NEW YORK–(BUSINESS WIRE)–Harvest Capital Credit Corporation (the “Company”) (NASDAQ: HCAP)
announced financial results for its first quarter ended March 31, 2019.
FINANCIAL HIGHLIGHTS
| Q1-19 | Q1-18 | |||||||||||||||
| Amount | Per share | Amount | Per share | |||||||||||||
| Net investment income | $ | 762,270 | $ | 0.12 | $ | 1,215,288 | $ | 0.19 | ||||||||
| Core net investment income (1) | $ | 762,270 | $ | 0.12 | $ | 1,215,288 | $ | 0.19 | ||||||||
| Net realized gains (losses) on investments | $ | 35,410 | $ | 0.01 | $ | (885,642 | ) | $ | (0.14 | ) | ||||||
| Net change in unrealized appreciation (depreciation) | $ | (736,685 | ) | $ | (0.12 | ) | $ | 1,740,349 | $ | 0.27 | ||||||
| Net income | $ | 60,995 | $ | 0.01 | $ | 2,069,955 | $ | 0.32 | ||||||||
| Weighted average shares outstanding (basic and diluted) | 6,302,724 | 6,437,478 | ||||||||||||||
| (1) |
Core net investment income and core net investment income per share are non-GAAP financial measures. For the quarters ending March 31, 2019 and 2018, respectively, there were no adjustments to GAAP net investment income and GAAP net investment income per share to arrive at core net investment income and core net investment income per share. |
|
PORTFOLIO ACTIVITY
| March 31, 2019 | December 31, 2018 | |||||||||
| Portfolio investments at fair value | $ | 101,700,770 | $ | 94,913,862 | ||||||
| Total assets | $ | 115,318,933 | $ | 125,319,701 | ||||||
| Net assets | $ | 74,925,538 | $ | 78,395,964 | ||||||
| Shares outstanding | 6,189,542 | 6,372,581 | ||||||||
| Net asset value per share | $ | 12.11 | $ | 12.30 | ||||||
| Q1-19 | Q1-18 | |||||||||
| Portfolio activity during the period: | ||||||||||
| New debt investment commitments | $ | 21,349,788 | $ | 8,000,000 | ||||||
| New equity investments | 158,252 | 150,000 | ||||||||
| Exits of debt investment commitments | (10,424,648 | ) | (6,753,125 | ) | ||||||
| Exits of equity investments | (206,435 | ) | (4,480 | ) | ||||||
| Principal repayments | (3,348,148 | ) | (771,962 | ) | ||||||
| Net activity | $ | 7,528,809 | $ | 620,433 | ||||||
| March 31, 2019 | December 31, 2018 | |||||||||
| Number of portfolio company investments | 25 | 24 | ||||||||
| Number of debt investments | 19 | 17 | ||||||||
|
Weighted average yield of debt and other income producing investments (1): |
||||||||||
| Cash | 11.8 | % | 12.5 | % | ||||||
| PIK | 1.0 | % | 1.0 | % | ||||||
| Fee amortization | 1.7 | % | 1.3 | % | ||||||
| Total | 14.5 | % | 14.8 | % | ||||||
| Weighted average yield on total investments (2): | ||||||||||
| Cash | 9.9 | % | 10.7 | % | ||||||
| PIK | 0.8 | % | 0.9 | % | ||||||
| Fee amortization | 1.5 | % | 1.1 | % | ||||||
| Total | 12.2 | % | 12.7 | % | ||||||
| (1) |
The dollar-weighted average annualized effective yield is computed using the effective interest rates for our debt investments and other income producing investments, including cash and PIK interest as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective fair values of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio. The dollar-weighted average annualized yield on the Company’s investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company’s expenses or any sales load that may be paid by investors. Infinite Care, LLC was excluded from the calculation as of March 31, 2019 and December 31, 2018, and CP Holding Co., Inc. was excluded from the calculation as of March 31, 2019 because they were on non-accrual status on such dates. |
|
| (2) |
The dollar-weighted average yield on total investments takes the same yields but weights them to determine the weighted average effective yield as a percentage of the Company’s total investments. The dollar-weighted average annualized yield on the Company’s investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company’s expenses or any sales load that may be paid by investors. |
|
FIRST QUARTER OF 2019 OPERATING RESULTS
Net investment income was $0.8 million, or $0.12 per share, for the
quarter ended March 31, 2019, compared to net investment income of $1.2
million, or $0.19 per share, for the quarter ended March 31, 2018, a
decrease of $0.4 million. The decrease in net investment income in the
quarter ended March 31, 2019, as compared to the quarter ended March 31,
2018, is primarily attributable to recording $0.7 million less
investment income as a result of a smaller portfolio at March 31, 2019
($101.7 million) than the portfolio at March 31, 2018 ($118.3 million),
offset by a decrease of $0.3 million in expenses for the first quarter
of 2019 as compared to the first quarter of 2018.
