WHITE PLAINS, N.Y., Feb. 6, 2013 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (Nasdaq:FSC) ("Fifth Street" or "we") announces its financial results for the first fiscal quarter ended December 31, 2012.
First Fiscal Quarter 2013 Financial Highlights
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Net investment income for the quarter ended December 31, 2012 was $26.6 million or $0.28 per share, as compared to $21.0 million or $0.29 per share for the quarter ended December 31, 2011;
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Net asset value per share was $9.88 as of December 31, 2012, as compared to $9.92 as of September 30, 2012;
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Net unrealized depreciation for the quarter ended December 31, 2012 was $9.3 million (including $0.8 million of net reclassifications to realized gains) or $0.10 per share, as compared to net unrealized appreciation of $5.8 million (including $17.1 million of reclassifications to realized losses) or $0.08 per share for the quarter ended December 31, 2011;
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Net realized gains for the quarter ended December 31, 2012 were $0.6 million or $0.01 per share, as compared to $16.6 million of net realized losses or $(0.23) per share for the quarter ended December 31, 2011; and
- Net increase in net assets resulting from operations for the quarter ended December 31, 2012 was $17.8 million or $0.19 per share, as compared to $10.2 million or $0.14 per share for the quarter ended December 31, 2011.
Second and Third Fiscal Quarter 2013 Dividend Declarations
To date, our Board of Directors has declared monthly dividends for the second and third fiscal quarters of 2013 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, payable on February 28, 2013 to stockholders of record on February 15, 2013;
- $0.0958 per share, payable on March 29, 2013 to stockholders of record on March 15, 2013;
- $0.0958 per share, payable on April 30, 2013 to stockholders of record on April 15, 2013; and
- $0.0958 per share, payable on May 31, 2013 to stockholders of record on May 15, 2013.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our portfolio at December 31, 2012 to be $1.58 billion, as compared to $1.29 billion at September 30, 2012. Total assets at December 31, 2012 were $1.65 billion, as compared to $1.39 billion at September 30, 2012.
During the quarter ended December 31, 2012, we closed $422.1 million of investments in 20 new and eight existing portfolio companies, and funded $398.8 million across new and existing portfolio companies. This compares to closing $95.3 million in seven new and one existing portfolio companies and funding $84.5 million during the quarter ended December 31, 2011. During the quarter ended December 31, 2012, we also received $49.8 million in connection with the exits of five of our debt investments, all of which were exited at par or above, and an additional $33.7 million in connection with partial sales of debt investments at an aggregate net price above par.
At December 31, 2012, our portfolio consisted of investments in 92 companies, 82 of which were completed in connection with investments by private equity sponsors and 10 of which were in private equity funds. At fair value, 96.4% of our portfolio consisted of debt investments (62.0% were first lien loans, 15.5% were second lien loans and the remainder were subordinated loans). Our average portfolio company debt investment size at fair value was $20.0 million at December 31, 2012, versus $19.7 million at September 30, 2012.
"We are pleased with our solid results for the December quarter, including a record $422 million in gross quarterly originations," stated our President, Bernard D. Berman, adding "We were well-positioned to handle the increased deal volume due to timely capital raises and the steps taken during the year to further institutionalize our platform, including achieving another important milestone by hiring our 50th employee."
Our weighted average yield on debt investments at December 31, 2012 was 11.99%, and included a cash component of 11.01%.
At December 31, 2012 and September 30, 2012, $1.08 billion and $869.9 million, respectively, of our debt investments at fair value were at floating rates, which represented 70.8% and 70.1%, respectively, of our total portfolio of debt investments at fair value.
Results of Operations
Total investment income for the quarters ended December 31, 2012 and December 31, 2011 was $51.8 million and $39.5 million, respectively. For the quarter ended December 31, 2012, this amount primarily consisted of $38.6 million of interest income from portfolio investments (which included $3.7 million of PIK interest). For the quarter ended December 31, 2011, this amount primarily consisted of $33.5 million of interest income from portfolio investments (which included $3.4 million of PIK interest). PIK interest represented only 7.2% of total investment income for the quarter ended December 31, 2012, as compared to 8.6% for the quarter ended December 31, 2011.
The increase in our total investment income for the quarter ended December 31, 2012 as compared to the quarter ended December 31, 2011 was primarily attributable to a higher average level of outstanding debt investments, which was principally due to a net increase of 19 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 12.27% to 11.99% during the year-over-year period.
Expenses for the quarters ended December 31, 2012 and December 31, 2011 were $25.2 million and $19.8 million, respectively. Expenses increased for the quarter ended December 31, 2012 as compared to the quarter ended December 31, 2011, primarily due to increases in the base management fee, the incentive fee and interest expense.
Liquidity and Capital Resources
On October 18, 2012, we issued $75.0 million in aggregate principal amount of our 5.875% senior unsecured notes due 2024 for net proceeds of $72.8 million after deducting underwriting commissions of $2.2 million.
