GREENWICH, CT, May 11, 2015 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (NASDAQ: FSC ) ("FSC" or "we") announces its financial results for the second fiscal quarter ended March 31, 2015.
Second Fiscal Quarter 2015 Financial Highlights
- Net investment income for the quarter ended March 31, 2015 was $29.5 million, or $0.19 per share;
- Net asset value per share was $9.18 as of March 31, 2015 as compared to $9.17 as of December 31, 2014;
- We closed $147.5 million of investments during the quarter ended March 31, 2015; and
- Our Board of Directors has declared monthly distributions of $0.06 per share from March through August 2015.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our investment portfolio at both March 31, 2015 and September 30, 2014 to be $2.5 billion. Total assets at both March 31, 2015 and September 30, 2014 were $2.7 billion.
During the quarter ended March 31, 2015, we closed $147.5 million of investments in five new and three existing portfolio companies, and funded $198.4 million across new and existing portfolio companies. This compares to closing $466.6 million in 19 new and six existing portfolio companies and funding $458.2 million during the quarter ended March 31, 2014. During the quarter ended March 31, 2015, we received $45.3 million in connection with the full repayments of two of our debt investments, both of which were exited at or above par. We also received an additional $302.7 million in connection with syndications and sales of debt investments.
At March 31, 2015, our portfolio consisted of investments in 137 companies, 117 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 19 of which were in private equity funds. At fair value, 93.7% of our portfolio consisted of debt investments (80.1% of our portfolio consisted of senior secured loans). Our average portfolio company debt investment size at fair value was $21.4 million at March 31, 2015, versus $24.2 million at September 30, 2014.
As of March 31, 2015, SLF JV I had $308.1 million in assets including senior secured loans to 27 portfolio companies. The joint venture generated income of $3.3 million to FSC during the second fiscal quarter, which represents a 16% weighted average annualized return on investment.
Our weighted average yield on debt investments at March 31, 2015, including the return on SLF JV I, was 10.7% and included a cash component of 10.0%. At March 31, 2015 and September 30, 2014, $1.8 billion and $1.6 billion, respectively, of our debt investments at fair value bore interest at floating rates, which represented 73.9% and 70.0%, respectively, of our total portfolio of debt investments at fair value.
Results of Operations
Total investment income for the quarters ended March 31, 2015 and March 31, 2014 was $68.2 million and $72.1 million, respectively. For the quarter ended March 31, 2015, the amount primarily consisted of $60.5 million of interest income from portfolio investments. For the quarter ended March 31, 2014, the amount primarily consisted of $59.5 million of interest income from portfolio investments. For the quarter ended March 31, 2015, PIK interest income net of PIK collected in cash represented only 4.6% of total investment income.
The decrease in our total investment income for the quarter ended March 31, 2015, as compared to the quarter ended March 31, 2014, was primarily attributable to a decrease in fees earned.
Expenses for the quarters ended March 31, 2015 and March 31, 2014 were $38.7 million and $37.9 million, respectively. Expenses increased for the quarter ended March 31, 2015 as compared to the quarter ended March 31, 2014, primarily due to increased interest expense.
"During the March quarter, we continued to focus on our strategic review of FSC's business with the goal of driving strong, sustainable performance for our shareholders. This includes reducing leverage to 0.75x, which is within our target regulatory leverage range of 0.6x to 0.8x and focusing on our core sponsor-backed middle market lending business," stated Todd G. Owens, Chief Executive Officer, adding, "As we seek ways to drive long-term shareholder value, the FSC management team has proposed that our investment advisory agreement be amended to reduce management fees related to future growth, which should allow shareholders to benefit from economies of scale as FSC grows."
Liquidity and Capital Resources
As of March 31, 2015, we had $115.1 million in cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $2.5 billion, $15.1 million of interest, dividends and fees receivable, $225.0 million of SBA debentures payable, $512.3 million of borrowings outstanding under our credit facilities, $115.0 million of unsecured convertible notes payable, $410.2 million of unsecured notes payable and $22.2 million of secured borrowings.
As of September 30, 2014, we had $109.0 million in cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $2.5 billion, $15.2 million of interest, dividends and fees receivable, $225.0 million of SBA debentures payable, $317.4 million of borrowings outstanding under our credit facilities, $115.0 million of unsecured convertible notes payable, $409.9 million of unsecured notes payable and $84.8 million of secured borrowings.
Dividend Policy
Dividends are paid primarily from distributable (taxable) income. Our Board of Directors determines dividends based on estimates of distributable (taxable) income, which 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 whose shares are registered in their name and 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 up to a 5% discount on newly-issued shares purchased through the DRIP (provided that shares would 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 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.