For the quarter ended March 31, 2019, the Company reported net income of
$0.1 million, a decrease of $2.0 million from $2.1 million of net income
in the quarter ended March 31, 2018. Per share earnings were $0.01 and
$0.32 per share for the three months ended March 31, 2019 and 2018,
respectively. The decrease in net income of $2.0 million for the quarter
ended March 31, 2019 was primarily attributable to a $0.7 million
decrease in investment income, a negative change in net unrealized
appreciation/depreciation on investments in the amount of $2.5 million,
offset by an increase of $0.9 million of realized gains on investments,
a $0.2 million decrease in operating expenses, and by a $0.1 million
decrease in interest expense for the three months ended March 31, 2019,
as compared to the three months ended March 31, 2018.
As of March 31, 2019, our total portfolio investments at fair value and
total assets were $101.7 million and $115.3 million, respectively,
compared to $94.9 million and $125.3 million at December 31, 2018. Net
asset value per share was $12.11 at March 31, 2019, compared to $12.30
at December 31, 2018.
During the first quarter of 2019, the Company made investments in seven
companies totaling $21.5 million. Five investments were in new portfolio
companies and two were additional investments in existing portfolio
companies. The Company also had investment sales, payoffs and commitment
expirations totaling $10.6 million during the three months ended
March 31, 2019. The investment activity for the quarter ended March 31,
2019 was as follows:
New and Incremental Investments
On January 18, 2019, the Company made a $3.0 million senior secured debt
investment in Dell International LLC. The debt investment consists of a
$3.0 million syndicated term loan. The loan carries an interest rate of
LIBOR plus 2.0% with a 0.75% LIBOR floor.
On January 22, 2019, the Company made a $3.0 million senior secured debt
investment in HCA Inc. The debt investment consists of a $3.0 million
syndicated term loan. The loan carried an interest rate of LIBOR plus
2.0%. On March 19, 2019, the Company sold its senior secured debt
investment in HCA Inc. at cost. The Company generated a nominal positive
return on this broadly syndicated loan.
On February 15, 2019, the Company made a $5.3 million senior secured
debt investment in Peerless Media, LLC. The debt investment consists of
a $4.8 million term loan and a $0.5 million revolver. The loans carry an
interest rate of LIBOR plus 8.5%, plus 0.5% PIK with a 2.4% LIBOR floor.
On February 19, 2019, the Company made a $5.0 million senior secured
debt investment in General Nutrition Centers, Inc. The debt investment
consists of a $5.0 million syndicated term loan. The loan carries
interest rates of LIBOR plus 8.75% or an alternative base rate plus
7.75% with a 0.75% LIBOR floor.
On March 1, 2019, the Company increased its equity investment in KC
Engineering & Construction Services, LLC, with a $22,681 pro-rata
increase through one add-on funding to purchase Class A Units.
