WHITE PLAINS, N.Y., Aug. 7, 2013 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (Nasdaq: FSC ) ("Fifth Street" or "we") announces its financial results for the third fiscal quarter ended June 30, 2013.
Third Fiscal Quarter 2013 Financial Highlights
- Net investment income for the quarter ended June 30, 2013 was $30.4 million or $0.26 per share, as compared to $21.9 million or $0.27 per share for the quarter ended June 30, 2012;
- Net asset value per share was $9.90 as of June 30, 2013, as compared to $9.85 as of June 30, 2012;
- Net realized and unrealized losses for the quarter ended June 30, 2013 were $4.4 million or $0.04 per share, as compared to net realized and unrealized gains of $0.2 million or $0.00 per share for the quarter ended June 30, 2012; and
- No investments were on non-accrual status as of June 30, 2013.
Fourth Fiscal Quarter 2013 and First Fiscal Quarter 2014 Dividend Declarations
To date, our Board of Directors has declared monthly dividends for the fourth fiscal quarter of 2013 and the first fiscal quarter of 2014 as follows:
- $0.0958 per share, which was paid on July 31, 2013 to stockholders of record on July 15, 2013;
- $0.0958 per share, payable on August 30, 2013 to stockholders of record on August 15, 2013;
- $0.0958 per share, payable on September 30, 2013 to stockholders of record on September 13, 2013;
- $0.0958 per share, payable on October 31, 2013 to stockholders of record on October 15, 2013; and
- $0.0958 per share, payable on November 29, 2013 to stockholders of record on November 15, 2013.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our portfolio at June 30, 2013 to be $1.80 billion, as compared to $1.29 billion at September 30, 2012. Total assets at June 30, 2013 were $1.90 billion, as compared to $1.39 billion at September 30, 2012.
During the quarter ended June 30, 2013, we closed $266.3 million of investments in nine new and eight existing portfolio companies, and funded $236.6 million across new and existing portfolio companies. This compares to closing $220.6 million in 10 new and six existing portfolio companies and funding $203.5 million during the quarter ended June 30, 2012. During the quarter ended June 30, 2013, we also received $166.7 million in connection with the exits of eight of our debt investments, all of which were exited at par or above, at an average price of 102% of par.
At June 30, 2013, our portfolio consisted of investments in 98 companies, 85 of which were completed in connection with investments by private equity sponsors and 13 of which were in private equity funds. At fair value, 95.1% of our portfolio consisted of debt investments (78.7% were senior secured loans and the remainder were subordinated loans). Our average portfolio company debt investment size at fair value was $22.0 million at June 30, 2013, versus $19.7 million at September 30, 2012.
"We believe our portfolio credit quality is solid and our origination franchise and expanding platform make us well-positioned for future growth," commented our President, Bernard D. Berman. "In recent months, several of our long-term initiatives to expand the Fifth Street platform into complementary asset classes have been launched successfully. We announced the significant portfolio company acquisition of Healthcare Finance Group, as well as our expansion into venture lending through our new Fifth Street Technology Partners group headed by Michael David. We also added an experienced industry veteran, Fred Buffone, to help expand our capital markets presence."
Our weighted average yield on debt investments at June 30, 2013 was 11.38%, and included a cash component of 10.22%.
At June 30, 2013 and September 30, 2012, $1.20 billion and $869.9 million, respectively, of our debt investments at fair value were at floating rates, which represented 69.8% and 70.1%, respectively, of our total portfolio of debt investments at fair value.
Results of Operations
Total investment income for the quarters ended June 30, 2013 and June 30, 2012 was $58.1 million and $41.0 million, respectively. For the quarter ended June 30, 2013, this amount primarily consisted of $46.4 million of interest income from portfolio investments (which included $4.0 million of PIK interest) and $11.0 million of fee income. For the quarter ended June 30, 2012, total investment income primarily consisted of $32.6 million of interest income from portfolio investments (which included $3.9 million of PIK interest) and $8.3 million of fee income. For the quarter ended June 30, 2013, PIK interest income declined to 7.0% of total investment income, as compared to 7.4% for the prior quarter and 9.6% for the quarter ended June 30, 2012.
