WHITE PLAINS, N.Y., Nov. 25, 2013 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (NASDAQ:FSC) ("FSC" or "we") announces its financial results for the fourth quarter and fiscal year ended September 30, 2013.
Fourth Quarter 2013 Financial Highlights
- Net investment income for the quarter ended September 30, 2013 was $28.7 million or $0.24 per share, as compared to $22.3 million or $0.27 per share for the quarter ended September 30, 2012;
- Net asset value per share was $9.85 as of September 30, 2013, as compared to $9.90 as of June 30, 2013;
- Net realized and unrealized losses for the quarter ended September 30, 2013 were $2.6 million or $0.02 per share, as compared to net realized and unrealized gains of $4.8 million or $0.06 per share for the quarter ended September 30, 2012; and
- No investments were on non-accrual status as of September 30, 2013.
Fiscal Year 2013 Financial Highlights
- Net investment income for the year ended September 30, 2013 was $115.0 million or $1.04 per share, as compared to $88.0 million or $1.11 per share for the year ended September 30, 2012;
- Net realized and unrealized losses for the year ended September 30, 2013 were $13.1 million or $0.12 per share, as compared to $8.6 million or $0.11 per share for the year ended September 30, 2012; and
- Net increase in net assets resulting from operations for the year ended September 30, 2013 was $101.8 million or $0.92 per share, as compared to $79.4 million or $1.00 per share for the year ended September 30, 2012.
First Quarter 2014 Investment Activity Update
- To date, during our first fiscal quarter 2014, we have closed a record $663.8 million of new investments, $425.5 million of which were funded at close.
Calendar Year 2014 Dividend Declarations
To date, our Board of Directors has declared monthly dividends, which reflect a $1.00 per share annual run rate, for calendar year 2014 as follows:
- $0.0833 per share, payable on January 31, 2014 to stockholders of record on January 15, 2014;
- $0.0833 per share, payable on February 28, 2014 to stockholders of record on February 14, 2014;
- $0.0833 per share, payable on March 31, 2014 to stockholders of record on March 14, 2014;
- $0.0833 per share, payable on April 30, 2014 to stockholders of record on April 15, 2014; and
- $0.0833 per share, payable on May 30, 2014 to stockholders of record on May 15, 2014.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our portfolio at September 30, 2013 to be $1.9 billion, as compared to $1.3 billion at September 30, 2012. Total assets at September 30, 2013 were $2.1 billion, as compared to $1.4 billion at September 30, 2012.
During the quarter ended September 30, 2013, we closed $307.4 million of investments in 10 new and seven existing portfolio companies, and funded $294.4 million across new and existing portfolio companies. This compares to closing $129.1 million in six new and four existing portfolio companies and funding $123.0 million during the quarter ended September 30, 2012. During the quarter ended September 30, 2013, we also received $176.5 million in connection with the exits of six of our debt investments, all of which were exited at par or above.
At September 30, 2013, our portfolio consisted of investments in 99 companies, 86 of which were completed in connection with investments by private equity sponsors and 13 of which were in private equity funds. At fair value, 94.7% of our portfolio consisted of debt investments (77.5% were senior secured loans). Our average portfolio company debt investment size at fair value was $22.1 million at September 30, 2013, versus $19.7 million at September 30, 2012.
"The Board's decision to re-align the dividend with net investment income reflects the higher quality and lower overall risk of the portfolio in an environment where investment yields continue to compress. Fifth Street's leading direct origination platform continues to generate assets with attractive risk-adjusted returns, but at lower yields and reduced levels of risk than in the past. We have a robust pipeline into calendar-year end and continue to make progress on several initiatives that should lead to improving net investment income over time," stated our Chief Executive Officer, Leonard M. Tannenbaum.
Our weighted average yield on debt investments at September 30, 2013 was 11.1%, and included a cash component of 10.0%. At September 30, 2013 and September 30, 2012, $1.2 billion and $869.9 million, respectively, of our debt investments at fair value were at floating rates, which represented 67.4% and 70.1%, respectively, of our total portfolio of debt investments at fair value.
