WHITE PLAINS, N.Y., May 4, 2011 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (NYSE:FSC) ("Fifth Street" or "we") announces its financial results for the second fiscal quarter ended March 31, 2011.
Second Quarter 2011 Financial Highlights
- Net investment income for the quarter ended March 31, 2011 was $16.6 million or $0.27 per share, as compared to $11.2 million or $0.26 per share for the quarter ended March 31, 2010;
- Net asset value per share was $10.68 as of March 31, 2011, as compared to $10.43 as of September 30, 2010;
- Net unrealized depreciation for the quarter ended March 31, 2011 was $0.4 million (including $0.6 million of reclassifications to realized losses) or $0.01 per share, as compared to net unrealized appreciation of $1.2 million or $0.03 per share for the quarter ended March 31, 2010;
- Net realized losses on investments for the quarter ended March 31, 2011 were $0.5 million or $0.01 per share, as compared to $2.9 million or $0.07 per share, for the quarter ended March 31, 2010; and
- Net increase in net assets resulting from operations for the quarter ended March 31, 2011 was $15.7 million or $0.25 per share, as compared to $9.5 million or $0.22 per share for the quarter ended March 31, 2010.
Third Quarter and Fourth Quarter 2011 Dividend Declarations
Our Board of Directors has declared monthly dividends for the third and fourth fiscal quarters of 2011 as follows:
- $0.1066 per share, which was paid on April 29, 2011 to stockholders of record on April 1, 2011;
- $0.1066 per share, payable on May 31, 2011 to stockholders of record on May 2, 2011;
- $0.1066 per share, payable on June 30, 2011 to stockholders of record on June 1, 2011;
- $0.1066 per share, payable on July 29, 2011 to stockholders of record on July 1, 2011;
- $0.1066 per share, payable on August 31, 2011 to stockholders of record on August 1, 2011; and
- $0.1066 per share, payable on September 30, 2011 to stockholders of record on September 1, 2011.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our portfolio at March 31, 2011 to be $939.7 million, as compared to $563.8 million at September 30, 2010.
During the quarter ended March 31, 2011, we closed $248.6 million of new investments, including funding $218.0 million across ten new and fourteen existing portfolio companies. This compares to funding $33.2 million across one new and five existing portfolio companies during the quarter ended March 31, 2010.
At March 31, 2011, our portfolio consisted of investments in 55 companies, 51 of which were completed in connection with investments by private equity sponsors and four of which were in private equity funds. At fair value, 98.8% of our portfolio consisted of debt investments (87.5% were first lien loans, 8.8% were second lien loans and the remainder were subordinated loans). Our average portfolio company investment size at fair value (excluding equity-only investments) was approximately $19.6 million at March 31, 2011, versus $16.6 million at September 30, 2010.
"We were pleased to see a substantial increase in NAV during our second fiscal quarter, as well as the continued reduction of our basket of distressed investments which now represents under three percent of our total portfolio," stated our Chief Executive Officer, Leonard M. Tannenbaum.
Our weighted average yield on debt investments at March 31, 2011 was 12.8%, and included a cash component of 11.3%.
At March 31, 2011 and September 30, 2010, $553.3 million and $183.0 million, respectively, of our portfolio of debt investments at fair value were at floating rates, which represented 59.6% and 32.8%, respectively, of our total portfolio of debt investments at fair value.
Results of Operations
Total investment income for the quarters ended March 31, 2011 and March 31, 2010 was $29.7 million and $17.9 million, respectively. For the quarter ended March 31, 2011, this amount primarily consisted of $25.8 million of interest income from portfolio investments (which included $3.5 million of PIK interest), and $3.9 million of fee income. For the quarter ended March 31, 2010, total investment income primarily consisted of $16.4 million of interest income from portfolio investments (which included $2.3 million of PIK interest), and $1.4 million of fee income.
The increase in our total investment income for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010 was primarily attributable to higher average levels of outstanding debt investments, which was principally due to an increase of 21 investments in our portfolio in the year-over-year period, partially offset by scheduled amortization payments received and other debt payoffs during the same period.
Expenses for the quarters ended March 31, 2011 and March 31, 2010 were $13.1 million and $6.7 million, respectively. Expenses increased for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010 by $6.4 million, primarily as a result of increases in the base management fee, the incentive fee, interest expense and professional fees. For the quarters ended March 31, 2011 and March 31, 2010, no base management fee was incurred on our assets held in the form of cash and cash equivalents. Our investment advisor voluntarily agreed to permanently waive this fee as of the end of each quarter beginning March 31, 2010.
Net realized gain or loss on the sale of investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. During the quarters ended March 31, 2011 and March 31, 2010, we recorded investment realization events, including the following:
- In March 2011, we received a cash payment of $5.0 million from AmBath/ReBath Holdings, Inc. as part of a restructuring of the loan agreement. The restructuring resulted in a material modification of the terms of the loan agreement. As such, we recorded a realized loss in the amount of $0.3 million; and
- In March 2010, we recorded a realized loss in the amount of $2.9 million in connection with the sale of a portion of our investment in CPAC, Inc.
