UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 4, 2015 (November 4, 2015)
KCAP Financial, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 814-00735 | 20-5951150 |
| (State or other jurisdiction | (Commission File Number) | (I.R.S. Employer Identification No.) |
| of incorporation) | ||
295 Madison Avenue, 6th Floor
New York, NY 10017
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (212) 455-8300
Not applicable
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition
On November 4, 2015 the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
| Exhibit 99.1 | Press Release dated November 4, 2015 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: November 4, 2015 | KCAP Financial, Inc. | ||
| By: | /s/ Edward U. Gilpin | ||
| Name: Edward U. Gilpin | |||
| Title: Chief Financial Officer | |||
Exhibit 99.1
KCAP Financial, Inc. Announces Third Quarter 2015 Financial Results
NEW YORK, Nov. 4, 2015 – KCAP Financial, Inc. (Nasdaq GS: KCAP) announces its third quarter 2015 financial results.
Financial Highlights
| · | Net investment income for the third quarter ended September 30, 2015 was approximately $6.5 million, or $0.18 per basic share, compared with approximately $5.5 million, or $0.16 per basic share in the quarter ended September 30, 2014. |
| · | Taxable distributable income for the quarter was $0.21 per basic share. |
| · | Cash distributed by the Asset Manager Affiliates in excess of taxable earnings was $0.02 per basic share for the quarter. |
| · | Resources available for distribution, a non-GAAP measure, was $0.23 per basic share during the quarter. |
| · | KCAP Financial, Inc. declared a third quarter shareholder distribution of $0.21 per share. |
| · | At September 30, 2015, the fair value of KCAP's investments totaled approximately $437 million. |
| · | Net Asset Value (“NAV”) per share was $6.33 as of September 30, 2015, compared with $6.94 at December 31, 2014. |
| Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted: “We are pleased with our operating performance, generating $0.23 per share of resources available for distribution. Our reduction in NAV reflects the sell-off in credit markets in September, which appears to have stabilized.” |
Operating Results
For the three months ended September 30, 2015, we reported total investment income of approximately $11.8 million as compared to approximately $10.8 million in the same period last year, an increase of 9%. Investment income from debt securities increased 17% to approximately $6.3 million from approximately $5.4 million in the third quarter 2014. Investment income from investments in CLO fund securities in the third quarter of 2015 increased to $3.9 million from $3.6 million in 2014, an increase of 8%, and dividends from our Asset Manager Affiliates in the third quarter of 2015 increased to approximately $1.5 million from approximately $1.4 million in 2014.
For the three months ended September 30, 2015, total expenses were relatively flat compared to the same period in 2014.
Net investment income for the third quarter of 2015 and 2014 was approximately $6.5 million and $5.5 million, or $0.18 and $0.16 per basic share, respectively. Net realized and unrealized depreciation on investments for the three months ended September 30, 2015 was approximately $22.4 million, as compared to net realized and unrealized appreciation of approximately $2.7 million for the same period in 2014.
Portfolio and Investment Activity
The fair value of our portfolio was approximately $437 million as of September 30, 2015. The composition of our investment portfolio at September 30, 2015 and December 31, 2014 at cost and fair value was as follows:
| September 30, 2015 (unaudited) | December 31, 2014 | |||||||||||||||||||||||
| Security Type | Cost | Fair Value | %¹ | Cost | Fair Value | %¹ | ||||||||||||||||||
| Money Market Accounts³ | $ | 3,345,723 | $ | 3,345,723 | 1 | $ | 1,602,741 | $ | 1,602,741 | 1 | ||||||||||||||
| Senior Secured Loan | 211,441,566 | 204,189,144 | 86 | 220,965,922 | 218,329,860 | 86 | ||||||||||||||||||
| Junior Secured Loan | 41,204,786 | 39,795,980 | 17 | 38,664,199 | 38,569,006 | 15 | ||||||||||||||||||
| Senior Unsecured Loan | 23,000,000 | 23,000,000 | 10 | 33,066,984 | 33,066,984 | 13 | ||||||||||||||||||
| First Lien Bond | 2,976,651 | 2,317,500 | 1 | 2,962,507 | 2,580,000 | 1 | ||||||||||||||||||
| Senior Subordinated Bond | 4,420,467 | 4,221,543 | 2 | 4,295,544 | 4,240,301 | 2 | ||||||||||||||||||
| Senior Unsecured Bond | 11,698,340 | 10,597,995 | 5 | 11,208,178 | 11,386,218 | 4 | ||||||||||||||||||
| Senior Secured Bond | 1,511,590 | 1,481,250 | 1 | 1,515,584 | 1,552,500 | 1 | ||||||||||||||||||
| CLO Fund Securities | 86,288,448 | 66,720,782 | 28 | 90,889,190 | 77,514,901 | 30 | ||||||||||||||||||
| Equity Securities | 8,514,487 | 6,936,653 | 3 | 8,828,812 | 8,119,681 | 3 | ||||||||||||||||||
| Preferred Securities | 10,359,873 | 10,681,029 | 5 | 10,206,016 | 10,418,302 | 4 | ||||||||||||||||||
| Asset Manager Affiliates² | 57,189,159 | 64,121,000 | 27 | 60,292,677 | 72,326,000 | 28 | ||||||||||||||||||