In March 2019, the Company increased its equity investment in National
Program Management & Project Controls, LLC, with a $0.1 million pro-rata
increase through two add-on fundings to purchase Class A Units.
During the first quarter of 2019, the Company made a $5.0 million senior
secured debt investment in Deluxe Entertainment Services Group Inc. The
debt investment consists of a $4.8 million initial term loan (the
“Initial Term Loan”) and $0.2 million new term loan (the “New Term
Loan”). The Initial Term Loan carries an interest rate of LIBOR plus
5.5% with a 1.00% LIBOR floor and the New Term Loan carries an interest
rate of LIBOR plus 6.0% with a 1.00% LIBOR floor.
Investment Payoffs
On January 8, 2019, the Company received a full repayment, at par, on
its junior secured debt investment in Wetmore Tool and Engineering
Company. The original par value of the debt investment was $4.0 million.
The Company generated an internal rate of return* (“IRR”) of 15.2% on
its investment.
On January 10, 2019, the Company received a full repayment, at par, on
its junior secured debt investment in Douglas Machines Corp. The
original par value of the debt investment was $4.3 million. The Company
generated an IRR* of 14.69% on its investment.
* IRR is the rate of return that makes the net present value of all cash
flows into or from the investment equal to zero, and is calculated based
on the amount of each cash flow received or invested by the Company and
the day it was received or invested.
“Our first quarter results were consistent with our commentary on our
year-end 2018 conference call as well as in our press release when we
reduced the monthly dividend to $0.08 per share in February-namely high
levels of payoffs of well performing investments had negatively impacted
our results near term,” said Joseph Jolson, Chairman and CEO, “and we
are working hard to re-deploy our lending capacity into new investments
with attractive risk adjusted yields that could enable us to earn the
current dividend in the second half of 2019. By quarter-end, total
investments were $102 million, compared to a low of $85 million in
January, although some of the increase was in lower yielding broadly
syndicated loans and we remain optimistic that additional mandated deals
in our current pipeline will close in the next few months. Meanwhile, we
completed our 250,000 share repurchase plan in April and the Board
authorized another 250,000 share plan through December 2019. At current
price levels, buying our stock back is immediately accretive to net
asset value and net investment income per share, but potentially not as
accretive as faster loan growth at our targeted yields. We continue to
believe that utilizing our dual approach of loan growth and buybacks
could allow us to reach our leverage objective of 1.3:1 sooner and in a
more accretive way for shareholders,” concluded Mr. Jolson.
CREDIT QUALITY
The Company employs various risk management and monitoring tools to
categorize and assess its investments. No less frequently than
quarterly, the Company applies an investment risk rating system which
uses a five-level numeric scale. The following is a description of the
conditions associated with each investment rating:
-
Investment Rating 1 is used for investments that are performing above
expectations, and whose risks remain favorable compared to the
expected risk at the time of the original investment. -
Investment Rating 2 is used for investments that are performing within
expectations and whose risks remain neutral compared to the expected
risk at the time of the original investment. All new loans are
initially rated 2. -
Investment Rating 3 is used for investments that are performing below
expectations and that require closer monitoring, but where no loss of
return or principal is expected. Portfolio companies with a rating of
3 may be out of compliance with financial covenants. -
Investment Rating 4 is used for investments that are performing
substantially below expectations and whose risks have increased
substantially since the original investment. These investments are
often in workout. Investments with a rating of 4 are those for which
there is an increased possibility of some loss of return but no loss
of principal is expected. -
Investment Rating 5 is used for investments that are performing
substantially below expectations and whose risks have increased
substantially since the original investment. These investments are
almost always in workout. Investments with a rating of 5 are those for
which some loss of return and principal is expected.
