BlackRock Kelso Capital Corporation Generates Net Investment Income Adjusted for Pro-Forma Incentive
BlackRock Kelso Capital Corporation Generates Net Investment Income Adjusted for Pro-Forma Incentive Management Fees of $0.27 Per Share and $1.08 Per Share for the Three Months and Year Ended December 31, 2012
Relative to Dividends Declared of $0.26 Per Share and $1.04 Per Share
NEW YORK--(BUSINESS WIRE)-- BlackRock Kelso Capital Corporation (NAS: BKCC) ("BlackRock Kelso Capital" or the "Company", "we", "us" or "our") announced today that its Board of Directors has declared a quarterly dividend of $0.26 per share payable on April 2, 2013 to stockholders of record as of March 19, 2013.
BlackRock Kelso Capital also announced financial results for the quarter and year ended December 31, 2012.
|Investment Portfolio: $1,070.7 million|
|Net Assets: $687.4 million|
|Indebtedness (borrowings under credit facility and senior secured notes): $346.9 million|
|Net Asset Value per share: $9.31|
|Net Asset Value per share (excluding all incentive management fees): $9.61|
|Portfolio Activity for the Quarter Ended December 31, 2012:|
|Cost of investments during period: $78.6 million|
|Sales, repayments and other exits during period: $111.3 million|
|Portfolio Activity for the Year Ended December 31, 2012:|
|Cost of investments during period: $317.1 million|
|Sales, repayments and other exits during period: $314.8 million|
|Number of portfolio companies at end of period: 47|
|Operating Results for the Quarter Ended December 31, 2012:|
|Net investment income per share: $0.11|
|Dividends declared per share: $0.26|
|Earnings per share: $0.02|
|Net investment income: $8.3 million|
|Net realized and unrealized losses: $6.6 million|
|Net increase in net assets from operations: $1.7 million|
|Net investment income per share, as adjusted1: $0.27|
|Earnings per share, as adjusted1: $0.18|
|Net investment income, as adjusted1: $20.1 million|
|Operating Results for the Year Ended December 31, 2012:|
|Net investment income per share: $1.00|
|Dividends declared per share: $1.04|
|Earnings per share: $0.78|
|Net investment income: $73.7 million|
|Net realized and unrealized losses: $16.3 million|
|Net increase in net assets from operations: $57.4 million|
|Net investment income per share, as adjusted1: $1.08|
|Earnings per share, as adjusted1: $0.85|
|Net investment income, as adjusted1: $79.2 million|
1 Non-GAAP basis financial measure. See Supplemental Information on page 9.
Portfolio and Investment Activity
During the three months ended December 31, 2012, we invested $78.6 million across two new and several existing portfolio companies. This compares to investing $141.0 million across three new and several existing portfolio companies for the three months ended December 31, 2011. Sales, repayments and other exits of investment principal totaled $111.3 million during the three months ended December 31, 2012, versus $86.1 million during the three months ended December 31, 2011. The two new originations during the quarter were as follows:
- During November 2012, we purchased $20.0 million of the senior secured notes of American Piping Products, Inc., a distributor of specialized heavy-wall seamless steel pipe, fittings and related products and services.
- During December 2012, we purchased $21.0 million of the senior subordinated notes of Higginbotham Insurance Agency, Inc., a generalist insurance broker which places property and casualty and life insurance, and provides risk management services. We also purchased 1,163 units of Higginbotham Investment Holdings, LLC for $1.5 million, representing a less than 1% ownership of the company.
In conjunction with the two investments this quarter, we recorded fees and discounts of $0.8 million. Additionally, each debt investment bears a fixed rate of interest, and all-in, our expected yield to maturity for these securities is 13.4% and 11.5%, respectively.
Given the current market conditions and our focus on capital preservation, we continued to be very selective during the quarter, resisting transactions where deal structures were weak, leverage was too high and returns were not adequate to compensate for risk. During the year ended December 31, 2012, we invested $317.1 million across six new and several existing portfolio companies. This compares to investing $401.5 million across twelve new and several existing portfolio companies for the year ended December 31, 2011. Sales, repayments and other exits of investment principal totaled $314.8 million during the year ended December 31, 2012, versus $249.1 million during the year ended December 31, 2011. In conjunction with the early repayments of certain of our investments throughout 2012, we recognized $14.6 million in fees and prepayment penalties.