| Total | $ | 461,951,090 | $ | 437,408,599 | 186 | % | $ | 484,498,354 | $ | 479,706,494 | 188 | % | ||||||||||||
| ¹ Represents percentage of Net Asset Value. | ||||||||||||||||||
| ² Represents the equity investment in the Asset Manager Affiliates. | ||||||||||||||||||
| ³ Includes restricted cash held under employee benefit plans. | ||||||||||||||||||
Liquidity and Capital Resources
At September 30, 2015, we had unrestricted cash and money market balances of approximately $4.9 million, total assets of approximately $456.9 million and stockholders' equity of approximately $234.6 million. Our Net Asset Value per common share was $6.33. As of September 30, 2015, we had $222.4 million (par value) of borrowings outstanding ($219.3 million net of discount) with a weighted average interest rate of approximately 4.37%.
Subject to prevailing market conditions, we may grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. As a result, we may seek to enter into new agreements with other lenders or into other financing arrangements as market conditions permit. Such financing arrangements may include a new secured and/or unsecured credit facility or the issuance of unsecured debt or preferred stock.
Distributions
Generally, we seek to fund distributions to shareholders from current distributable resources, primarily from net investment income generated by our investment portfolio. We announced a regular quarterly distribution of $0.21 per share for the quarter ended September 30, 2015. The record date for this distribution was October 14, 2015 and the distribution was paid on October 27, 2015. An estimate of the tax attributes of distributions made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year.
We have adopted a dividend reinvestment plan that provides for reinvestment of distributions in shares of our common stock, unless a stockholder elects to receive cash. As a result, if we declare a cash distribution, shareholders who have not "opted out" of our dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving cash. For more information regarding our distributions, please refer to our 2014 annual financial report. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.
Supplemental Information: Analysis of Shareholder Distributions
On a supplemental basis, we are providing information relating to our shareholder distributions. The Company believes that taxable distributable income as reported in our financial statement footnotes is an important measure for investors. The Company may not distribute all of its taxable distributable income, or may over-distribute during any period.
The following table¹ depicts the composition of shareholder distributions on a per share basis for the three and nine months ended September 30, 2015 and 2014:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2015¹ | 2014¹ | 2015¹ | 2014¹ | |||||||||||||
| Net investment income | $ | 0.18 | $ | 0.16 | $ | 0.51 | $ | 0.44 | ||||||||
| Tax Accounting Difference on CLO Equity Investments | 0.01 | 0.03 | 0.04 | 0.14 | ||||||||||||
| Other tax accounting differences | 0.02 | - | 0.02 | 0.01 | ||||||||||||
| Taxable distributable income | 0.21 | 0.20 | 0.57 | 0.59 | ||||||||||||
| Cash distributed to the Company by Asset Manager Affiliates in excess of their taxable earnings | 0.02 | 0.05 | 0.08 | 0.15 | ||||||||||||
| Available for distribution² | 0.23 | 0.25 | 0.66 | 0.74 | ||||||||||||
| Distributed | $ | 0.21 | $ | 0.25 | $ | 0.63 | $ | 0.75 | ||||||||
| Difference | $ | 0.02 | $ | - | $ | 0.03 | $ | (0.01 | ) | |||||||
| ¹ | Table may not foot due to rounding. | |||||||||||||||
| ² | The "Available for distribution" financial measure is a non-GAAP financial measure that is calculated by including the cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings to the Company's taxable distributable income, which is the most directly comparable GAAP financial measure. In order to reconcile the "Available for distribution financial measure to taxable distributable income per share in accordance with GAAP, the $0.02 and $0.08 per share of cash distributed to the Company by the Asset Manager Affiliates in excess of their taxable earnings is subtracted from the "Available for distribution" financial measure for the three and nine months ended September 30, 2015, respectively. The Company's management believes that the presentation of the non-GAAP "Available for distribution" financial measure provides useful information to investors. | |||||||||||||||
Conference Call and Webcast
We will hold a conference call on Thursday, November 5, 2015 at 9:00 am Eastern Time to discuss our third quarter 2015 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 (866) 757-5630. No password is required. A live audio webcast of the conference call can be accessed via the Internet, on a listen-only basis on our Company's website www.kcapfinancial.com in the Investor Relations section under Events. The online archive of the webcast will be available after 7:00 p.m. Eastern Time for approximately 90 days.