The increase in our total investment income for the quarter ended June 30, 2013 as compared to the quarter ended June 30, 2012 was primarily attributable to a higher average level of outstanding debt investments, which was principally due to a net increase of 16 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 12.13% to 11.38% during the year-over-year period.
Expenses for the quarters ended June 30, 2013 and June 30, 2012 were $27.7 million and $19.3 million, respectively. Expenses increased for the quarter ended June 30, 2013 as compared to the quarter ended June 30, 2012, primarily due to increases in the base management fee, the incentive fee and interest expense.
Liquidity and Capital Resources
As of June 30, 2013, we had $59.6 million in cash and cash equivalents, portfolio investments (at fair value) of $1.80 billion, $12.3 million of interest and fees receivable, $181.8 million of SBA debentures payable, $216.0 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 $147.5 million.
As of September 30, 2012, we had $74.4 million in cash and cash equivalents, portfolio investments (at fair value) of $1.29 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 to date 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, payable on August 30, 2013 to stockholders of record on August 15, 2013;
- $0.0958 per share, payable on September 30, 2013 to stockholders of record on September 13, 2013;
- $0.0958 per share, payable on October 31, 2013 to stockholders of record on October 15, 2013; and
- $0.0958 per share, payable on November 29, 2013 to stockholders of record on November 15, 2013.
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 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 a capital gain is expected.
- Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain neutral or favorable compared to the potential risks at the time of the original investment. All new investments are initially ranked 2.
- Investment Ranking 3 is used for investments that are performing below our expectations and that require closer monitoring, but where we expect no loss of investment return (interest and/or dividends) or principal. Companies with a ranking of 3 may be out of compliance with financial covenants.
- Investment Ranking 4 is used for investments that are performing below our expectations and whose risks have increased materially since the original investment. We expect some loss of investment return, but no loss of principal.
- Investment Ranking 5 is used for investments that are performing substantially below our expectations and whose risks have increased substantially since the original investment. Investments with a ranking of 5 are those for which some loss of principal is expected.
At June 30, 2013 and September 30, 2012, the distribution of our investments on the 1 to 5 investment ranking scale at fair value was as follows:
| June 30, 2013 | September 30, 2012 | |||||||||||
| Investment Ranking | Fair Value (thousands) | % of Portfolio | Leverage Ratio | Fair Value (thousands) | % of Portfolio | Leverage Ratio | ||||||
| 1 | $ 269,474 | 14.95% | 3.9 | $ 68,685 | 5.33% | 2.72 | ||||||
| 2 | 1,499,220 | 83.19 | 4.51 | 1,212,993 | 94.17 | 3.96 | ||||||
| 3 | 33,407 | 1.86 | NM (1) | 3,193 | 0.25 | NM (1) | ||||||
| 4 | — | — | — | — | — | — | ||||||
| 5 | — | — | — | 3,237 | 0.25 | NM (1) | ||||||
| Total | $ 1,802,101 | 100.00% | 4.41 | $ 1,288,108 | 100.00% | 3.89 | ||||||
| (1) Due to operating performance, this ratio is not measurable. | ||||||||||||
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 June 30, 2013, we had modified the payment terms of our investments in 15 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 June 30, 2013, there were no investments on which we had stopped accruing cash interest, PIK interest or OID income. As of June 30, 2012, we had stopped accruing cash and/or PIK interest and OID on four investments, including three that had not paid all of their scheduled cash interest payments for the period ended June 30, 2012.
Recent Developments
On July 17, 2013, Fifth Street Senior Floating Rate Corp. ("FSFR") raised $100 million in an initial public offering of shares of its common stock. Our investment adviser, administrator, executive officers and certain of our directors serve in substantially similar capacities for FSFR. FSFR is a business development company that invests primarily in senior secured loans, including first lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of a floating base lending rate, made to private middle market companies whose debt is rated below investment grade. FSFR's investment objective is to maximize its portfolio's total return by generating current income from its debt investments while seeking to preserve its capital. In focusing on senior loans that bear interest on the basis of a floating base lending rate, FSFR's primary investment focus differs from our more general focus on debt and equity investments in small and mid-sized companies.