As of March 31, 2019, the weighted average risk rating of the debt
investments in the Company’s portfolio increased slightly to 2.32 from
2.24 in the previous quarter. Also, as of March 31, 2019, three of the
Company’s nineteen debt investments were rated 1, eleven investments
were rated 2, three investments were rated 3, one investment was rated
4, and one investment was rated 5. As of March 31, 2019, two investments
were on non-accrual status.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2019, the Company had $11.2 million of cash and
restricted cash and $18.1 million of undrawn capacity on its $55.0
million senior secured revolving credit facility. The credit facility is
secured by all of the Company’s assets and has an accordion feature that
allows the size of the facility to increase up to $85.0 million.
Additionally, the Company holds five syndicated loans totaling $18.3
million at fair value as of March 31, 2019. These investments could be
sold and the proceeds re-invested in our core lower-middle market
strategy, as attractive opportunities arise.
SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO MARCH 31, 2019
Since the end of the first quarter of 2019, the Company has repurchased
19,775 shares of its common stock at an average price of $10.59 per
share. With those shares repurchased in the second quarter of 2019, the
Company reached the 250,000 total share limit under the stock repurchase
program authorized by the Company’s board of directors in November 2018.
On April 4, 2019, the Company sold its senior secured term loan in Dell
International L.L.C. and received approximately $3.0 million in sale
proceeds.
On April 9, 2019, the Company made a $0.3 million equity contribution to
Infinite Care, LLC.
On April 15, 2019, the Company increased its equity investment in
National Program Management & Project Controls, LLC, with a $0.3 million
pro-rata increase through an add-on funding to purchase Class A Units.
On May 3, 2019, the Company declared monthly distributions of $0.08 per
share payable on each May 30, 2019, June 27, 2019, and July 25, 2019.
On May 3, 2019, the board of directors authorized an open market stock
repurchase program. Pursuant to the program, the Company is authorized
to repurchase up to 250,000 shares in the aggregate of the Company’s
outstanding common stock in the open market. The timing, manner, price
and amount of any share repurchases will be determined by the Company’s
management at its discretion, and no assurances can be given that any
common stock, or any particular amount, will be purchased. Unless
amended by the Company’s board of directors, the repurchase program will
expire on the earlier of December 31, 2019 or the repurchase of 250,000
shares of the Company’s outstanding common stock.
Effective May 4, 2019, the asset coverage ratio applicable to the
Company decreased from 200% to 150% as a result of the board of
directors’ approval in May 2018 of the application of the modified asset
coverage requirement set forth in Section 61(a)(2) of the Investment
Company Act of 1940, as amended by the Small Business Credit
Availability Act.
On May 10, 2019, the Company entered into an Eighth Amendment to Loan
and Security Agreement (the “Amendment”), by and among the Company, HCAP
Equity Holdings, LLC, HCAP ICC, LLC, Pacific Western Bank
(successor-by-merger to CapitalSource Bank), as agent and a lender, and
each of the other lenders from to time to time party thereto, including
City National Bank. The Amendment amends the credit facility to, among
other things, (i) provide for a senior leverage ratio (the ratio of
total borrowed money other than subordinated debt and unsecured
longer-term indebtedness to equity) of 1 to 1; (ii) provide for a total
leverage ratio (the ratio of total debt to equity) of 1.4 to 1, which
replaces the prior 1-to-1 leverage ratio; and (iii) provide for a
minimum utilization fee of 2.50% that will be payable on unused
commitments below $16.5 million at any time that Company’s unsecured
longer-term indebtedness (which is currently $28.8 million) exceeds $30
million.
CONFERENCE CALL
The Company will host a conference call on Tuesday, May 14, 2019 at
11:00 a.m. Eastern Time to discuss its first quarter results. All
interested parties are invited to participate in the conference call by
dialing (888) 566-6060 (domestic) or (973) 200-3100 (international).
Participants should enter the Conference ID 1669897 when prompted.
