Kohlberg Capital Corporation Reports Third Quarter 2008 Financial Results
NEW YORK, Nov 10, 2008 (GlobeNewswire via COMTEX News Network) -- Kohlberg Capital Corporation (Nasdaq:KCAP) announced financial results for the third quarter ended September 30, 2008.
Financial Highlights
* Net investment income for the nine months ended September 30, 2008 of $23.9 million, or $1.20 per share. For the three months ended September 30, 2008, net investment income was $7.5 million or $0.35 per share. * For the nine months ended September 30, 2008, paid dividends of $1.17 per share, consisting of a $0.41 per share dividend paid in each of the first and second quarters and a $0.35 per share dividend paid in the third quarter. * Net unrealized loss on investments of $3.5 million, or $0.16 per share, for the third quarter of 2008 and $11.8 million, or $0.59 per share, for the nine months ended September 30, 2008. * Net asset value per share of $12.97 as of September 30, 2008 compared to $13.14 as of June 30, 2008 and $14.38 as of December 31, 2007. * At September 30, 2008, investment assets totaled $525.8 million as compared to $506.4 million at June 30, 2008.
"Despite a very challenging credit environment, our investment portfolio continued to produce steady cash flows and credit quality continued to be strong," said Dayl Pearson, president and chief executive officer. "We did reduce our dividend slightly due to the impact of LIBOR volatility on our CLO investments, a higher share count and a general concern about the credit and economic environment in 2009. We have continued our policy of only distributing up to our net investment income."
Operating Results
For the third quarter ended September 30, 2008, Kohlberg Capital reported total investment income of $11.3 million compared to $10.5 million in the year ago period. Net investment income for the third quarter was $7.5 million, or $0.35 per share, compared to $6.1 million, or $0.34 per share, reflecting the growth in the investment portfolio to $525.8 million at September 30, 2008 from $434.9 million at September 30, 2007, increased dividends earned on CLO fund securities and a $1.0 million dividend payment from Katonah Debt Advisors, the Company's wholly-owned asset management company, partially offset by lower yields on the Company's loan and bond portfolio. Realized gains for the 2008 third quarter were approximately $13,000.
Total investment income for the third quarter ended September 30, 2008 declined approximately $937,000 as compared to the immediately preceding quarter ended June 30, 2008. Such decline is primarily as a result of decreased spreads on CLO fund securities due to the timing and level of the resetting of the benchmark interest rate for the underlying assets in each CLO Fund and the related CLO Fund bond liabilities which were offset in part by a dividend distribution from Katonah Debt Advisors.
For the nine months ended September 30, 2008, total investment income was $37.9 million as compared to $25.6 million in the same period last year. Net investment income was $23.9 million, or $1.20 per share, based on 19.9 million weighted average shares outstanding. The company paid dividends of $1.17 per share for the nine months ended September 30, 2008. For the same period last year, the company reported net investment income of $16.2 million, or $0.90 per share, and distributed dividends of $1.01 per share.
Net unrealized losses for the three months ended September 30, 2008 totaled approximately $3.5 million reflecting approximately $6.1 million in decreased trading value of the company's middle market corporate loan and equity securities offset in part by approximately $2.5 million in increased net value of CLO Fund securities and a $129,000 increase in the market value of the company's investment in its wholly-owned asset management company, Katonah Debt Advisors. Fair value of securities continued to be negatively impacted by credit market conditions.
Investment Portfolio
Kohlberg Capital's portfolio fair value was $525.8 million as of September 30, 2008. The following table shows the change in the company's portfolio by security type at September 30, 2008 as compared to the prior quarter ended June 30, 2008:
September 30, 2008 (unaudited) June 30, 2008 (unaudited)
------------------------------ ------------------------------
Security
Type Cost Fair Value %(1) Cost Fair Value %(1)
------------ ------------ ---- ------------ ------------ ----
Senior
Secured
Loan $239,487,184 $228,796,876 44% $223,245,488 $216,214,013 43%
Junior
Secured
Loan 142,120,506 128,673,064 24 136,744,636 125,317,627 25
Mezzanine
Invest-
ment 33,427,413 31,184,747 6 33,057,899 31,933,121 6
Senior
Sub-
ordinated
Bond 3,008,457 2,287,500 -- 3,008,716 2,287,500 --
Senior
Un-
secured
Bond 5,228,150 4,800,000 1 5,196,812 4,940,000 1
CLO Fund
Securi-
ties 66,008,021 59,695,236 11 65,630,476 56,843,236 11
Equity
Securi-
ties 5,096,298 4,491,265 1 5,096,298 3,605,297 1
Affiliate
Asset
Mana-
gers 35,877,203 65,821,689 13 35,394,198 65,210,050 13
------------ ------------ ---- ------------ ------------ ----
Total $530,253,232 $525,750,377 100% $507,374,523 $506,350,844 100%
============ ============ ==== ============ ============ ====
(1) Represents percentage of total portfolio at fair value
The company's loan, bond and equity portfolio (excluding its investment in CLO Fund Securities and Affiliate Asset Managers discussed further below), as of September 30, 2008 totaled $400.2 million at fair value of which 89% are secured loans. The cost of such investments was $428.4 million, representing a fair value discount to cost of 6.6% or approximately $1.32 per outstanding share. As of September 30, 2008, the company had no exposure to mortgage securities, consumer borrowings or related asset backed securities. The weighted average yield on the company's loan and bond portfolio at September 30, 2008 was approximately 8.1%.
