KCAP Financial, Inc. Announces Full Year 2017 Financial Results

NEW YORK, March 07, 2018 (GLOBE NEWSWIRE) -- KCAP Financial, Inc. (Nasdaq:KCAP) (“KCAP” or the “Company”) announces its full year 2017 financial results.

Financial Highlights

  • Net investment income for the year ended December 31, 2017 was approximately $11.0 million, or $0.30 per basic share, compared with $18.5 million, $0.50 per basic share in 2016.
  • Taxable distributable income for the year was $0.16 per basic share.
  • KCAP declared a fourth quarter shareholder distribution of $0.10 per share.
  • At December 31, 2017, the fair value of KCAP's investments totaled approximately $312.0 million.
  • Net asset value per share of $4.87 as of December 31, 2017, compared with $5.24 at December 31, 2016.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "We had a busy year in 2017 including taking action to significantly reduce leverage, adding dry powder to our balance sheet for new investments and increasing our middle market assets under management through our Joint Venture. At the same time, our Asset Manager Affiliates extended the life and increased the size of two managed CLOs and reduced the cost of capital of three managed CLOs. Business development efforts continued into 2018 as we recently closed a $50 million revolving credit facility with a syndicate of lenders.”

Operating Results

For the year ended December 31, 2017, we reported total investment income of approximately $28.3 million as compared to approximately $36.2 million in the prior year, a decrease of 22%. Investment income from debt securities decreased 27% to approximately $15.1 million from approximately $20.8 million. Investment income from investments in CLO fund securities in 2017 decreased 16% to $11.2 million from $13.3 million in 2016, and dividends from our Asset Manager Affiliates decreased 67% from $1.4 million to $460,000.

For the year ended December 31, 2017, total expenses were lower by approximately $465,000 as compared to the same period in 2016, primarily attributable to a decrease in interest expense related to the lower average outstanding principal balance on our borrowings during 2017.

Net investment income for the years ended 2017 and 2016 was approximately $11.0 million and $18.5 million, or $0.30 and $0.50 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2017 was approximately $3.5 million, compared to net realized and unrealized depreciation on investments of $19.4 million for the same period in 2016.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $312.0 million as of December 31, 2017. The composition of our investment portfolio at December 31, 2017 and December 31, 2016, at cost and fair value, was as follows:

December 31, 2017 December 31, 2016
Security Type Cost/Amortized Cost Fair Value Cost/Amortized Cost Fair Value
Short-term investments² $77,300,320 $77,300,320 26 $28,699,269 $28,699,269 8%
Senior Secured Loan 48,337,900 44,960,146 14 207,701,078 200,322,152 55
Junior Secured Loan 62,561,913 58,941,300 19 37,251,776 35,444,440 10
Senior Unsecured Loan 12,777,283 12,777,283 4
First Lien Bond 3,060,919 1,089,338
Senior Secured Bond 1,502,374 1,518,750 1,506,461 1,487,400
CLO Fund Securities 72,339,032 51,678,673 17 76,851,317 54,174,350 15
Equity Securities 10,571,007 4,414,684 1 10,389,007 5,056,355 1
Asset Manager Affiliates³ 52,591,230 38,849,000 12 55,341,230 40,198,000 11
Joint Venture 24,914,858 21,516,000 7
Total $362,895,917 $311,956,156 100% $420,801,057 $366,471,304 100%
¹ Represents percentage of total portfolio at fair value.
² Includes money market accounts and U.S. treasury bills.
³ Represents the equity investment in the Asset Manager Affiliates.

Liquidity and Capital Resources

At December 31, 2017, we had unrestricted cash and short-term investments of approximately $79.3 million, total assets of approximately $319.8 million and stockholders' equity of approximately $181.8 million, and our net asset value per common share was $4.87. As of December 31, 2017, we had $104.4 million of borrowings outstanding ($101.4 million net of discount) with a weighted average interest rate of approximately 6.4%.