Results of Operations
Total investment income for the quarters ended September 30, 2013 and September 30, 2012 was $57.1 million and $42.5 million, respectively. For the quarter ended September 30, 2013, this amount primarily consisted of $46.9 million of interest income from portfolio investments and $10.1 million of fee income. For the quarter ended September 30, 2012, total investment income primarily consisted of $35.1 million of interest income from portfolio investments and $7.3 million of fee income. For the quarter ended September 30, 2013, PIK interest income net of PIK collected in cash represented 3.4% of total investment income.
Total investment income for the years ended September 30, 2013 and September 30, 2012 was $221.6 million and $165.1 million, respectively. For the year ended September 30, 2013, this amount primarily consisted of $173.7 million of interest income from portfolio investments and $45.9 million of fee income. For the year ended September 30, 2012, total investment income primarily consisted of $133.2 million of interest income from portfolio investments and $31.7 million of fee income. For the year ended September 30, 2013, PIK interest income net of PIK collected in cash represented 3.7% of total investment income.
The increase in our total investment income for the quarter and year ended September 30, 2013 as compared to the quarter and year ended September 30, 2012 was primarily attributable to a higher average level of outstanding debt investments, which was principally due to a net increase of 18 debt investments in our portfolio and fee income related to investment activity, partially offset by amortization repayments received and a decrease in the weighted average yield on our debt investments from 12.0% to 11.1% during the year-over-year period.
Expenses for the quarters ended September 30, 2013 and September 30, 2012 were $28.4 million and $20.2 million, respectively. Expenses for the years ended September 30, 2013 and September 30, 2012 were $106.7 million and $78.7 million, respectively. Expenses increased for both periods primarily due to increases in the base management fee, the incentive fee and interest expense.
Liquidity and Capital Resources
As of September 30, 2013, we had $147.4 million in cash and cash equivalents, portfolio investments (at fair value) of $1.9 billion, $10.4 million of interest and fees receivable, $181.8 million of SBA debentures payable, $188.0 million of borrowings outstanding under our credit facilities, $115.0 million of unsecured convertible notes payable, $161.3 million of unsecured notes payable and unfunded commitments of $149.5 million.
As of September 30, 2012, we had $74.4 million in cash and cash equivalents, portfolio investments (at fair value) of $1.3 billion, $7.7 million of interest and fees receivable, $150.0 million of SBA debentures payable, $201.3 million of borrowings outstanding under our credit facilities, $115.0 million of unsecured convertible notes payable and unfunded commitments of $102.5 million.
Calendar Year 2013 Dividends
For calendar year 2013, our Board of Directors has declared monthly dividends as follows:
- $0.0958 per share, which was paid on January 31, 2013 to stockholders of record on January 15, 2013;
- $0.0958 per share, which was paid on February 28, 2013 to stockholders of record on February 15, 2013;
- $0.0958 per share, which was paid on March 29, 2013 to stockholders of record on March 15, 2013;
- $0.0958 per share, which was paid on April 30, 2013 to stockholders of record on April 15, 2013;
- $0.0958 per share, which was paid on May 31, 2013 to stockholders of record on May 15, 2013;
- $0.0958 per share, which was paid on June 28, 2013 to stockholders of record on June 14, 2013;
- $0.0958 per share, which was paid on July 31, 2013 to stockholders of record on July 15, 2013;
- $0.0958 per share, which was paid on August 30, 2013 to stockholders of record on August 15, 2013;
- $0.0958 per share, which was paid on September 30, 2013 to stockholders of record on September 13, 2013;
- $0.0958 per share, which was paid on October 31, 2013 to stockholders of record on October 15, 2013;
- $0.0958 per share, payable on November 29, 2013 to stockholders of record on November 15, 2013; and
- $0.05 per share, payable on December 30, 2013 to stockholders of record on December 13, 2013.