The portfolio of middle market corporate loan and debt securities at quarter end, representing 76% of the total investment portfolio, was well-varied across 26 different industries and 93 different entities with an average balance per investment of approximately $4.3 million. As of September 30, 2008, all but two issuers or approximately 1% of total investments at fair value were current on their debt service obligations, which is unchanged from June 30, 2008.
Investment in CLO Fund Securities
As of September 30, 2008, the company's investment at fair value in CLO Fund securities was approximately $59.7 million. The underlying assets in each of the CLO Funds are generally diversified secured and unsecured corporate debt and do not include any asset backed securities, such as those secured by commercial or residential mortgages. As of September 30, 2008 all of the CLO Funds in which the company held investments were not in default and continue to make cash distributions to all classes of investors holding their securities. For the twelve months ended September 30, 2008, the seasoned CLO Fund securities generated an approximate annualized 31% cash return on investment and an approximate annualized 46% cash return on the current fair value of such CLO Fund securities.
Investment in Asset Manager Affiliate
At September 30, 2008, the company's investment at fair value in affiliate asset managers, including Katonah Debt Advisors, was approximately $65.8 million, representing a $612,000 increase over the fair value at June 30, 2008. Katonah Debt Advisors' assets under management at September 30, 2008 totaled approximately $2.3 billion, representing an approximate $4.7 million increase compared to June 30, 2008.
Liquidity and Capital Resources
At September 30, 2008, Kohlberg Capital had cash and cash equivalents of $40.2 million, total assets of $581.0 million and stockholders' equity of $276.5 million. The company's net asset value per common share was $12.97. Debt outstanding under a $275 million secured revolving credit facility was $270.0 million, resulting in 202% asset coverage or a debt to equity ratio of 0.98.
During September 2008, the Company was notified by the lenders that the liquidity banks providing the underlying funding for the facility did not intend to renew their liquidity facility to the lenders unless the Company agreed to certain revised terms for the facility. As a result, the lenders proposed new terms to the Company in order to extend additional fundings under the Facility. The Company viewed such proposed terms as unfavorable and has opted to allow the facility to terminate in accordance with its terms. Accordingly, in accordance with the terms of the Facility, all principal and interest collected from the assets secured by the Facility are used to amortize the Facility through a termination date of September 30, 2010 (the "amortization period"). During the amortization period the interest rate will continue to be based on prevailing commercial paper rates plus 0.85% or, if the commercial paper market is at any time unavailable, prevailing LIBOR rates plus an applicable spread. The Company believes it has sufficient cash and liquid assets to fund normal operations and dividend distributions through the expected amortization period.
Valuation of Portfolio Investments
Kohlberg Capital's Board of Directors is ultimately and solely responsible for determining the fair value of portfolio investments on a quarterly basis in good faith. Duff & Phelps, LLC, an independent valuation firm, provided third party valuation consulting services to the company's Board of Directors which consisted of certain limited procedures that the company's Board of Directors identified and requested them to perform. Each quarter, the Company's Board of Directors asks Duff & Phelps, LLC to perform the limited procedures on the Company's investment in Katonah Debt Advisors and all the CLO Fund securities. In addition, Duff & Phelps, LLC performs its procedures on all illiquid junior and mezzanine securities such that they are reviewed at least once during a trailing twelve month period. Upon completion of the limited procedures, Duff & Phelps, LLC concluded that the fair value of those investments subjected to the limited procedures did not appear to be unreasonable.
Dividend
Generally, Kohlberg Capital seeks to fund dividends to shareholders from current earnings, primarily from net interest and dividend income generated by its investment portfolio and Katonah Debt Advisors' current earnings without a return of capital or a high reliance on realized capital gains. Kohlberg Capital declared a regular quarterly dividend of $0.35 per share for the quarter ended September 30, 2008. The record date for this dividend was October 9, 2008 and the dividend was paid on October 28, 2008. For the nine months ended September 30, 2008, Kohlberg Capital's net investment income of $1.20 per share covered its $1.17 in dividends paid for the first, second, and third quarters.