On August 5, 2013, our Board of Directors declared the following dividends:
- $0.0958 per share, payable on September 30, 2013 to stockholders of record on September 13, 2013;
- $0.0958 per share, payable on October 31, 2013 to stockholders of record on October 15, 2013; and
- $0.0958 per share, payable on November 29, 2013 to stockholders of record on November 15, 2013.
On August 6, 2013, we amended the terms of our syndicated ING-led credit facility, to, among other things:
- increase the size of the facility to $480 million from $445 million;
- reduce the pricing by 50 basis points to LIBOR plus 2.25% per annum, with no LIBOR floor;
- extend the period during which we may make and reinvest borrowings through August 6, 2017;
- extend the maturity date to August 6, 2018 from November 30, 2016; and
- increase the accordion feature to $800 million from $600 million, allowing for potential future expansion.
| Fifth Street Finance Corp. | ||
| Consolidated Statements of Assets and Liabilities | ||
| (in thousands, except per share amounts) | ||
| (unaudited) | ||
| June 30, 2013 | September 30, 2012 | |
| ASSETS | ||
| Investments at fair value: | ||
| Control investments (cost June 30, 2013: $162,784; cost September 30, 2012: $58,557) | $ 171,618 | $ 53,240 |
| Affiliate investments (cost June 30, 2013: $30,564; cost September 30, 2012: $29,496) | 32,350 | 31,187 |
| Non-control/Non-affiliate investments (cost June 30, 2013: $1,582,731; cost September 30, 2012: $1,180,436) | 1,598,133 | 1,203,681 |
| Total investments at fair value (cost June 30, 2013: $1,776,079; cost September 30, 2012: $1,268,489) | 1,802,101 | 1,288,108 |
| Cash and cash equivalents | 59,618 | 74,393 |
| Interest and fees receivable | 12,257 | 7,652 |
| Due from portfolio company | 3,098 | 3,292 |
| Receivables from unsettled transactions | — | 1,750 |
| Deferred financing costs | 18,994 | 13,751 |
| Other assets | 780 | 56 |
| Total assets | $ 1,896,848 | $ 1,389,002 |
| LIABILITIES AND NET ASSETS | ||
| Liabilities: | ||
| Accounts payable, accrued expenses and other liabilities | $ 1,969 | $ 978 |
| Base management fee payable | 8,164 | 6,573 |
| Incentive fee payable | 7,343 | 5,579 |
| Due to FSC, Inc. | 1,626 | 1,630 |
| Interest payable | 6,462 | 4,219 |
| Payments received in advance from portfolio companies | 16 | 40 |
| Offering costs payable | — | 162 |
| Credit facilities payable | 216,000 | 201,251 |
| SBA debentures payable | 181,750 | 150,000 |
| Unsecured convertible notes payable | 115,000 | 115,000 |
| Unsecured notes payable | 161,250 | — |
| Total liabilities | 699,580 | 485,432 |
| Net assets: | ||
| Common stock, $0.01 par value, 250,000 and 150,000 shares authorized at June 30, 2013 and September 30, 2012, respectively; 120,996 and 91,048 shares issued and outstanding at June 30, 2013 and September 30, 2012, respectively | 1,210 | 910 |
| Additional paid-in-capital | 1,329,448 | 1,019,053 |
| Net unrealized appreciation on investments | 26,400 | 19,998 |
| Net realized loss on investments and interest rate swap | (145,034) | (128,062) |
| Accumulated overdistributed net investment income | (14,756) | (8,329) |
| Total net assets (equivalent to $9.90 and $9.92 per common share at June 30, 2013 and September 30, 2012, respectively) | 1,197,268 | 903,570 |
| Total liabilities and net assets | $ 1,896,848 | $ 1,389,002 |
| Fifth Street Finance Corp. | ||||
| Consolidated Statements of Operations | ||||
| (in thousands, except per share amounts) | ||||
| (unaudited) | ||||
| Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 | |
| Interest income: | ||||
| Control investments | $ 1,279 | $ 2 | $ 3,037 | $ 434 |
