and $30.5 million, respectively. Net realized and unrealized losses on our investment portfolio for the years ended September 30, 2016 and September 30, 2015 were $173.3 million and $99.5 million, respectively. Liquidity and Capital Resources At September 30, 2016, we had $130.4 million of cash and cash equivalents (including $12.4 million of restricted cash), portfolio investments (at fair value) of $2.2 billion, $15.6 million of interest, dividends and fees receivable, $213.3 million of U.S. Small Business Administration ("SBA") debentures payable, $516.3 million of borrowings outstanding under our credit facilities, $410.6 million of unsecured notes payable, $18.4 million of secured borrowings and unfunded commitments of $215.7 million. Our regulatory leverage ratio was 0.83x debt-to-equity, excluding the debentures issued by our small business investment company ("SBIC") subsidiaries.
At September 30, 2015, we had $143.5 million of cash and cash equivalents (including $5.1 million of restricted cash), portfolio investments (at fair value) of $2.4 billion, $15.7 million of interest, dividends and fees receivable, $225.0 million of SBA debentures payable, $427.3 million of borrowings outstanding under our credit facilities, $115.0 million of unsecured convertible notes payable, $410.3 million of unsecured notes payable, $21.2 million of secured borrowings and unfunded commitments of $305.3 million. Our regulatory leverage ratio was 0.72x debt-to-equity, excluding the debentures issued by our SBIC subsidiaries.Dividend Declaration In addition to our previously declared dividend of $0.06 per share, which is payable on November 30, 2016 to stockholders of record on November 15, 2016, our Board of Directors met on October 18, 2016 and declared the following distributions:
- $0.06 per share, payable on December 30, 2016 to stockholders of record on December 15, 2016;
- $0.06 per share, payable on January 31, 2017 to stockholders of record on January 13, 2017; and
- $0.06 per share, payable on February 28, 2017 to stockholders of record on February 15, 2017.
On November 28, 2016, our Board of Directors approved a new common stock repurchase program authorizing us to repurchase up to $12.5 million in the aggregate of our outstanding common stock through November 28, 2017. Any common stock repurchases under the newly authorized program are to be made in the open market, privately negotiated transactions or otherwise at times, and in such amounts, as management deems appropriate subject to various factors, including company performance, capital availability, general economic and market conditions, regulatory requirements and other corporate considerations, as determined by management. The newly authorized repurchase program may be suspended or discontinued at any time. We expect to finance the stock repurchases with existing cash balances or by incurring leverage.Portfolio Asset Quality We utilize the following investment ranking system for our investment portfolio:
- Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.
- Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.
- Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring. To the extent that the underlying agreement has a PIK interest provision, investments with a ranking of 3 are generally those on which we are not accruing PIK interest.
- Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.
|Investment Ranking||September 30, 2016||September 30, 2015|
|Fair Value||% of Portfolio||Leverage Ratio||Fair Value||% of Portfolio||Leverage Ratio|
We may from time to time modify the payment terms of our investments, either in response to current economic conditions and their impact on certain of our portfolio companies or in accordance with tier pricing provisions in certain loan agreements. As of September 30, 2016, we had modified the payment terms of our investments in 16 portfolio companies. Such modified terms may include increased PIK interest rates and reduced cash interest rates. These modifications, and any future modifications to our loan agreements, may limit the amount of interest income that we recognize from the modified investments, which may, in turn, limit our ability to make distributions to our stockholders.As of September 30, 2016, there were five investments on which we had stopped accruing cash and/or PIK interest or original issue discount ("OID") income that represented 6.1% of our debt portfolio at fair value in the aggregate.
|Fifth Street Finance Corp.|
|Consolidated Statements of Assets and Liabilities|
|(in thousands, except per share amounts)|
|September 30, 2016||September 30, 2015|
|Investments at fair value:|
|Control investments (cost September 30, 2016: $456,493; cost September 30, 2015: $333,520)||$||388,267||$||318,893|
|Affiliate investments (cost September 30, 2016: $34,955; cost September 30, 2015: $36,637)||39,769||40,606|
|Non-control/Non-affiliate investments (cost September 30, 2016: $1,792,410; cost September 30, 2015: $2,102,781)||1,737,455||2,042,996|
|Total investments at fair value (cost September 30, 2016: $2,283,858; cost September 30, 2015: $2,472,938)||2,165,491||2,402,495|
|Cash and cash equivalents||117,923||138,377|
|Interest, dividends and fees receivable||15,568||15,687|
|Due from portfolio companies||4,077||2,641|
|Receivables from unsettled transactions||5,346||5,168|
|Deferred financing costs||11,479||16,051|
|Insurance recoveries receivable||19,729||—|
|LIABILITIES AND NET ASSETS|
|Accounts payable, accrued expenses and other liabilities||$||2,533||$||4,946|
|Base management fee and Part I incentive fee payable||15,958||16,531|
|Due to FSC CT LLC||2,204||2,965|
|Amounts payable to syndication partners||754||1,316|
|Director fees payable||566||60|
|Payables from unsettled transactions||6,234||3,648|
|Legal settlements payable||19,500||—|