At December 31, 2012, our portfolio consisted of 47 portfolio companies and was invested 52% in senior secured loans, 18% in senior secured notes 16% in unsecured or subordinated debt securities, 13% in equity investments, and 1% in cash and cash equivalents. Our average portfolio company investment at amortized cost, excluding investments below $5.0 million, was approximately $26.9 million at December 31, 2012 versus $24.0 million at the end of the prior year.
The weighted average yields of the debt and income producing equity securities in our portfolio at their current cost basis were 12.2% at December 31, 2012 and 11.9% at December 31, 2011. The weighted average yields on our senior secured loans and other debt securities at their current cost basis were 11.4% and 13.5%, respectively, at December 31, 2012, versus 12.0% and 11.4% at December 31, 2011. Yields exclude common equity investments, preferred equity investments with no stated dividend rate, short-term investments and cash and cash equivalents. In certain of our portfolio companies, we hold equity positions ranging from minority interests to majority stakes, which we expect will contribute to our investment returns over time.
At December 31, 2012, we had $9.1 million in cash and cash equivalents, $203.1 million available under our senior secured, multi-currency credit facility, and $0.4 million payable for investments purchased. Our leverage stood at 0.50 times at year end. As we continue to prudently evaluate potential new investments, we view our modestly leveraged balance sheet as a positive.
Results of Operations
Results comparisons are for the three months and years ended December 31, 2012 and 2011.
Our portfolio generated investment income of $37.9 million and $147.3 million, respectively, for the three months and year ended December 31, 2012, compared to $36.0 million and $131.5 million for the three months and year ended December 31, 2011. Of these totals, fee income for the three months and year ended December 31, 2012 was $4.4 million and $20.7 million, respectively, versus $5.5 million and $21.9 million for the three months and year ended December 31, 2011. Although our net portfolio was slightly smaller than a year ago, the average balance of our total investments at amortized cost was $1,099.3 million for the current year, compared to $1,021.3 million for the prior year. The higher average earning asset base as well as the slightly higher weighted average yields on the comparative portfolios are contributors to the increase in investment income over the prior year. Our current portfolio provides us with a stable base of net investment income regardless of new investment activity and associated fee income. Fee income also tends to be relatively consistent for our business, as illustrated in the annual amounts above.
Total expenses for the three months and year ended December 31, 2012 were $29.6 million and $73.6 million, respectively, versus $24.7 million and $58.6 million for the three months and year ended December 31, 2011. Of these totals, for the three months and year ended December 31, 2012, $5.6 million and $22.5 million, respectively, were base management fees, versus $5.3 million and $19.8 million for the three months and year ended December 31, 2011. The increases in the current periods reflect the appreciation in value of our portfolio, as total unrealized appreciation/(depreciation) in our portfolio moved from ($52.0) million at the 2011 year end to $20.8 million at the 2012 year end.
Incentive management fees for the three months and year ended December 31, 2012 were $17.3 million and $22.5 million, respectively, as compared to $11.9 million for the three months and year ended December 31, 2011. With respect to incentive management fees based on income, $17.0 million was earned for the annual 2012 period, versus $11.9 million for 2011. The year over year increase is due to an increase in the overall portfolio returns from 11.4% to 12.8%, the factor from which the income based incentive management fees are derived. These returns are computed from the period's distributable net income to shareholders as compared to the beginning of period net asset value. Of the current period totals and new this year, $2.5 million and $5.5 million, respectively, represent incentive management fees accrued based on a hypothetical capital gains calculation, as required by GAAP. A hypothetical liquidation is performed each quarter possibly resulting in an incentive management fee accrual if the amount is positive. It should be noted, however, that a fee so calculated and accrued is not due and payable, if at all, until the end of each measurement period, or every June 30.
Interest and credit facility related expenses were $4.7 million and $19.6 million, respectively, for the three months and year ended December 31, 2012, compared to $4.7 million and $16.6 million for the three months and year ended December 31, 2011. The increase in the 2012 period is mainly a result of increased borrowing levels, as average debt outstanding increased over $90 million from 2011 levels to an average of $381.5 million for 2012.