For the quarter ending December 31, 2013, our Board of Directors declared monthly dividends totaling $0.24 per share, which is representative of the net investment income per share that was earned during the quarter ended September 30, 2013.
Dividends are paid primarily from distributable (taxable) income. Our Board of Directors determines dividends based on estimates of net investment income and distributable (taxable) income, which may differ from book income due to temporary and permanent differences in income and expense recognition and changes in unrealized appreciation and depreciation on investments.
Our amended dividend reinvestment plan ("DRIP") provides for reinvestment of dividends, unless a stockholder elects to receive cash. As a result, if our Board of Directors declares a cash dividend, our stockholders who have not "opted out" of our DRIP will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving cash dividends. We provide a 5% discount on newly-issued shares purchased through the DRIP (provided that shares will not be issued at less than net asset value per share). If you are a stockholder and your shares of our common stock are held through a brokerage firm or other financial intermediary and you wish to participate in the DRIP, please contact your broker or other financial intermediary.
Portfolio Asset Quality
We utilize the following 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.
At September 30, 2013 and September 30, 2012, the distribution of our investments on the 1 to 4 investment ranking scale at fair value was as follows:
| September 30, 2013 | September 30, 2012 (2) | |||||
| Investment Ranking | Fair Value (thousands) | % of Portfolio | Leverage Ratio | Fair Value (thousands) | % of Portfolio | Leverage Ratio |
| 1 | $ 122,769 | 6.49% | 2.67 | $ 68,685 | 5.33% | 2.72 |
| 2 | 1,770,277 | 93.51 | 4.70 | 1,212,993 | 94.17 | 3.96 |
| 3 | — | — | — | 3,193 | 0.25 | NM (1) |
| 4 | — | — | — | 3,237 | 0.25 | NM (1) |
| Total | $ 1,893,046 | 100.00% | 4.57 | $ 1,288,108 | 100.00% | 3.89 |
| (1) Due to operating performance, this ratio is not measurable. | ||||||
| (2) Prior year investment rankings were initially ranked on a 1 to 5 ranking scale and have been conformed to the current 1 to 4 ranking scale. This did not result in a material change to the prior year rankings. |
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, 2013, we had modified the payment terms of our investments in 17 portfolio companies. Such modified terms may include increased PIK interest provisions 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, 2013, there were no investments on which we had stopped accruing cash interest, PIK interest or OID income. As of September 30, 2012, we had stopped accruing PIK interest on one investment.
Recent Developments
In October 2013, three new lenders joined our syndicated ING-led credit facility and one existing lender increased its commitment, increasing our borrowing capacity to $605 million from $480 million.
On October 30, 2013, we amended the terms of our Sumitomo credit facility, to, among other things:
- reduce the size of the facility from $200 million to $125 million (this reduction was balanced, in part, by an increase of Sumitomo's commitment under our ING-led credit facility by $45 million);
- extend the period during which we may make and reinvest borrowings from September 16, 2014 to September 16, 2016; and
- extend the maturity date from September 16, 2018 to September 16, 2020.
On November 21, 2013, our Board of Directors declared the following dividends:
- $0.05 per share, payable on December 30, 2013 to stockholders of record on December 13, 2013;
- $0.0833 per share, payable on January 31, 2014 to stockholders of record on January 15, 2014;
- $0.0833 per share, payable on February 28, 2014 to stockholders of record on February 14, 2014;
- $0.0833 per share, payable on March 31, 2014 to stockholders of record on March 14, 2014;
- $0.0833 per share, payable on April 30, 2014 to stockholders of record on April 15, 2014; and
- $0.0833 per share, payable on May 30, 2014 to stockholders of record on May 15, 2014.