ABOUT HARVEST CAPITAL CREDIT CORPORATION
Harvest Capital Credit Corporation (NASDAQ: HCAP) provides customized
financing solutions to privately held small and mid-sized companies in
the U.S., generally targeting companies with annual revenues of less
than $100 million and annual EBITDA of less than $15 million. The
Company’s investment objective is to generate both current income and
capital appreciation primarily by making direct investments in the form
of subordinated debt, senior debt and, to a lesser extent, minority
equity investments. Harvest Capital Credit Corporation is externally
managed and has elected to be treated as a business development company
under the Investment Company Act of 1940. For more information about
Harvest Capital Credit Corporation, visit www.harvestcapitalcredit.com.
However, the contents of such website are not and should not be deemed
to be incorporated by reference herein.
Forward-Looking Statements
This press release contains forward-looking statements subject to the
inherent uncertainties in predicting future results and conditions. Any
statements that are not of historical fact (including statements
containing the words “believes”, “plans”, “anticipates”, “expects”,
“estimates”, and similar expressions) should also be considered to be
forward-looking statements. Certain factors could cause actual results
and conditions to differ materially from those projected in these
forward-looking statements. These factors are identified from time to
time in our filings with the Securities and Exchange Commission. We
undertake no obligation to update such statements to reflect subsequent
events, except as may be required by law.
|
Harvest Capital Credit Corporation Consolidated Statements of Assets and Liabilities (Unaudited) |
||||||||
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| ASSETS: | ||||||||
|
Non-affiliated/non-control investments, at fair value (cost of $59,046,794 at 3/31/19 and $59,603,853 at 12/31/18) |
$ | 60,190,825 | $ | 61,919,954 | ||||
|
Affiliated investments, at fair value (cost of $33,940,471 at 3/31/19 and $25,848,928 at 12/31/18) |
33,109,024 | 24,645,597 | ||||||
|
Control investments, at fair value (cost of $13,419,123 at 3/31/19 and $13,430,013 at 12/31/18) |
8,400,921 | 8,348,311 | ||||||
| Cash | 9,913,316 | 26,963,310 | ||||||
| Restricted cash | 1,262,334 | 1,812,238 | ||||||
| Interest receivable | 1,256,754 | 721,195 | ||||||
| Accounts receivable – other | 312,273 | 178,883 | ||||||
| Deferred financing costs | 568,432 | 623,442 | ||||||
| Other assets | 305,054 | 106,771 | ||||||
| Total assets | $ | 115,318,933 | $ | 125,319,701 | ||||
| LIABILITIES: | ||||||||
| Revolving line of credit | $ | 5,000,000 | $ | 17,000,000 | ||||
|
2022 Notes (net of deferred offering costs of $773,519 at 3/31/19 and $821,879 at 12/31/18) |
27,976,481 | 27,928,121 | ||||||
| Payable for securities purchased | 5,285,658 | — | ||||||
| Accrued interest payable | 115,864 | 115,919 | ||||||
| Accounts payable – base management fees | 494,846 | 531,628 | ||||||
| Accounts payable – incentive management fees | — | 361,090 | ||||||
| Accounts payable – administrative services | 350,000 | 366,667 | ||||||
| Accounts payable – accrued expenses | 1,170,546 | 620,312 | ||||||
| Total liabilities | 40,393,395 | 46,923,737 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| NET ASSETS: | ||||||||
|
Common stock, $0.001 par value, 100,000,000 shares authorized, 6,561,732 issued and 6,189,542 outstanding at 3/31/19 and 6,554,010 issued and 6,372,581 outstanding at 12/31/18 |
6,562 | 6,554 | ||||||
| Capital in excess of common stock | 92,347,663 | 92,270,273 | ||||||
|