In addition, on November 30, 2012, we amended our ING-led syndicated credit facility to increase the size to $380 million from $230 million, reduce the pricing to LIBOR plus 2.75% per annum and extend the maturity date to November 30, 2016. During December 2012 and January 2013, additional lenders were added to the facility, increasing the size of the facility to $425 million and the number of lenders in the facility to 12.
As of December 31, 2012, we had $37.4 million in cash and cash equivalents, portfolio investments (at fair value) of $1.58 billion, $8.6 million of interest and fees receivable, $181.8 million of SBA debentures payable, $218.0 million of borrowings outstanding under our credit facilities, $115.0 million of convertible senior notes payable, $75.0 million of senior unsecured notes payable and unfunded commitments of $114.0 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 convertible senior notes payable and unfunded commitments of $102.5 million.
Fiscal Year 2013 Dividends
For the fiscal year ending September 30, 2013, our Board of Directors has declared monthly dividends as follows:
- $0.0958 per share, which was paid on October 31, 2012 to stockholders of record on October 15, 2012;
- $0.0958 per share, which was paid on November 30, 2012 to stockholders of record on November 15, 2012;
- $0.0958 per share, which was paid on December 28, 2012 to stockholders of record on December 14, 2012;
- $0.0958 per share, which was paid on January 31, 2013 to stockholders of record on January 15, 2013;
- $0.0958 per share, payable on February 28, 2013 to stockholders of record on February 15, 2013;
- $0.0958 per share, payable on March 29, 2013 to stockholders of record on March 15, 2013;
- $0.0958 per share, payable on April 30, 2013 to stockholders of record on April 15, 2013; and
- $0.0958 per share, payable on May 31, 2013 to stockholders of record on May 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 investment ranking system for our investment portfolio:
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Investment Ranking 1 is used for investments that are performing above expectations and/or a capital gain is expected.
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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 risk at the time of the original investment. All new investments are initially ranked 2.
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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.
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Investment Ranking 4 is used for investments that are performing below our expectations and for which risk has 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 December 31, 2012 and September 30, 2012, the distribution of our investments on the 1 to 5 investment ranking scale at fair value was as follows:
| December 31, 2012 | September 30, 2012 | |||||||||||
|
Investment Ranking |
Fair Value (thousands) |
% of Portfolio |
Leverage Ratio |
Fair Value (thousands) |
% of Portfolio |
Leverage Ratio |
||||||
| 1 | $ 196,930 | 12.46% | 2.72 | $ 68,685 | 5.33% | 2.72 | ||||||
| 2 | 1,345,195 | 85.11 | 4.18 | 1,212,993 | 94.17 | 3.96 | ||||||
| 3 | 37,251 | 2.36 | NM(1) | 3,193 | 0.25 | NM(1) | ||||||
| 4 | — | — | — | — | — | — | ||||||
| 5 | 1,072 | 0.07 | NM(1) | 3,237 | 0.25 | NM(1) | ||||||
| Total | $ 1,580,448 | 100.00% | 4.05 | $ 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 December 31, 2012, we had modified the payment terms of our investments in 14 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 December 31, 2012, we had stopped accruing PIK interest on two investments. As of December 31, 2011, 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 December 31, 2011.
Recent Developments
On January 14, 2013, our Board of Directors declared the following dividends:
- $0.0958 per share, payable on March 29, 2013 to stockholders of record on March 15, 2013;
- $0.0958 per share, payable on April 30, 2013 to stockholders of record on April 15, 2013; and
- $0.0958 per share, payable on May 31, 2013 to stockholders of record on May 15, 2013.
Effective January 15, 2013, our Board of Directors increased its size to eight members and appointed Ivelin M. Dimitrov, our Chief Investment Officer, to the Board for a one-year term to serve until our 2014 Annual Meeting of Stockholders.
At our Annual Meeting of Stockholders scheduled to be held on March 14, 2013, we intend to seek the approval of our stockholders to increase the number of authorized shares of our common stock from 150,000,000 to 250,000,000.