The company has adopted a dividend reinvestment plan ("DRIP") that provides for reinvestment of our dividends on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if we declare a cash dividend, our stockholders who have not "opted out" of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends. Please contact your broker or other financial intermediary for more information regarding the DRIP.
Share Repurchase Plan
In October, the Company's Board of Directors has approved a share repurchase plan. Under this plan, Kohlberg Capital may repurchase up to $5.0 million of its common stock from time to time at the discretion of its senior management, when, in the view of management, the price of the Company's stock does not appropriately reflect its net asset value or future earnings prospects.
Distributable Income
Generally, at least 90% of Kohlberg Capital's taxable income must be paid as a dividend to shareholders in order to maintain its status as a non-taxable, pass-through entity. Kohlberg Capital's distributable tax income is generally its GAAP net investment income plus realized gains or losses (as adjusted for tax differences). As a result, the amount of our declared dividends, as evaluated by management and approved by our board of directors, is based on our evaluation of both distributable income for tax purposes and GAAP net investment income plus realized gains or losses (which excludes unrealized gains and losses) and may result in a dividend amount that exceeds our distributable tax income but not our GAAP net investment income.
Conference Call and Webcast
Kohlberg Capital will hold a conference call on Monday November 10, 2008 at 4:00 p.m. Eastern Standard Time to discuss its third quarter 2008 financial results. Shareholders, prospective shareholders and analysts are welcome to listen to the call or attend the webcast. The conference call dial-in number is 1-877-591-4949. A replay of the call will be available from 7:00 p.m. on November 10 until 11:59 p.m. Eastern time on November 20. The dial in number for the replay is 888-203-1112 and the conference ID is 7154297.
A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on our company's website http://www.kohlbergcapital.com in the Investor Relations section under Events. Please allow extra time, prior to the call, to visit the site and test your connection or download the necessary software to listen to the Internet broadcast. The online archive of the webcast will be available after 7:00 p.m. Eastern time for approximately 90 days on our website in the Investor Relations section under Events.
About Kohlberg Capital Corporation (KCAP)
Kohlberg Capital Corporation is a publicly traded, internally managed business development company. Our middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. Our wholly-owned portfolio company, Katonah Debt Advisors, manages CLO Funds that invest in broadly syndicated corporate term loans, high-yield bonds and other credit instruments.
Kohlberg Capital Corporation's filings with the Securities and Exchange Commission, earnings releases, press releases and other financial, operational and governance information are available on the company's website at http://www.kohlbergcapital.com.
The Kohlberg Capital logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3121
Forward Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The matters discussed in this press release, as well as in future oral and written statements by management of Kohlberg Capital Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this press release should not be regarded as a representation by us that our plans or objectives will be achieved. Further information about factors that could affect our financial and other results is included in our filings with the Securities and Exchange Commission. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.
KCAP-G
KOHLBERG CAPITAL CORPORATION
BALANCE SHEETS
As of As of
September 30, December 31,
2008 2007
------------ ------------
(unaudited)
ASSETS
Investments at fair value:
Investments in debt securities
(cost: 2008 - 423,271,710; 2007 -
423,439,764) $395,742,187 $410,954,082
Investments in CLO fund securities
managed by non-affiliates (cost:
2008 - 15,541,828; 2007 - 15,385,580) 10,670,000 9,900,000
Investments in CLO fund securities
managed by affiliate (cost: 2008 -
50,466,193; 2007 - 20,675,684) 49,025,236 21,120,000
Investments in equity securities (
cost: 2008 - 5,096,298; 2007 -
5,043,950) 4,491,265 4,752,250
Investments in asset manager
affiliates (cost: 2008 - 35,877,203;
2007 - 33,469,995) 65,821,689 58,585,360
------------ ------------
Total Investments at fair value 525,750,377 505,311,692