Treasury shares, at cost, 372,190 and 181,429 shares at 3/31/19 and 12/31/18, respectively |
(3,959,962) | (1,956,055) | ||||||
| Accumulated over distributed earnings | (13,468,725) | (11,924,808) | ||||||
| Total net assets | 74,925,538 | 78,395,964 | ||||||
| Total liabilities and net assets | $ | 115,318,933 | $ | 125,319,701 | ||||
| Common stock outstanding | 6,189,542 | 6,372,581 | ||||||
| Net asset value per common share | $ | 12.11 | $ | 12.30 | ||||
|
Harvest Capital Credit Corporation Consolidated Statements of Operations (Unaudited) |
||||||||||
| Three Months Ended March 31, | ||||||||||
| 2019 | 2018 | |||||||||
| Investment Income: | ||||||||||
| Interest: | ||||||||||
| Cash – non-affiliated/non-control investments | $ | 1,481,111 | $ | 2,325,116 | ||||||
| Cash – affiliated investments | 960,946 | 706,571 | ||||||||
| Cash – control investments | — | 83,388 | ||||||||
| PIK – non-affiliated/non-control investments | 12,119 | 196,042 | ||||||||
| PIK – affiliated investments | 194,515 | 167,877 | ||||||||
| Amortization of fees, discounts and premiums, net: | ||||||||||
| Non-affiliated/non-control investments | 226,862 | 191,033 | ||||||||
| Affiliated investments | 22,732 | 15,841 | ||||||||
| Total interest income | 2,898,285 | 3,685,868 | ||||||||
| Other income | 139,959 | 54,916 | ||||||||
| Total investment income | 3,038,244 | 3,740,784 | ||||||||
| Expenses: | ||||||||||
| Interest expense – revolving line of credit | 10,486 | 138,839 | ||||||||
| Interest expense – unused line of credit | 101,749 | 81,655 | ||||||||
| Interest expense – deferred financing costs | 55,011 | 55,121 | ||||||||
| Interest expense – 2022 Notes | 440,235 | 440,235 | ||||||||
| Interest expense – deferred offering costs | 48,360 | 44,986 | ||||||||
| Total interest expense | 655,841 | 760,836 | ||||||||
| Professional fees | 520,334 | 1,032,288 | ||||||||
| General and administrative | 254,953 | 290,285 | ||||||||
| Base management fees | 494,846 | 580,643 | ||||||||
| Administrative services expense | 350,000 | 300,000 | ||||||||
| Total expenses, before reimbursement | 2,275,974 | 2,964,052 | ||||||||
| Less: Professional fees reimbursed by HCAP Advisors, LLC | — | (438,556 | ) | |||||||
| Total expenses, after reimbursement | 2,275,974 | 2,525,496 | ||||||||
| Net Investment Income | 762,270 | 1,215,288 | ||||||||
| Net realized gains (losses): | ||||||||||
| Non-affiliated / Non-control investments | 46,300 | — | ||||||||
| Affiliated investments | — | (885,642 | ) | |||||||
| Control investments | (10,890 | ) | — | |||||||
| Net realized gains (losses) | 35,410 | (885,642 | ) | |||||||
| Net change in unrealized appreciation (depreciation) on investments: | ||||||||||
| Non-affiliated / Non-control investments | (738,955 | ) | 54,343 | |||||||
| Affiliated investments | (61,230 | ) | 1,781,469 | |||||||
| Control investments | 63,500 | (95,463 | ) | |||||||
| Net change in unrealized appreciation (depreciation) on investments | (736,685 | ) | 1,740,349 | |||||||
| Total net unrealized and realized gains (losses) on investments | (701,275 | ) | 854,707 | |||||||
| Net increase in net assets resulting from operations | $ | 60,995 | $ | 2,069,995 | ||||||
| Net investment income per share | $0.12 | $0.19 | ||||||||
| Net increase in net assets resulting from operations per share | $0.01 | $0.32 | ||||||||
| Weighted average shares outstanding (basic and diluted) | 6,302,724 | 6,437,478 | ||||||||
© 2019 Harvest Capital Credit Corporation
Contacts
Investor & Media Relations
Harvest Capital Credit
Corporation
Joseph Jolson
Chairman & Chief Executive Officer
(415)
835-8970
[email protected]
William E. Alvarez, Jr
Chief Financial Officer
(212) 906-3589
[email protected]