Expenses also consist of amortization of debt issuance costs, investment advisor expenses, professional fees, administrative services expense, director fees and miscellaneous other expenses.
Net Investment Income
Continuing our positive earnings momentum, net investment income totaled $8.3 million and $73.7 million, or $0.11 per share and $1.00 per share, respectively, for the three months and year ended December 31, 2012. For the three months and year ended December 31, 2011, net investment income totaled $11.3 million and $72.9 million, or $0.15 per share and $1.00 per share, respectively. Our portfolio continues to produce a stable amount of interest and dividend income relative to it's size, and the income based incentive management fee continues to be concentrated in the fourth quarter, producing an uncharacteristically low net investment income per share relative to that for the entire year. Had our incentive management fees been accrued ratably throughout the year rather than heavily weighted in the fourth quarter as is the result when applying GAAP, our net investment income, as adjusted, would have been $0.27 per share and $1.08 per share, respectively, for the three months and year ended December 31, 2012. Alternate presentations of net investment income per share adjusting to normalize this fourth quarter concentration can be found in the Supplemental table on page 9.
Net Realized Losses
Total net realized losses for the three months and year ended December 31, 2012 were $15.7 million and $89.1 million, respectively, compared to $7.5 million and $49.9 million for the three months and year ended December 31, 2011. Net realized losses for the year ended December 31, 2012 was the result of $87.9 million in net losses realized from the sales, repayments and other exits of our investments and $1.2 million in net losses realized on foreign currency transactions. Net realized loss on investments resulted primarily from the disposition of our debt and equity investments in Big Dumpster Acquisition, Inc. et al and American SportWorks LLC et al, and the restructuring of our equity investment in WBS Group Holdings, LLC. Nearly the entire net realized loss on investments represents amounts that had been reflected in net unrealized depreciation on investments in prior periods. Foreign currency losses mainly represent net losses on forward currency contracts used to mitigate the impact that changes in foreign exchange rates would have on our investments denominated in foreign currencies.
Net Unrealized Appreciation or Depreciation
For the three months and year ended December 31, 2012, the change in net unrealized appreciation on investments and foreign currency translation was an increase in net unrealized appreciation of $9.1 million and $72.8 million, respectively, versus $3.2 million and $53.9 million for the three months and year ended December 31, 2011. Net unrealized appreciation (depreciation) was $20.8 million at December 31, 2012 and ($52.0) million at December 31, 2011. For the three months ended December 31, 2012, while certain of our portfolio companies had strong performance, there was underperformance in certain others, but a modestly improved overall health of our investment portfolio. Removing the effects of reversals due to dispositions during the quarter, unrealized appreciation for the three months ended December 31, 2012 was relatively flat as compared to the prior quarter.
Net Increase in Net Assets from Operations
For the three months and year ended December 31, 2012, the net increase in net assets from operations was $1.7 million and $57.4 million, or $0.02 per share and $0.78 per share, respectively, compared to $7.0 million and $76.9 million, or $0.10 per share and $1.05 per share, for the three months and year ended December 31, 2011. As compared to the prior period, we continue to experience our historically reduced fourth quarter increase for two reasons. While we are earning a relatively stable net investment income, our current period increase in net assets was largely impacted by the fourth quarter concentration of our trailing four-fiscal quarter incentive management fees of $14.8 million. Also contributing to the usually large offset was our GAAP accrual of hypothetical capital gains incentive management fees of $2.5 million. Our net asset value per share for the years ending 2012 and 2011 was $9.31 and $9.58, respectively. Removing incentive management fees for the current year, our December 31st net asset value per share stands relatively consistent with the prior three quarters at $9.61.