At March 31, 2015 and September 30, 2014, the distribution of our investments on the 1 to 4 investment ranking scale at fair value was as follows:
| March 31, 2015 | September 30, 2014 | |||||
| Investment Ranking | Fair Value | % of Portfolio | Leverage Ratio | Fair Value | % of Portfolio | Leverage Ratio |
| 1 | $41,485 | 1.63% | 0.83 | $65,268 | 2.61% | 1.94 |
| 2 | 2,435,637 | 95.96 | 4.61 | 2,424,290 | 97.14 | 4.84 |
| 3 | 27,968 | 1.11 | NM (1) | — | — | — |
| 4 | 33,053 | 1.30 | NM (1) | 6,356 | 0.25 | NM (1) |
| Total | $ 2,538,143 | 100.00 % | 4.57 | $ 2,495,914 | 100.00 % | 4.75 |
| (1) Due to operating performance this ratio is not measurable and, as a result, is excluded from the total portfolio calculation. | ||||||
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 March 31, 2015, we had modified the payment terms of our investments in 16 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 March 31, 2015, there were four investments on which we had stopped accruing cash and/or PIK interest and OID income.
| Fifth Street Finance Corp. | ||
| Consolidated Statements of Assets and Liabilities | ||
| (in thousands, except per share amounts) | ||
| (unaudited) | ||
| March 31, 2015 | September 30, 2014 | |
| ASSETS | ||
| Investments at fair value: | ||
| Control investments (cost March 31, 2015: $405,500; cost September 30, 2014: $387,625) | $394,794 | $394,872 |
| Affiliate investments (cost March 31, 2015: $37,444; cost September 30, 2014: $37,757) | 40,649 | 40,764 |
| Non-control/Non-affiliate investments (cost March 31, 2015: $2,144,487; cost September 30, 2014: $2,069,301) | 2,102,700 | 2,060,278 |
| Total investments at fair value (cost March 31, 2015: $2,587,431; cost September 30, 2014: $2,494,683) | 2,538,143 | 2,495,914 |
| Cash and cash equivalents | 108,747 | 86,731 |
| Restricted cash | 6,388 | 22,315 |
| Interest, dividends and fees receivable | 15,083 | 15,224 |
| Due from portfolio companies | 3,026 | 22,950 |
| Receivables from unsettled transactions | 38,485 | 4,750 |
| Deferred financing costs | 17,682 | 20,334 |
| Other assets | 409 | — |
| Total assets | $ 2,727,963 | $ 2,668,218 |
| LIABILITIES AND NET ASSETS | ||
| Liabilities: | ||
| Accounts payable, accrued expenses and other liabilities | $4,015 | $3,908 |
| Base management fee payable | 12,953 | 12,372 |
| Part I incentive fee payable | 7,340 | 9,309 |
| Due to FSC CT | 2,794 | 2,464 |
| Interest payable | 7,796 | 5,797 |
| Amounts payable to syndication partners | 561 | 3,817 |
| Credit facilities payable | 512,295 | 317,395 |
| SBA debentures payable | 225,000 | 225,000 |
| Unsecured convertible notes payable | 115,000 | 115,000 |
| Unsecured notes payable | 410,187 | 409,878 |
| Secured borrowings at fair value (proceeds of $22,300 and $84,750 at March 31, 2015 and September 30, 2014, respectively) | 22,248 | 84,803 |
| Total liabilities | 1,320,189 | 1,189,743 |
| Commitments and contingencies | ||
| Net assets: | ||
| Common stock, $0.01 par value, 250,000 shares authorized; 153,340 shares issued and outstanding at March 31, 2015 and September 30, 2014 | 1,533 | 1,533 |
| Additional paid-in-capital | 1,649,086 | 1,649,086 |
| Net unrealized appreciation (depreciation) on investments and secured borrowings | (49,237) | 1,178 |
| Net realized loss on investments, secured borrowings and interest rate swap | (171,896) | (152,416) |
| Accumulated overdistributed net investment income | (21,712) | (20,906) |
| Total net assets (equivalent to $9.18 and $9.64 per common share at March 31, 2015 and September 30, 2014, respectively) | 1,407,774 | 1,478,475 |
| Total liabilities and net assets | $ 2,727,963 | $ 2,668,218 |
| Fifth Street Finance Corp. | |||||
| Consolidated Statements of Operations | |||||
| (in thousands, except per share amounts) | |||||
| (unaudited) | |||||
| Three months ended March 31, 2015 | Three months ended March 31, 2014 | Six months ended March 31, 2015 | Six months ended March 31, 2014 | ||
| Interest income: | |||||
| Control investments | $6,215 | $3,194 | $12,479 | $5,613 | |
| Affiliate investments | 1,072 | 1,098 | 2,169 | 1,864 | |