Net unrealized appreciation or depreciation is the net change in the fair value of our investment portfolio and our interest rate swap during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. During the quarter ended March 31, 2011, we recorded net unrealized depreciation of $0.4 million. This consisted of $1.4 million of net unrealized depreciation of equity investments, offset by $0.2 million of net unrealized appreciation on debt investments, $0.6 million of net reclassifications to realized losses and $0.2 million of net unrealized appreciation on our interest rate swap. During the quarter ended March 31, 2010, we recorded net unrealized appreciation of $1.2 million. This consisted of $3.3 million of net reclassifications to realized losses and $1.1 million of net unrealized appreciation on equity investments, partially offset by $3.2 million of net unrealized depreciation on debt investments.
Liquidity and Capital Resources
As of March 31, 2011, we had $38.6 million in cash and cash equivalents, portfolio investments (at fair value) of $939.7 million, $6.6 million of interest and fees receivable, $138.3 million of SBA debentures payable, $134.0 million of borrowings outstanding under our credit facilities and unfunded commitments of $85.6 million.
As of September 30, 2010, we had $76.8 million in cash and cash equivalents, portfolio investments (at fair value) of $563.8 million, $3.8 million of interest and fees receivable, $73.0 million of SBA debentures payable and unfunded commitments of $49.5 million.
Fiscal Year 2011 Dividends
For fiscal year 2011, our Board of Directors has declared monthly dividends as follows:
- $0.10 per share, which was paid on October 27, 2010 to stockholders of record on October 6, 2010;
- $0.11 per share, which was paid on November 24, 2010 to stockholders of record on November 3, 2010;
- $0.11 per share, which was paid on December 29, 2010 to stockholders of record on December 1, 2010;
- $0.1066 per share, which was paid on January 31, 2011 to stockholders of record on January 4, 2011;
- $0.1066 per share, which was paid on February 28, 2011 to stockholders of record on February 1, 2011;
- $0.1066 per share, which was paid on March 31, 2011 to stockholders of record on March 1, 2011;
- $0.1066 per share, which was paid on April 29, 2011 to stockholders of record on April 1, 2011;
- $0.1066 per share, payable on May 31, 2011 to stockholders of record on May 2, 2011;
- $0.1066 per share, payable on June 30, 2011 to stockholders of record on June 1, 2011;
- $0.1066 per share, payable on July 29, 2011 to stockholders of record on July 1, 2011;
- $0.1066 per share, payable on August 31, 2011 to stockholders of record on August 1, 2011; and
- $0.1066 per share, payable on September 30, 2011 to stockholders of record on September 1, 2011.
Dividends are paid 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 rating system for our investment portfolio:
- Investment Rating 1 is used for investments that are performing above expectations and/or a capital gain is expected.
- Investment Rating 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 rated 2.
- Investment Rating 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 rating of 3 may be out of compliance with financial covenants.
- Investment Rating 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 Rating 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 rating of 5 are those for which some loss of principal is expected.
At March 31, 2011, the distribution of our investments on the 1 to 5 investment rating scale at fair value was as follows:
1Due 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, 2011, we had modified the payment terms of our investments in five portfolio companies. Such modified terms 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.
At March 31, 2011, we had stopped accruing cash interest, PIK interest and OID on three investments that had not paid all of their scheduled cash interest payments for the period ended March 31, 2011. At March 31, 2010, we had stopped accruing cash interest, PIK interest and OID on four investments, including two investments that had not paid all of their scheduled monthly cash interest payments.
Recent Developments
On April 1, 2011, we repaid $18.0 million under the ING facility. On April 12, 2011, we repaid $60.0 million and $56.0 million under the Wells Fargo facility and ING facility, respectively. As of May 4, 2011, we had no loans outstanding under our credit facilities.
In April 2011, we received investment grade issuer and corporate debt ratings (BBB-) from the global ratings agency Fitch Ratings.
On April 12, 2011, we closed a private offering of $150 million aggregate principal amount of our 5.375% convertible senior notes due 2016. These convertible senior notes were sold only to qualified institutional buyers (as defined in the Securities Act) pursuant to Rule 144A under the Securities Act. We have granted the initial purchasers for the offering the option, which expires May 7, 2011, to purchase up to an additional $22.5 million aggregate principal amount of the convertible senior notes. In addition, Leonard M. Tannenbaum, our chief executive officer, purchased $2 million principal amount of the convertible senior notes directly from us in a private placement.
The convertible senior notes are unsecured and bear interest at a rate of 5.375% per year, payable semiannually. In certain circumstances, the convertible senior notes are convertible into shares of our common stock at an initial conversion rate of 67.7415 shares of common stock per $1,000 principal amount of convertible senior notes, which is equivalent to an initial conversion price of approximately $14.76 per share of our common stock, subject to customary anti-dilution adjustments. In addition, if certain corporate events occur in respect of us, holders of the convertible senior notes may require us to repurchase for cash all or part of their convertible senior notes at a repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date. We do not have the right to redeem the convertible senior notes prior to maturity. The convertible senior notes will mature on April 1, 2016, unless repurchased or converted in accordance with their terms prior to such date.
On April 29, 2011, we paid a dividend in the amount of $0.1066 per share to stockholders of record on April 1, 2011.
On May 2, 2011, our Board of Directors declared the following dividends:
- $0.1066 per share, payable on July 29, 2011 to stockholders of record on July 1, 2011;
- $0.1066 per share, payable on August 31, 2011 to stockholders of record on August 1, 2011; and
- $0.1066 per share, payable on September 30, 2011 to stockholders of record on September 1, 2011.
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.
CONTACT: Fifth Street Finance Corp. Stacey Thorne, Executive Director, Investor Relations (914) 286-6811 stacey@fifthstreetfinance.com