A replay of this conference call will be available from 12:00 pm on November 5, 2015 until 11:59 pm Eastern time on November 12, 2015. The dial in number for the replay is (855) 859-2056 and the conference ID is 70751753.
About KCAP Financial, Inc.
KCAP Financial, Inc. is a publicly traded, internally managed business development company. The Company's middle market investment business originates, structures, finances and manages a portfolio of term loans, mezzanine investments and selected equity securities in middle market companies. The Company's wholly owned portfolio companies, Trimaran Advisors, L.L.C. and Katonah Debt Advisors, L.L.C., manage collateralized debt obligation funds that invest in broadly syndicated corporate term loans, high-yield bonds and other credit instruments.
The KCAP Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3121
Forward Looking Statements
This press release contains forward-looking statements. The matters discussed in this press release 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. 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 FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2015 | As of December 31, 2014 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value: | ||||||||
| Money market accounts (cost: 2015 - $3,345,723; 2014 - $1,602,741) | $ | 3,345,723 | $ | 1,602,741 | ||||
| Debt securities (cost: 2015 - $306,613,274; 2014 - $322,884,934) | 296,284,441 | 320,143,170 | ||||||
| CLO Fund securities managed by affiliates (cost: 2015 - $80,790,584; 2014 - $85,355,897) | 63,682,491 | 74,139,696 | ||||||
| CLO Fund securities managed by non-affiliates (cost: 2015 - $5,497,863; 2014 - $5,533,293) | 3,038,291 | 3,375,206 | ||||||
| Equity securities (cost: 2015 - $8,514,487; 2014 - $8,828,812) | 6,936,653 | 8,119,681 | ||||||
| Asset Manager Affiliates (cost: 2015 - $57,189,159; 2014 - $60,292,677) | 64,121,000 | 72,326,000 | ||||||
| Total Investments at Fair Value (cost: 2015 - $461,951,090; 2014 - $484,498,354) | 437,408,599 | 479,706,494 | ||||||
| Cash | 1,566,274 | 1,220,798 | ||||||
| Restricted cash | 8,334,124 | 19,325,550 | ||||||
| Interest receivable | 2,229,547 | 1,748,821 | ||||||
| Due from affiliates | 2,634,589 | 3,027,409 | ||||||
| Other assets | 4,735,669 | 5,417,725 | ||||||
| Total Assets | $ | 456,908,802 | $ | 510,446,797 | ||||
| LIABILITIES | ||||||||
| Convertible Notes | $ | 33,647,000 | $ | 38,647,000 | ||||
| 7.375% Notes Due 2019 | 41,400,000 | 41,400,000 | ||||||
| Notes issued by KCAP Senior Funding I, LLC (net of discount: 2015 - $3,060,315; 2014 - $3,512,407) | 144,289,685 | 143,837,593 | ||||||
| Payable for open trades | — | 18,293,725 | ||||||
| Accounts payable and accrued expenses | 1,797,885 | 2,166,400 | ||||||
| Accrued interest payable | 860,939 | 1,566,255 | ||||||
| Payable to officers and directors | — | 107,750 | ||||||
| Due to affiliates | 313,411 | 31,000 | ||||||
| Shareholder distribution payable | — | 9,080,373 | ||||||
| Total Liabilities | 222,308,920 | 255,130,096 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 8) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,088,923 issued, and 37,052,575 outstanding at September 30, 2015, and 36,775,127 common shares issued and outstanding at December 31, 2014 | 370,526 | 367,751 | ||||||
| Capital in excess of par value | 364,371,732 | 362,411,830 | ||||||
| Excess distribution of net investment income | (22,013,276 | ) | (25,579,865 | ) | ||||
| Accumulated net realized losses | (81,788,040 | ) | (75,512,134 | ) | ||||
| Net unrealized depreciation on investments | (26,121,123 | ) | (6,370,881 | ) | ||||
| Treasury stock at cost | (219,937 | ) | — | |||||