Liquidity and Capital Resources
At December 31, 2012, we had approximately $9.1 million in cash and cash equivalents, $346.9 million in debt outstanding and, subject to leverage and borrowing base restrictions, $203.1 million available for use under our senior secured, multi-currency credit facility, which matures in December 2013. Relative to our $1.1 billion dollar portfolio at fair value, we continue to have sufficient debt capacity to grow our business. At December 31, 2012, we were in compliance with regulatory coverage requirements with an asset coverage ratio of 295% and were in compliance with all financial covenants under our debt agreements. Cash provided by (used in) operating activities for the years ended December 31, 2012 and 2011 was $68.3 million and ($87.1) million, respectively. In the near term, we expect to meet our liquidity needs through periodic add-on equity and debt offerings, use of the remaining availability under our credit facility and continued cash flows from operations. The primary use of funds will be investments in portfolio companies, reductions in debt outstanding and other general corporate purposes.
On February 19, 2013, we closed a private offering (the "Offering") of $100.0 million in aggregate principal amount of our 5.50% unsecured convertible senior notes due February 15, 2018 (the "Notes"). Net proceeds from the Offering were approximately $96.7 million. We have also granted the initial purchasers an option to purchase up to an additional $15.0 million in aggregate principal amount of the Notes to cover overallotments. The overallotment option was fully exercised on March 4, 2013. The Notes were only offered to qualified institutional buyers as defined in the Securities Act of 1933, as amended, pursuant to Rule 144A under the Securities Act. In certain circumstances and during certain periods, the Notes are convertible into cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. Interest on the Notes is due semi-annually in arrears, commencing on August 15, 2013. The proceeds from the Offering were used to reduce outstanding borrowings and for general corporate purposes, including investing in portfolio companies in accordance with our investment objective.
During March 2013, we received binding commitments from several lenders for a $350.0 million senior secured, multi-currency credit facility, subject to definitive documentation and closing, with a maturity date of March 2017.
On March 6, 2013, our Board of Directors declared a quarterly dividend of $0.26 per share, payable on April 2, 2013 to stockholders of record at the close of business on March 19, 2013.
We continue to remain focused on our dividend coverage. Our net investment income adjusted for pro-forma incentive management fees was $0.27 per share and $1.08 per share for the three months and year ended December 31, 2012, respectively. Relative to dividends declared of $0.26 per share and $1.04 per share for the same periods, we continued to earn our dividend in 2012.
Dividends declared to stockholders for the three months and year ended December 31, 2012 totaled $19.2 million, or $0.26 per share, and $76.6 million, or $1.04 per share, respectively. For the three months and year ended December 31, 2011, dividends declared to stockholders totaled $19.0 million, or $0.26 per share, and $80.4 million, or $1.10 per share, respectively. Tax characteristics of all dividends are reported to stockholders on Form 1099 after the end of the calendar year.
We have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code. To maintain our status as a RIC, we must distribute annually to our stockholders at least 90% of our investment company taxable income; and to avoid an excise tax imposed on RICs, we must distribute annually to our stockholders at least 98% of our ordinary income and 98.2% of our net capital gains. We have made, and intend to continue to make, timely distributions sufficient to satisfy the annual distribution requirements to maintain our qualification as a RIC. We also intend to make distributions of net realized capital gains, if any, at least annually. We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. We will accrue excise tax on estimated undistributed taxable income as required. There was no undistributed taxable income carried forward from 2012.
Dividend Reinvestment Plan
We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, stockholders' cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically "opt out" of the dividend reinvestment plan so as to receive cash dividends. With respect to our dividends paid to stockholders for the years ended December 31, 2012 and 2011, dividends reinvested pursuant to our dividend reinvestment plan totaled $5.6 million and $8.0 million, respectively.
Share Repurchase Plan
In 2008, our Board of Directors approved a share repurchase plan under which we may repurchase up to 2.5% of our outstanding shares of common stock from time to time in open market or privately negotiated transactions. In 2009, our Board of Directors approved an extension and increase to the plan which authorized us to repurchase up to an additional 2.5% of our outstanding shares of common stock. In May 2012, the repurchase plan was further extended through June 30, 2013, with 1,331,143 shares remaining authorized for repurchase. There were no purchases under the plan during the three months and year ended December 31, 2012. Since inception of the repurchase plan through December 31, 2012, we have purchased 1,425,507 shares of our common stock on the open market for $9.5 million, including brokerage commissions.
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that from time to time we may purchase shares of our common stock in the open market at prevailing market prices.