On November 21, 2013, our Board of Directors terminated our existing $50 million stock repurchase program and approved a new $100 million stock repurchase program. Any stock repurchases under this program would be made through the open market at times and in such amounts as our management would deem appropriate, provided they are below the most recently published NAV per share. Unless extended by the Board, the program will expire on November 21, 2014 and may be limited or terminated at any time without prior notice.
| Fifth Street Finance Corp. | ||
| Consolidated Statements of Assets and Liabilities | ||
| (in thousands, except per share amounts) | ||
| September 30, 2013 | September 30, 2012 | |
| ASSETS | ||
| Investments at fair value: | ||
| Control investments (cost September 30, 2013: $207,518; cost September 30, 2012: $58,557) | $ 215,502 | $ 53,240 |
| Affiliate investments (cost September 30, 2013: $29,807; cost September 30, 2012: $29,496) | 31,932 | 31,187 |
| Non-control/Non-affiliate investments (cost September 30, 2013: $1,622,326; cost September 30, 2012: $1,180,436) | 1,645,612 | 1,203,681 |
| Total investments at fair value (cost September 30, 2013: $1,859,651; cost September 30, 2012: $1,268,489) | 1,893,046 | 1,288,108 |
| Cash and cash equivalents | 147,359 | 74,393 |
| Interest and fees receivable | 10,379 | 7,652 |
| Due from portfolio company | 1,814 | 3,292 |
| Receivables from unsettled transactions | — | 1,750 |
| Deferred financing costs | 19,548 | 13,751 |
| Other assets | 187 | 56 |
| Total assets | $ 2,072,333 | $ 1,389,002 |
| LIABILITIES AND NET ASSETS | ||
| Liabilities: | ||
| Accounts payable, accrued expenses and other liabilities | $ 1,166 | $ 1,180 |
| Base management fee payable | 9,625 | 6,573 |
| Incentive fee payable | 7,175 | 5,579 |
| Due to FSC, Inc. | 840 | 1,630 |
| Interest payable | 2,939 | 4,219 |
| Payables from unsettled transactions | 35,716 | — |
| Credit facilities payable | 188,000 | 201,251 |
| SBA debentures payable | 181,750 | 150,000 |
| Unsecured convertible notes payable | 115,000 | 115,000 |
| Unsecured notes payable | 161,250 | — |
| Total liabilities | 703,461 | 485,432 |
| Net assets: | ||
| Common stock, $0.01 par value, 250,000 and 150,000 shares authorized at September 30, 2013 and September 30, 2012, respectively; 139,041 and 91,048 shares issued and outstanding at September 30, 2013 and September 30, 2012, respectively | 1,390 | 910 |
| Additional paid-in-capital | 1,509,546 | 1,019,053 |
| Net unrealized appreciation on investments | 33,395 | 19,998 |
| Net realized loss on investments and interest rate swap | (154,591) | (128,062) |
| Accumulated overdistributed net investment income | (20,868) | (8,329) |
| Total net assets (equivalent to $9.85 and $9.92 per common share at September 30, 2013 and September 30, 2012, respectively) | 1,368,872 | 903,570 |
| Total liabilities and net assets | $ 2,072,333 | $ 1,389,002 |
| Fifth Street Finance Corp. | ||||
| Consolidated Statements of Operations | ||||
| (in thousands, except per share amounts) | ||||
| Three months ended September 30, 2013 | Three months ended September 30, 2012 | Nine months ended September 30, 2013 | Nine months ended September 30, 2012 | |
| Interest income: | ||||
| Control investments | $ 4,404 | $ 553 | $ 8,378 | $ 1,236 |
| Affiliate investments | 1,066 | 1,023 | 4,196 | 3,720 |
| Non-control/Non-affiliate investments | 41,462 | 33,548 | 161,086 | 128,195 |
| Interest on cash and cash equivalents | 8 | 5 | 23 | 34 |
| Total interest income | 46,940 | 35,129 | 173,683 | 133,185 |
| Fee income: | ||||
| Control investments | 679 | 1,285 | 4,271 | 1,285 |
| Affiliate investments | 12 | 12 | 48 | 642 |
| Non-control/Non-affiliate investments | 9,413 | 6,035 | 41,551 | 29,779 |