|Credit facilities payable||516,295||427,295|
|SBA debentures payable||213,300||225,000|
|Unsecured convertible notes payable||—||115,000|
|Unsecured notes payable||410,586||410,320|
|Secured borrowings at fair value (proceeds September 30, 2016: $18,929; proceeds September 30, 2015: $21,787)||18,400||21,182|
|Commitments and contingencies|
|Common stock, $0.01 par value, 250,000 shares authorized; 143,259 and 150,668 shares issued and outstanding at September 30, 2016 and September 30, 2015, respectively||1,433||1,507|
|Treasury stock, 423 shares at September 30, 2015||—||(2,538||)|
|Net unrealized depreciation on investments and secured borrowings||(117,837||)||(69,838||)|
|Net realized loss on investments and secured borrowings||(306,228||)||(180,945||)|
|Accumulated overdistributed net investment income||(26,546||)||(26,615||)|
|Total net assets (equivalent to $7.97 and $9.00 per common share at September 30, 2016 and September 30, 2015, respectively)||1,142,288||1,353,094|
|Total liabilities and net assets||$||2,352,530||$||2,585,657|
|Fifth Street Finance Corp.|
|Consolidated Statements of Operations|
|(in thousands, except per share amounts)|
|Three months ended September 30, 2016||Three months ended September 30, 2015||Year ended September 30, 2016||Year ended September 30, 2015|
|Interest on cash and cash equivalents||118||19||380||55|
|Total interest income||47,059||51,977||197,196||215,922|
|PIK interest income:|
|Total PIK interest income||4,061||2,993||14,028||13,389|
|Total fee income||5,238||4,989||22,678||22,264|
|Dividend and other income:|
|Total dividend and other income||2,802||3,811||13,970||13,900|
|Total investment income||59,160||63,770||247,872||265,475|
|Base management fee||9,636||12,250||41,483||51,615|
|Part I incentive fee||6,402||7,015||22,091||28,575|
|Board of Directors fees||191||178||966||722|
|General and administrative expenses||1,603||1,086||5,128||6,346|
|Loss on legal settlements||350||—||19,500||—|
|Base management fee waived||(80||)||(145||)||(338||)||(546||)|
|Net investment income||25,695||28,159||106,727||114,940|
|Unrealized appreciation (depreciation) on investments:|
|Net unrealized depreciation on investments||26,251||(32,310||)||(47,924||)||(71,674||)|
|Net unrealized (appreciation) depreciation on secured borrowings||(209||)||474||(76||)||658|
|Realized gain (loss) on investments and secured borrowings:|
|Net realized gain (loss) on investments and secured borrowings||(55,170||)||1,288||(125,283||)||(28,529||)|
|Net increase (decrease) in net assets resulting from operations||$||(3,433||)||$||(2,389||)||$||(66,556||)||$||15,395|
|Net investment income per common share — basic||$||0.18||$||0.18||$||0.72||$||0.75|
|Earnings (loss) per common share — basic||$||(0.02||)||$||(0.02||)||$||(0.45||)||$||0.10|
|Weighted average common shares outstanding — basic||144,649||152,639||147,422||153,164|
|Net investment income per common share — diluted||$||0.18||$||0.18||$||0.71||$||0.75|
|Earnings (loss) per common share — diluted||$||(0.02||)||$||(0.02||)||$||(0.45||)||$||0.10|
|Weighted average common shares outstanding — diluted||144,649||160,430||151,339||160,954|
|Distributions per common share||$||0.18||$||0.18||$||0.72||$||0.79|
About Fifth Street Finance Corp.Fifth Street Finance Corp. is a leading specialty finance company that provides custom-tailored financing solutions to small and mid-sized companies, primarily in connection with investments by private equity sponsors. The company originates and invests in one-stop financings, first lien, second lien, mezzanine debt and equity co-investments. FSC's investment objective is to maximize its portfolio's total return by generating current income from its debt investments and capital appreciation from its equity investments. The company has elected to be regulated as a business development company and is externally managed by a subsidiary of Fifth Street Asset Management Inc. (NASDAQ:FSAM), a nationally recognized credit-focused asset manager with over $5 billion in assets under management across multiple public and private vehicles. Having committed approximately $10 billion of loans over its 18-year track record, Fifth Street's platform has the ability to hold loans up to $250 million and structure and syndicate transactions up to $500 million. Fifth Street received the 2015 ACG New York Champion's Award for "Lender Firm of the Year," and other previously received accolades include the ACG New York Champion's Award for "Senior Lender Firm of the Year," "Lender Firm of the Year" by The M&A Advisor and "Lender of the Year" by Mergers & Acquisitions. FSC's website can be found at fsc.fifthstreetfinance.com. Forward-Looking Statements Some of the statements in this press release constitute forward-looking statements, because they relate to future events or our future performance or financial condition. Forward-looking statements may include statements as to the future operating results, dividends and business prospects of FSC. Words such as "believes," "expects," "seeks," "plans," "should," "estimates," "project," and "intend" indicate forward-looking statements, although not all forward-looking statements include these words. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those implied or expressed in these forward-looking statements for any reason. Such factors are identified from time to time in FSC's filings with the Securities and Exchange Commission and include changes in the economy and the financial markets and future changes in laws or regulations and conditions in the Company's operating areas. FSC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
CONTACT: Investor Contact:Robyn Friedman, Executive Director, Head of Investor Relations(203) email@example.comMedia Contact:James Golden / Aura Reinhard / Andrew SquireJoele Frank Wilkinson Brimmer Katcher(212) 355-4449