| Fifth Street Finance Corp. | ||
| Consolidated Statements of Assets and Liabilities | ||
| (in thousands, except per share amounts) | ||
| (unaudited) | ||
| December 31, 2012 |
September 30, 2012 |
|
| ASSETS | ||
| Investments at fair value: | ||
| Control investments (cost December 31, 2012: $58,238; cost September 30, 2012: $58,557) | $ 51,698 | $ 53,240 |
| Affiliate investments (cost December 31, 2012: $29,964; cost September 30, 2012: $29,496) | 31,499 | 31,187 |
| Non-control/Non-affiliate investments (cost December 31, 2012: $1,481,966; cost September 30, 2012: $1,180,436) | 1,497,251 | 1,203,681 |
| Total investments at fair value (cost December 31, 2012: $1,570,168; cost September 30, 2012: $1,268,489) | 1,580,448 | 1,288,108 |
| Cash and cash equivalents | 37,438 | 74,393 |
| Interest and fees receivable | 8,583 | 7,652 |
| Due from portfolio company | 1,684 | 3,292 |
| Receivables from unsettled transactions | 250 | 1,750 |
| Deferred financing costs | 18,136 | 13,751 |
| Other assets | 145 | 56 |
| Total assets | $ 1,646,684 | $ 1,389,002 |
| LIABILITIES AND NET ASSETS | ||
| Liabilities: | ||
| Accounts payable, accrued expenses and other liabilities | $ 1,377 | $ 978 |
| Base management fee payable | 1,548 | 6,573 |
| Incentive fee payable | 1,230 | 5,579 |
| Due to FSC, Inc. | 763 | 1,630 |
| Interest payable | 5,096 | 4,219 |
| Payments received in advance from portfolio companies | 41 | 40 |
| Offering costs payable | — | 162 |
| Credit facilities payable | 218,000 | 201,251 |
| SBA debentures payable | 181,750 | 150,000 |
| Convertible senior notes payable | 115,000 | 115,000 |
| Senior unsecured notes payable | 75,000 | — |
| Total liabilities | 599,805 | 485,432 |
| Net assets: | ||
| Common stock, $0.01 par value, 150,000 shares authorized, 105,943 and 91,048 shares issued and outstanding at December 31, 2012 and September 30, 2012 | 1,059 | 910 |
| Additional paid-in-capital | 1,171,963 | 1,019,053 |
| Net unrealized appreciation on investments | 10,658 | 19,998 |
| Net realized loss on investments and interest rate swap | (127,436) | (128,062) |
| Accumulated overdistributed net investment income | (9,365) | (8,329) |
| Total net assets (equivalent to $9.88 and $9.92 per common share at December 31, 2012 and September 30, 2012) | 1,046,879 | 903,570 |
| Total liabilities and net assets | $ 1,646,684 | $ 1,389,002 |
| Fifth Street Finance Corp. | ||
| Consolidated Statements of Operations | ||
| (in thousands, except per share amounts) | ||
| (unaudited) | ||
|
Three months ended December 31, 2012 |
Three months ended December 31, 2011 |
|
| Interest income: | ||
| Control investments | $ 882 | $ 221 |
| Affiliate investments | 584 | 704 |
| Non-control/Non-affiliate investments | 33,454 | 29,126 |
| Interest on cash and cash equivalents | 3 | 4 |
| Total interest income | 34,923 | 30,055 |
| PIK interest income: | ||
| Control investments | 108 | 38 |
| Affiliate investments | 456 | 155 |
| Non-control/Non-affiliate investments | 3,156 | 3,222 |
| Total PIK interest income | 3,720 | 3,415 |
| Fee income: | ||
| Control investments | 99 | — |
| Affiliate investments | 12 | 108 |
| Non-control/Non-affiliate investments | 12,683 | 5,885 |
| Total fee income | 12,794 | 5,993 |
| Dividend and other income: | ||
| Non-control/Non-affiliate investments | 346 | 34 |
| Total dividend and other income | 346 | 34 |
| Total investment income | 51,783 | 39,497 |
| Expenses: | ||
| Base management fee | 8,046 | 5,741 |
| Incentive fee | 6,639 | 5,247 |
| Professional fees | 1,188 | 1,091 |
| Board of Directors fees | 129 | 56 |
| Interest expense | 7,156 | 5,724 |
| Administrator expense | 930 | 816 |
| General and administrative expenses | 1,139 | 1,138 |
| Total expenses | 25,227 | 19,813 |
| Gain on extinguishment of convertible senior notes | — | 1,305 |
| Net investment income | 26,556 | 20,989 |
| Unrealized appreciation (depreciation) on investments: | ||
| Control investments | (1,222) | 1,114 |
| Affiliate investments | (156) | (1,283) |
| Non-control/Non-affiliate investments | (7,961) | 6,002 |
| Net unrealized appreciation (depreciation) on investments | (9,339) | 5,833 |
| Realized gain (loss) on investments: | ||
| Control investments | — | — |
| Affiliate investments | — | 76 |
| Non-control/Non-affiliate investments | 626 | (16,714) |
| Net realized gain (loss) on investments | 626 | (16,638) |
| Net increase in net assets resulting from operations | $ 17,843 | $ 10,184 |
| Net investment income per common share — basic | $ 0.28 | $ 0.29 |
| Earnings per common share — basic | $ 0.19 | $ 0.14 |
| Weighted average common shares outstanding — basic | 94,889 | 72,376 |
| Net investment income per common share — diluted | $ 0.27 | $ 0.27 |
| Earnings per common share — diluted | $ 0.19 | $ 0.13 |
| Weighted average common shares outstanding — diluted | 102,679 | 80,913 |
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.
The Fifth Street Finance Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5525
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.