| Total fee income | 10,104 | 7,332 | 45,870 | 31,706 |
| Dividend and other income: | ||||
| Non-control/Non-affiliate investments | 48 | 71 | 2,059 | 225 |
| Total dividend and other income | 48 | 71 | 2,059 | 225 |
| Total investment income | 57,092 | 42,532 | 221,612 | 165,116 |
| Expenses: | ||||
| Base management fee | 9,625 | 6,573 | 35,748 | 23,799 |
| Incentive fee | 7,175 | 5,579 | 28,158 | 22,001 |
| Professional fees | 1,251 | 580 | 4,182 | 2,890 |
| Board of Directors fees | 153 | 394 | 576 | 551 |
| Interest expense | 9,398 | 6,310 | 33,470 | 23,245 |
| Administrator expense | (369) | 211 | 1,925 | 2,425 |
| General and administrative expenses | 1,160 | 569 | 4,921 | 3,771 |
| Total expenses | 28,393 | 20,216 | 108,980 | 78,682 |
| Base management fee waived | — | — | (2,321) | — |
| Net expenses | 28,393 | 20,216 | 106,659 | 78,682 |
| Gain on extinguishment of unsecured convertible notes | — | — | — | 1,571 |
| Net investment income | 28,699 | 22,316 | 114,953 | 88,005 |
| Unrealized appreciation (depreciation) on investments: | ||||
| Control investments | (849) | (4,692) | 13,302 | (6,096) |
| Affiliate investments | 340 | 3,294 | 434 | 12,944 |
| Non-control/Non-affiliate investments | 7,504 | 43,311 | (339) | 49,126 |
| Net unrealized appreciation on investments | 6,995 | 41,913 | 13,397 | 55,974 |
| Realized loss on investments: | ||||
| Control investments | — | (5,316) | (11,224) | (5,316) |
| Affiliate investments | — | — | — | (10,620) |
| Non-control/Non-affiliate investments | (9,557) | (31,842) | (15,305) | (48,642) |
| Net realized loss on investments | (9,557) | (37,158) | (26,529) | (64,578) |
| Net increase in net assets resulting from operations | $ 26,137 | $ 27,071 | $ 101,821 | $ 79,401 |
| Net investment income per common share — basic | $ 0.24 | $ 0.27 | $ 1.04 | $ 1.11 |
| Earnings per common share — basic | $ 0.21 | $ 0.32 | $ 0.92 | $ 1.00 |
| Weighted average common shares outstanding — basic | 121,895 | 83,979 | 110,270 | 79,570 |
| Net investment income per common share — diluted | $ 0.23 | $ 0.26 | $ 1.01 | $ 1.07 |
| Earnings per common share — diluted | $ 0.21 | $ 0.31 | $ 0.90 | $ 0.97 |
| Weighted average common shares outstanding — diluted | 129,686 | 91,770 | 118,061 | 87,719 |
About Fifth Street Finance Corp.
Fifth Street Finance Corp. is a specialty finance company that lends to and invests in small and mid-sized companies, primarily in connection with investments by private equity sponsors. The company'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. FSC is regulated as a business development company and is externally managed by Fifth Street Management LLC, an SEC-registered investment adviser and leading alternative asset manager with over $3 billion in assets under management. With a track record of more than 15 years and offices across the country, Fifth Street Management's nationally recognized platform has the ability to hold loans up to $150 million, commit up to $250 million and structure and syndicate transactions up to $500 million. FSC's website can be found at fifthstreetfinance.com.
Forward-Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to the future performance of the company. Words such as "believes," "estimates," "expects," "projects," "anticipates," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and these factors are identified from time to time in the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT: Investor Contact: Dean Choksi, Senior Vice President of Finance & Head of Investor Relations (914) 286-6855 dchoksi@fifthstreetfinance.com Media Contact: Nick Rust Prosek Partners (212) 279-3115 ext. 252 pro-fifthstreet@prosek.com
Source:Fifth Street Finance Corp.