BlackRock Kelso Capital will host a webcast/teleconference at 4:30 p.m. (Eastern Time) on Thursday, March 7, 2013 to discuss its fourth quarter and full year 2012 financial results. All interested parties are welcome to participate. You can access the teleconference by dialing, from the United States, (800) 374-0176, or from outside the United States, (706) 679-3431, shortly before 4:30 p.m. and referencing the BlackRock Kelso Capital Corporation Conference Call (ID Number 73865774). A live, listen-only webcast will also be available via the investor relations section of www.blackrockkelso.com.
Both the teleconference and webcast will be available for replay by 6:30 p.m. on Thursday, March 7, 2013 and ending at midnight on Thursday, March 14, 2013. To access the replay of the teleconference, callers from the United States should dial (855) 859-2056 and callers from outside the United States should dial (404) 537-3406 and enter the Conference ID Number 73865774. To access the webcast, please visit the investor relations section of www.blackrockkelso.com.
PRIOR TO THE WEBCAST/TELECONFERENCE, AN INVESTOR PRESENTATION THAT COMPLEMENTS THE EARNINGS CONFERENCE CALL WILL BE POSTED TO BLACKROCK KELSO CAPITAL'S WEBSITE WITHIN THE PRESENTATIONS SECTION OF THE INVESTOR RELATIONS PAGE (http://www.blackrockkelso.com/InvestorRelations/Presentations/index.htm).
|BlackRock Kelso Capital Corporation|
|Consolidated Statements of Assets and Liabilities|
|Investments at fair value:|
|Non-controlled, non-affiliated investments (cost of $849,028,227 and $959,635,127)||$||850,511,125||$||890,691,404|
|Non-controlled, affiliated investments (cost of $50,983,674 and $59,633,913)||67,750,172||71,035,799|
|Controlled investments (cost of $137,337,392 and $78,601,629)||143,336,244||87,225,239|
|Total investments at fair value (cost of $1,037,349,293 and $1,097,870,669)||1,061,597,541||1,048,952,442|
|Cash and cash equivalents||9,122,141||7,478,904|
|Cash denominated in foreign currencies (cost of $0 and $300,380)||—||300,089|
|Unrealized appreciation on forward foreign currency contracts||369,417||—|
|Receivable for investments sold||504,996||2,734,705|
|Prepaid expenses and other assets||4,375,527||6,740,517|
|Payable for investments purchased||$||440,243||$||421,597|
|Unrealized depreciation on forward foreign currency contracts||—||1,106,241|
|Dividend distributions payable||19,196,418||19,040,586|
|Base management fees payable||5,626,893||5,293,755|
|Incentive management fees payable||20,277,930||11,878,159|
|Accrued administrative services||277,000||144,625|
|Other accrued expenses and payables||4,692,562||3,689,331|
Common stock, par value $.001 per share, 200,000,000 common shares authorized,
75,257,888 and 74,636,091 issued and 73,832,381 and 73,210,584 outstanding
|Paid-in capital in excess of par||917,534,577||983,082,373|
|Distributions in excess of net investment income||(22,291,022||)||(26,165,703||)|
|Accumulated net realized loss||(219,270,607||)||(194,505,823||)|
|Net unrealized appreciation (depreciation)||20,808,162||(51,999,958||)|
|Treasury stock at cost, 1,425,507 and 1,425,507 shares held||(9,476,676||)||(9,476,676||)|
|Total Net Assets||687,379,692||701,008,849|
|Total Liabilities and Net Assets||$||1,090,017,870||1,091,175,327|
|Net Asset Value Per Share||$||9.31||$||9.58|
BlackRock Kelso Capital Corporation
Consolidated Statements of Operations (Unaudited)
December 31, 2012
December 31, 2011
December 31, 2012
December 31, 2011
Non-controlled, non-affiliated investments
|Non-controlled, affiliated investments||911,860||1,612,891||4,965,190||5,122,152|
|Total interest income||30,972,239||29,788,972||123,329,933||105,472,084|
|Non-controlled, non-affiliated investments||4,337,447||5,272,164||19,794,762||21,054,066|
|Non-controlled, affiliated investments||—||216,456||735,708||762,570|