Distributions

Generally, we seek to fund distributions to shareholders from current distributable earnings, primarily from net interest and dividend income generated by our investment portfolio and any distributions from our Asset Manager Affiliates, which include Trimaran Advisors, L.L.C. and Katonah Debt Advisors, L.L.C.. However, a portion of distributions paid to shareholders may be a return of capital. We announced a regular quarterly distribution of $0.10 per share for the quarter ended December 31, 2017. The record date for this distribution was January 5, 2018 and the distribution was paid on January 25, 2018. Tax characteristics of all distributions paid by us in 2017 have been reported to stockholders on Form 1099-DIV after the end of the calendar year.

We have adopted a dividend reinvestment plan that provides for reinvestment of distributions in shares of our common stock, unless a stockholder elects to receive cash. As a result, if we declare a cash distribution, shareholders who have not "opted out" of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving cash. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Conference Call and Webcast

We will hold a conference call on Thursday, March 8, 2018 at 9:00 a.m. Eastern Time to discuss our full year 2017 financial results. Shareholders, prospective shareholders and analysts are welcome to listen to the call or attend the webcast.

The conference call dial-in number is (866) 757-5630. No password is required. A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on our Company's website www.kcapfinancial.com in the Investor Relations section under Events. The online archive of the webcast will be available after 7:00 p.m. Eastern Time for approximately 90 days.

A replay of this conference call will be available from 12:00 p.m. on March 8, 2018 until 1:00 p.m. Eastern Time on March 16, 2018. The dial in number for the replay is 855-859-2056 and the conference ID is 8157219.

About KCAP Financial, Inc.

KCAP Financial, Inc. is a publicly traded, internally managed business development company. The Company's middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. The Company's wholly owned portfolio companies, Trimaran Advisors, L.L.C. and Katonah Debt Advisors, L.L.C., manage collateralized debt obligation funds that invest in broadly syndicated corporate term loans, high-yield bonds and other credit instruments.

The KCAP Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3121

Forward Looking Statements

This press release contains forward-looking statements. The matters discussed in this press release that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may,'' "will,'' "should,'' "expects,'' "plans,'' "anticipates,'' "could,'' "intends,'' "target,'' "projects,'' "contemplates,'' "believes,'' "estimates,'' "predicts,'' "potential'' or "continue'' or the negative of these terms or other similar words. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

KCAP FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
As of
December 31, 2017
As of
December 31, 2016
ASSETS
Investments at fair value:
Short-term investments (cost: 2017 - $77,300,320; 2016 - $28,699,269) $77,300,320 $28,699,269
Debt securities (amortized cost: 2017 - $125,179,470; 2016 - $249,520,234) 118,197,479 238,343,330
CLO Fund Securities managed by affiliates (amortized cost: 2017 - $67,212,139; 2016 - $71,734,809) 49,488,393 51,908,784
CLO Fund Securities managed by non-affiliates (amortized cost: 2017 - $5,126,893; 2016 - $5,116,508) 2,190,280 2,265,566
Equity securities (cost: 2017 - $10,571,007; 2016 - $10,389,007) 4,414,684 5,056,355
Asset Manager Affiliates (cost: 2017 - $52,591,230; 2016 - $55,341,230) 38,849,000 40,198,000
Joint Venture (cost: 2017 - $24,914,858) 21,516,000
Total Investments at Fair Value (cost: 2017 - $362,895,917; 2016 - $420,801,057) 311,956,156 366,471,304
Cash 2,034,095 1,307,257
Restricted cash 8,528,298
Interest receivable 1,051,271 1,033,917
Receivable for open trades 2,993,750 2,950,658
Due from affiliates 1,243,493 612,854
Other assets 530,209 467,695
Total Assets $319,808,974 $381,371,983
LIABILITIES
6.125% Notes Due 2022 (net of offering costs of: 2017-$2,734,248) $74,672,952 $
7.375% Notes Due 2019 (net of offering costs of: 2017 - $259,635; 2016 - $550,774) 26,740,365 32,980,151
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: $2,286,425 and $2,459,156, respectively) 142,604,419
Payable for open trades 34,215,195 7,884,943
Accounts payable and accrued expenses 2,350,803 2,047,405
Accrued interest payable 930,086
Due to affiliates 25,083 54
Total Liabilities 138,004,398 186,447,058
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,507,402 issued, and 37,339,224 outstanding at December 31, 2017, and 37,282,296 issued, and 37,178,294 outstanding at December 31, 2016 373,392 371,783
Capital in excess of par value 329,789,716 353,404,155
Excess distribution of net investment income (9,987,928) (14,630,319)
Accumulated net realized losses (86,031,799) (88,491,896)
Net unrealized depreciation on investments (52,338,805) (55,728,798)
Total Stockholders' Equity 181,804,576 194,924,925
Total Liabilities and Stockholders' Equity $319,808,974 $381,371,983
NET ASSET VALUE PER COMMON SHARE $4.87 $5.24


KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
2017 2016 2015
Investment Income:
Interest from investments in debt securities$15,063,193 $20,828,916 $24,101,257
Interest from cash and time deposits 71,934 29,383 10,239
Investment income on CLO Fund Securities managed by affiliates 10,807,490 12,642,625 14,691,428
Investment income on CLO Fund Securities managed by non-affiliates 420,766 630,647 1,008,634
Dividends from Asset Manager Affiliates 460,000 1,400,000 5,348,554
Investment income from Joint Venture

949,037
Capital structuring service fees 491,279 668,527 366,859
Total investment income 28,263,699 36,200,098 45,526,971
Expenses:
Interest and amortization of debt issuance costs 7,661,407 9,110,603 11,727,880
Compensation 4,571,309 4,103,558 3,843,799
Professional fees 2,942,059 2,391,038 3,520,461
Insurance 347,175 412,764 433,561
Administrative and other 1,722,618 1,692,140 1,818,480
Total expenses 17,244,568 17,710,103 21,344,181
Net Investment Income 11,019,131 18,489,995 24,182,790
Realized And Unrealized Gains (Losses) On Investments:
Net realized losses from investment transactions (6,899,044) (6,167,467) (6,202,290)
Net change in unrealized (depreciation) appreciation on:
Debt securities 4,194,914 2,492,707 (10,748,262)
Equity securities (823,671) (4,413,354) (210,167)
CLO Fund Securities managed by affiliates 2,102,279 4,380,974 (12,990,404)
CLO Fund Securities managed by non-affiliates (85,671) 284,625 (977,483)
Asset Manager Affiliates investments 1,401,000 (15,933,000) (11,243,554)
Joint Venture investment (3,398,858)
Total net appreciation (depreciation) from investment transactions 3,389,993 (13,188,048) (36,169,870)
Net realized and unrealized loss on investments (3,509,051) (19,355,515) (42,372,160)
Realized losses on extinguishments of debt (4,121,998) (174,211) (445,189)
Net (Decrease) Increase In Stockholders’ Equity Resulting From Operations$3,388,082 $(1,039,731) $(18,634,559)
Net Increase (Decrease) in Stockholders' Equity Resulting from Operations per Common Share:
Basic:$0.09 $(0.03) $(0.50)
Diluted:$0.09 $(0.03) $(0.50)
Net Investment Income Per Common Share:
Basic:$0.30 $0.50 $0.65
Diluted:$0.30 $0.50 $0.65
Weighted Average Shares of Common Stock Outstanding—Basic 37,235,130 37,149,663 36,964,444
Weighted Average Shares of Common Stock Outstanding—Diluted 37,235,130 37,149,663 36,964,444

KCAP-G

CONTACT:
Ted Gilpin
gilpin@kcapinc.com
(212) 455-8300

Source: KCAP Financial, Inc.
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Source: KCAP Financial, Inc.