| Non-control/Non-affiliate investments | 49,626 | 49,699 | 94,796 | 94,995 | |
| Interest on cash and cash equivalents | 10 | 3 | 20 | 6 | |
| Total interest income | 56,923 | 53,994 | 109,464 | 102,478 | |
| PIK interest income: | |||||
| Control investments | 1,674 | 2,542 | 3,439 | 4,950 | |
| Affiliate investments | 212 | 207 | 427 | 542 | |
| Non-control/Non-affiliate investments | 1,669 | 2,721 | 4,093 | 5,592 | |
| Total PIK interest income | 3,555 | 5,470 | 7,959 | 11,084 | |
| Fee income: | |||||
| Control investments | 384 | 1,967 | 1,007 | 2,534 | |
| Affiliate investments | 12 | 12 | 24 | 181 | |
| Non-control/Non-affiliate investments | 5,265 | 10,508 | 22,532 | 26,909 | |
| Total fee income | 5,661 | 12,487 | 23,563 | 29,624 | |
| Dividend and other income: | |||||
| Control investments | 1,838 | — | 2,976 | — | |
| Non-control/Non-affiliate investments | 173 | 181 | 480 | 276 | |
| Total dividend and other income | 2,011 | 181 | 3,456 | 276 | |
| Total investment income | 68,150 | 72,132 | 144,442 | 143,462 | |
| Expenses: | |||||
| Base management fee | 13,064 | 13,735 | 27,219 | 25,794 | |
| Part I incentive fee | 7,340 | 8,500 | 16,054 | 17,554 | |
| Professional fees | 982 | 887 | 2,146 | 1,912 | |
| Board of Directors fees | 189 | 141 | 369 | 296 | |
| Interest expense | 14,812 | 12,833 | 28,804 | 23,046 | |
| Administrator expense | 748 | 538 | 1,995 | 1,391 | |
| General and administrative expenses | 1,657 | 1,499 | 3,438 | 3,252 | |
| Total expenses | 38,792 | 38,133 | 80,025 | 73,245 | |
| Base management fee waived | (111) | (234) | (222) | (234) | |
| Net expenses | 38,681 | 37,899 | 79,803 | 73,011 | |
| Net investment income | 29,469 | 34,233 | 64,639 | 70,451 | |
| Unrealized appreciation (depreciation) on investments: | |||||
| Control investments | (7,484) | 2,132 | (17,953) | 2,552 | |
| Affiliate investments | 333 | 182 | 198 | 965 | |
| Non-control/Non-affiliate investments | 5,207 | (4,897) | (32,764) | (11,818) | |
| Net unrealized depreciation on investments | (1,944 ) | (2,583 ) | (50,519 ) | (8,301 ) | |
| Net unrealized appreciation (depreciation) on secured borrowings | (227 ) | (10 ) | 105 | (10 ) | |
| Realized gain (loss) on investments and secured borrowings: | |||||
| Affiliate investments | 29 | — | 72 | — | |
| Non-control/Non-affiliate investments | (1,921) | (1,540) | (19,552) | 1,666 | |
| Net realized gain (loss) on investments and secured borrowings | (1,892 ) | (1,540 ) | (19,480 ) | 1,666 | |
| Net increase (decrease) in net assets resulting from operations | $ 25,406 | $ 30,100 | $ (5,255 ) | $ 63,806 | |
| Net investment income per common share — basic | $0.19 | $0.25 | $0.42 | $0.51 | |
| Earnings (loss) per common share — basic | $ 0.17 | $ 0.22 | $ (0.03 ) | $ 0.46 | |
| Weighted average common shares outstanding — basic | 153,340 | 139,138 | 153,340 | 139,132 | |
| Net investment income per common share — diluted | $ 0.19 | $ 0.24 | $ 0.42 | $ 0.50 | |
| Earnings (loss) per common share — diluted | $ 0.17 | $ 0.21 | $ (0.03 ) | $ 0.45 | |
| Weighted average common shares outstanding — diluted | 161,130 | 146,928 | 161,130 | 146,922 | |
| Distributions per common share | $ 0.15 | $ 0.25 | $ 0.43 | $ 0.49 | |
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 growing credit-focused asset manager with over $6 billion in assets under management across multiple public and private vehicles. With a track record of 17 years, Fifth Street's nationally recognized platform has the ability to hold loans up to $250 million and structure and syndicate transactions up to $500 million. Fifth Street received the 2014 ACG New York Champion's Award for "Senior Lender Firm of the Year" and was named both 2013 "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
This press release may contain certain forward-looking statements, including statements with regard to the future performance of the company. Words such as "believes," "expects," "estimates," "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.
Investor Contact: Robyn Friedman, Vice President of Investor Relations (203) 681-3720 Media Contact: Nick Rust Prosek Partners (212) 279-3115 ext. 252