Cash and cash equivalents 40,207,188 12,088,529
Restricted cash 8,024,985 7,114,364
Interest and dividends receivable 3,798,708 5,592,637
Due from affiliates 1,248,072 540,773
Other assets 1,956,675 2,493,964
------------ ------------
Total assets $580,986,005 $533,141,959
============ ============
LIABILITIES
Borrowings 270,000,000 255,000,000
Payable for open trades 23,147,846 5,905,000
Accounts Payable and accrued expenses 3,721,993 6,141,892
Dividend payable 7,586,831 7,026,903
------------ ------------
Total liabilities $304,456,670 $274,073,795
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share,
100,000,000 common shares authorized;
21,676,660 and 21,326,410 common
shares issued and outstanding at
September 30, 2008 and 18,017,699
issued and outstanding at December 31,
2007 213,264 180,177
Capital in excess of par value 282,789,209 253,253,152
Distributions in excess of net
investment income (1,361,655) (1,661,884)
Accumulated net realized losses (608,628) --
Net unrealized appreciation
(depreciation) on investments (4,502,855) 7,296,719
------------ ------------
Total stockholders' equity $276,529,335 $259,068,164
------------ ------------
Total liabilities and stockholders'
equity $580,986,005 $533,141,959
============ ============
NET ASSET VALUE PER SHARE $ 12.97 $ 14.38
============ ============
KOHLBERG CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
Investment
Income:
Interest from
investments
in debt
securities $ 7,925,084 $ 8,542,653 $ 25,089,244 $ 19,624,938
Interest from
cash and
cash
equivalents 57,330 141,535 200,902 425,630
Dividends
from
investments
in CLO fund
securities
managed by
non-
affiliates 962,864 1,154,919 4,712,758 3,324,205
Dividends
from
investments
in CLO fund
securities
managed by
affiliate 1,248,378 534,137 5,175,570 1,790,876
Dividends
from
affiliate
asset manager 1,000,000 -- 1,350,000 --
Capital
structuring
service fees 134,897 110,000 1,398,445 430,526
------------ ------------ ------------ ------------
Total
investment
income 11,328,553 10,483,244 37,926,919 25,596,175
------------ ------------ ------------ ------------
Expenses:
Interest and
amortization
of debt
issuance
costs 2,430,839 2,311,203 8,176,051 3,510,696
Compensation 747,339 1,399,717 3,456,054 3,133,903
Professional
fees 367,367 406,377 1,287,441 1,785,105
Insurance 64,766 41,369 203,181 122,885
Administrative
and other 263,898 254,200 914,917 873,904
------------ ------------ ------------ ------------
Total
expenses 3,874,209 4,412,866 14,037,644 9,426,493
------------ ------------ ------------ ------------
Net Investment
Income 7,454,344 6,070,378 23,889,275 16,169,682
Realized And
Unrealized
Gains (Losses)
On Investments:
Net realized
gains
(losses)
from
investment
transactions 13,365 (52,203) (608,628) 167,258
Net change in
unrealized
losses on
debt
securities (6,968,233) (7,959,601) (15,043,841) (7,854,708)
Net change in
unrealized
gains
(losses) on
equity
securities 885,968 -- (313,333) --
Net change in
unrealized
gains
(losses) on
CLO fund
securities
managed by
affiliate (657,815) 929,887 (1,885,273) 1,029,887
Net change in
unrealized
gains
(losses) on
CLO fund
securities
managed by
non-
affiliates 3,132,273 (2,701,130) 613,752 (3,751,130)
Net change in
unrealized
gains
(losses) on
affiliate
asset
manager
investments 128,634 (971,020) 4,829,121 20,444,831
------------ ------------ ------------ ------------
Net realized
and
unrealized
gains
(losses) on
investments (3,465,808) (10,754,067) (12,408,202) 10,036,138
------------ ------------ ------------ ------------
Net Increase
(Decrease)
In
Stockholders'
Equity
Resulting
From
Operations $ 3,988,536 $ (4,683,689)$ 11,481,073 $ 26,205,820
============ ============ ============ ============
Earnings
(losses)
per Common
Share--Basic $ 0.19 $ (0.26) $ 0.58 $ 1.46
Earnings
(losses) per
Common Share
--Diluted $ 0.18 $ (0.26) $ 0.57 $ 1.46
Net
Investment
Income Per
Common Share
--Basic $ 0.35 $ 0.34 $ 1.20 $ 0.90
Net
Investment
Income Per
Common Share
--Diluted $ 0.34 $ 0.34 $ 1.19 $ 0.90
Net
Investment
Income and
Net Realized
Gains Per
Common
Share--Basic $ 0.35 $ 0.33 $ 1.17 $ 0.91
Net
Investment
Income and
Net Realized
Gains Per
Common
Share--
Diluted $ 0.34 $ 0.33 $ 1.16 $ 0.91
Weighted
Average
Shares of
Common Stock
Outstanding
--Basic 21,299,431 17,989,460 19,897,521 17,965,590
Weighted
Average
Shares of
Common Stock
Outstanding
--Diluted 21,649,681 17,989,460 20,021,709 18,001,345
This news release was distributed by GlobeNewswire, www.globenewswire.com
SOURCE: Kohlberg Capital Corporation
Kohlberg Capital Corporation
Investor Relations
Denise Rodriguez
(212) 455-8300
info@kohlbergcapital.com
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