| Total Stockholders' Equity | 234,599,882 | 255,316,701 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 456,908,802 | $ | 510,446,797 | ||||
| NET ASSET VALUE PER COMMON SHARE | $ | 6.33 | $ | 6.94 | ||||
| KCAP FINANCIAL, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Investment Income: | ||||||||||||||||
| Interest from investments in debt securities | $ | 6,302,777 | $ | 5,391,997 | $ | 18,380,536 | $ | 15,812,747 | ||||||||
| Interest from cash and time deposits | 2,726 | 831 | 7,084 | 2,341 | ||||||||||||
| Investment income on CLO Fund Securities managed by affiliates | 3,684,802 | 3,374,704 | 11,624,644 | 9,013,831 | ||||||||||||
| Investment income on CLO Fund Securities managed by non-affiliates | 196,965 | 230,529 | 821,042 | 829,203 | ||||||||||||
| Dividends from Asset Manager Affiliates | 1,547,069 | 1,424,415 | 4,196,483 | 4,181,347 | ||||||||||||
| Capital structuring service fees | 45,009 | 412,772 | 263,074 | 764,971 | ||||||||||||
| Total investment income | 11,779,348 | 10,835,248 | 35,292,863 | 30,604,440 | ||||||||||||
| Expenses: | ||||||||||||||||
| Interest and amortization of debt issuance costs | 3,007,283 | 2,891,724 | 8,965,252 | 8,775,697 | ||||||||||||
| Compensation | 892,119 | 1,431,825 | 3,022,393 | 3,921,913 | ||||||||||||
| Professional fees | 762,357 | 566,320 | 2,638,931 | 1,783,443 | ||||||||||||
| Insurance | 107,028 | 112,109 | 326,561 | 359,576 | ||||||||||||
| Administrative and other | 469,481 | 315,769 | 1,459,447 | 1,183,367 | ||||||||||||
| Total expenses | 5,238,268 | 5,317,747 | 16,412,584 | 16,023,996 | ||||||||||||
| Net Investment Income | 6,541,080 | 5,517,501 | 18,880,279 | 14,580,444 | ||||||||||||
| Realized And Unrealized Gains (Losses) On Investments: | ||||||||||||||||
| Net realized (losses) from investment transactions | (6,231,759 | ) | (2,141,591 | ) | (6,133,352 | ) | (1,896,806 | ) | ||||||||
| Net change in unrealized (depreciation) appreciation on: | ||||||||||||||||
| Debt securities | (6,334,456 | ) | 7,420,256 | (7,587,070 | ) | 7,919,575 | ||||||||||
| Equity securities | (605,432 | ) | 1,215,992 | (868,703 | ) | 1,435,014 | ||||||||||
| CLO Fund securities managed by affiliates | (261,695 | ) | (11,986,471 | ) | (5,891,498 | ) | (8,402,287 | ) | ||||||||
| CLO Fund securities managed by non-affiliates | (152,980 | ) | 3,100,201 | (301,488 | ) | 3,333,111 | ||||||||||
| Asset Manager Affiliates investments | (8,863,069 | ) | 5,110,585 | (5,101,483 | ) | 6,961,675 | ||||||||||
| Total net change in unrealized appreciation (depreciation) | (16,217,632 | ) | 4,860,563 | (19,750,242 | ) | 11,247,088 | ||||||||||
| Net realized and unrealized appreciation (depreciation) on investments | (22,449,391 | ) | 2,718,972 | (25,883,594 | ) | 9,350,282 | ||||||||||
| Realized losses on extinguishments of debt | (142,554 | ) | — | (142,554 | ) | — | ||||||||||
| Net (Decrease) Increase In Stockholders’ Equity Resulting From Operations | $ | (16,050,865 | ) | $ | 8,236,473 | $ | (7,145,869 | ) | $ | 23,930,726 | ||||||
| Net (Decrease) Increase In Stockholders' Equity Resulting from Operations per Common Share: | ||||||||||||||||
| Basic: | $ | (0.43 | ) | $ | 0.24 | $ | (0.19 | ) | $ | 0.71 | ||||||
| Diluted: | $ | (0.43 | ) | $ | 0.23 | $ | (0.19 | ) | $ | 0.68 | ||||||
| Net Investment Income Per Common Share: | ||||||||||||||||
| Basic: | $ | 0.18 | $ | 0.16 | $ | 0.51 | $ | 0.44 | ||||||||
| Diluted: | $ | 0.18 | $ | 0.16 | $ | 0.51 | $ | 0.43 | ||||||||
| Weighted Average Shares of Common Stock Outstanding—Basic | 37,046,906 | 33,746,159 | 36,923,212 | 33,497,934 | ||||||||||||
| Weighted Average Shares of Common Stock Outstanding—Diluted | 37,046,906 | 40,125,660 | 36,923,212 | 39,877,326 | ||||||||||||
KCAP-G
| CONTACT: | Jamie Lillis | |
| jlillis@soleburyir.com | ||
| (203) 428-3223 |