| Affiliate investments | 741 | 835 | 2,050 | 2,229 |
| Non-control/Non-affiliate investments | 40,356 | 27,822 | 109,829 | 85,131 |
| Interest on cash and cash equivalents | 6 | 11 | 15 | 29 |
| Total interest income | 42,382 | 28,670 | 114,931 | 87,823 |
| PIK interest income: | ||||
| Control investments | 719 | 211 | 936 | 249 |
| Affiliate investments | 316 | 158 | 1,080 | 467 |
| Non-control/Non-affiliate investments | 3,009 | 3,557 | 9,795 | 9,516 |
| Total PIK interest income | 4,044 | 3,926 | 11,811 | 10,232 |
| Fee income: | ||||
| Control investments | 3,379 | — | 3,592 | — |
| Affiliate investments | 12 | 377 | 36 | 630 |
| Non-control/Non-affiliate investments | 7,656 | 7,954 | 32,138 | 23,744 |
| Total fee income | 11,047 | 8,331 | 35,766 | 24,374 |
| Dividend and other income: | ||||
| Non-control/Non-affiliate investments | 577 | 81 | 2,012 | 154 |
| Total dividend and other income | 577 | 81 | 2,012 | 154 |
| Total investment income | 58,050 | 41,008 | 164,520 | 122,583 |
| Expenses: | ||||
| Base management fee | 9,186 | 6,094 | 26,123 | 17,226 |
| Incentive fee | 7,343 | 5,477 | 20,983 | 16,422 |
| Professional fees | 959 | 619 | 2,931 | 2,310 |
| Board of Directors fees | 173 | 30 | 423 | 156 |
| Interest expense | 9,154 | 5,611 | 24,072 | 16,936 |
| Administrator expense | 695 | 690 | 2,294 | 2,214 |
| General and administrative expenses | 1,168 | 807 | 3,762 | 3,201 |
| Total expenses | 28,678 | 19,328 | 80,588 | 58,465 |
| Base management fee waived | (1,022) | — | (2,321) | — |
| Net expenses | 27,656 | 19,328 | 78,267 | 58,465 |
| Gain on extinguishment of unsecured convertible notes | — | 230 | — | 1,571 |
| Net investment income | 30,394 | 21,910 | 86,253 | 65,689 |
| Unrealized appreciation (depreciation) on investments: | ||||
| Control investments | 10,680 | (2,493) | 14,151 | (1,404) |
| Affiliate investments | 158 | 322 | 94 | 9,649 |
| Non-control/Non-affiliate investments | 2,224 | 2,350 | (7,843) | 5,815 |
| Net unrealized appreciation on investments | 13,062 | 179 | 6,402 | 14,060 |
| Realized gain (loss) on investments: | ||||
| Control investments | (11,223) | — | (11,223) | — |
| Affiliate investments | — | — | — | (10,620) |
| Non-control/Non-affiliate investments | (6,227) | — | (5,748) | (16,800) |
| Net realized loss on investments | (17,450) | — | (16,971) | (27,420) |
| Net increase in net assets resulting from operations | $ 26,006 | $ 22,089 | $ 75,684 | $ 52,329 |
| Net investment income per common share — basic | $ 0.26 | $ 0.27 | $ 0.81 | $ 0.84 |
| Earnings per common share — basic | $ 0.22 | $ 0.27 | $ 0.71 | $ 0.67 |
| Weighted average common shares outstanding — basic | 118,271 | 82,421 | 106,353 | 78,089 |
| Net investment income per common share — diluted | $ 0.25 | $ 0.26 | $ 0.78 | $ 0.80 |
| Earnings per common share — diluted | $ 0.22 | $ 0.26 | $ 0.69 | $ 0.64 |
| Weighted average common shares outstanding — diluted | 126,061 | 90,279 | 114,143 | 86,325 |
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. Fifth Street Finance Corp.'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.
Forward-Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to the future performance of Fifth Street Finance Corp. Words such as "believes," "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 Fifth Street Finance Corp.'s filings with the Securities and Exchange Commission. Fifth Street Finance Corp. 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: Dean Choksi, Senior VP of Finance & Head of Investor Relations Fifth Street Finance Corp. (914) 286-6855 Media Contact: James Velgot, Chief Marketing Officer Fifth Street Finance Corp. (914) 286-6848
