GREENWICH, CT, Dec. 14, 2015 (GLOBE NEWSWIRE) -- Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR) ("FSFR" or "we") announces its financial results for the fourth quarter and year ended September 30, 2015.
Fourth Fiscal Quarter 2015 Financial Highlights
- Net investment income for the quarter ended September 30, 2015 was $7.4 million or $0.25 per share, as compared to $2.3 million or $0.13 per share for the quarter ended September 30, 2014;
- Net asset value per share was $12.11 as of September 30, 2015; and
- We closed $103.7 million of investments during the quarter ended September 30, 2015.
Fiscal Year 2015 Financial Highlights
- Adjusted net investment income for the year ended September 30, 2015 (excluding a one-time debt securitization charge) was $29.5 million or $1.00 per share, as compared to $5.8 million or $0.62 per share for the year ended September 30, 2014. Including the one-time debt securitization charge, net investment income for the year ended September 30, 2015 was $28.3 million or $0.96 per share; and
- Net increase in net assets resulting from operations for the year ended September 30, 2015 was $15.9 million, or $0.54 per share, as compared to $9.4 million, or $1.01 per share, for the year ended September 30, 2014.
Portfolio and Investment Activity
Our Board of Directors determined the fair value of our investment portfolio at September 30, 2015 to be $623.6 million, as compared to $300.0 million at September 30, 2014. Total assets were $697.7 million at September 30, 2015, as compared to $412.5 million at September 30, 2014.
During the quarter ended September 30, 2015, we closed $103.7 million of investments in 25 new and one existing portfolio companies, and funded $108.7 million across new and existing portfolio companies. This compares to closing $139.9 million in 12 new and two existing portfolio companies and funding $140.0 million during the quarter ended September 30, 2014. During the quarter ended September 30, 2015, we also received $106.5 million in connection with full or partial payoffs of our debt investments, all of which were exited at or above par, and sales of debt investments.
At September 30, 2015, our portfolio consisted of investments in 64 companies. 90.7% of our portfolio at fair value consisted of senior secured floating rate debt investments, and 9.2% of the portfolio consisted of investments in the subordinated notes and LLC equity interests of FSFR Glick JV LLC ("FSFR Glick JV"). The portfolio remained diversified and our average portfolio company debt investment size at fair value was $9.7 million at September 30, 2015. The average portfolio company EBITDA was $62.5 million as of September 30, 2015, and investments in the energy sector represented only 0.7% of our portfolio at fair value.
As of September 30, 2015, FSFR Glick JV had $190.4 million in assets, including senior secured loans to 29 portfolio companies. The joint venture generated income of $1.7 million for FSFR during the fourth fiscal quarter, which represented a 12.4% weighted average annualized return on investment.
Our weighted average cash yield on debt investments, including the return on FSFR Glick JV, was 8.1% at September 30, 2015, which increased from 7.2% at September 30, 2014. We effectively utilized our attractively priced leverage and operated within our target range of 0.8x to 0.9x debt-to-equity during the quarter ended September 30, 2015.
"As part of our mission to deliver strong and sustainable performance for FSFR shareholders, we are pleased to announce that during the September quarter, FSFR generated net investment income in excess of its dividend, providing for additional operating flexibility,” stated Chief Executive Officer, Ivelin M. Dimitrov, adding, “We continue to operate within our target leverage range, building a diverse portfolio of senior secured loans with stable credit quality and limited exposure to cyclical industries, such as energy."
Results of Operations
Total investment income for the quarter ended September 30, 2015 was $14.1 million, primarily consisting of $11.7 million of interest income and $1.7 million of fee income from portfolio investments. For the quarter ended September 30, 2014, total investment income was $4.9 million, which consisted of $3.4 million of interest income and $1.5 million of fee income from portfolio investments.
Total investment income for the years ended September 30, 2015 and September 30, 2014 was $51.5 million and $12.5 million, respectively. For the year ended September 30, 2015, this amount primarily consisted of $41.1 million of interest income from portfolio investments and $9.7 million of fee income. For the year ended September 30, 2014, this amount primarily consisted of $10.5 million of interest income from portfolio investments and $2.0 million of fee income.
The increase in our total investment income for the year ended September 30, 2015, as compared to the year ended September 30, 2014, was primarily attributable to higher average levels of outstanding debt investments, which was principally due to a net increase of 16 debt investments in our portfolio year over year and an increase in fees related to investment activity, partially offset by amortization repayments received on our debt investments.
Net expenses for the quarters ended September 30, 2015 and September 30, 2014 were $6.7 million and $2.6 million, respectively. Net expenses for the years ended September 30, 2015 and September 30, 2014 were $23.2 million and $6.8 million, respectively. Net expenses increased for the year ended September 30, 2015 as compared to the year ended September 30, 2014 by $16.4 million. This was due primarily to increases in:
- Base management fee, which was attributable to $346.1 million of net funded deal originations during the year;
- Incentive fee, which was attributable to a $26.0 million increase in pre-incentive fee net investment income for the year-over-year period; and
- Interest expense, which was attributable to a $193.4 million increase in weighted average debt outstanding for the year-over-year period, as well as a one-time charge of $2.1 million related to a debt securitization that closed in May 2015.
The following table presents a reconciliation of net investment income to adjusted net investment income (excluding the one-time debt securitization charge) for the years ended September 30, 2015 and September 30, 2014:
| Year ended September 30, 2015 | Year ended September 30, 2014 | |||||
| Net investment income | $ | 28,278,030 | $ | 5,763,881 | ||
| Adjustment for one-time debt securitization charge, net of reduction in incentive fee | 1,246,287 | — | ||||
| Adjusted net investment income | $ | 29,524,317 | $ | 5,763,881 | ||
| Weighted average common shares outstanding - basic and diluted | 29,466,768 | 9,290,330 | ||||
| Adjusted net investment income per share | $ | 1.00 | $ | 0.62 | ||
Net realized and unrealized gains (losses) on our investment portfolio for the quarters ended September 30, 2015 and September 30, 2014 were ($7.1 million) and $2.1 million, respectively. Net realized and unrealized gains (losses) on our investment portfolio for the years ended September 30, 2015 and September 30, 2014 were ($12.4 million) and $3.6 million, respectively. For the quarter ended September 30, 2015, approximately half of the net losses on our portfolio were due to market movements, as increased volatility in loan prices driven by the market dislocation that occurred during the quarter negatively affected our investment valuations accordingly.
During our September 30, 2015 fiscal year-end audit work, we identified errors in the recognition of fee income since inception through 2015. These errors mainly affected the timing of fee income recognition and were partially offset by the net overpayment of Part I and Part II fees to our investment adviser. In aggregate over the two year period, we prematurely recognized $8.1 million in revenue and paid $1.5 million in Part I and Part II fees, which resulted in a cumulative overstatement to net investment income of $6.6 million. In addition, we understated our net assets by $1.5 million as of June 30, 2015. We assessed the materiality of the errors on our prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of our previously issued financial statements.
Under the SAB No. 99 and SAB No. 108 framework, we concluded the cumulative corrections of these errors would be qualitatively material to our quarterly financial statements within the 2015 fiscal year and, therefore, it is not appropriate to recognize the cumulative corrections in any 2015 period. Accordingly, we have revised our prior period financials to reflect the adjustments related to the fiscal years of 2013 and 2014, as well as the first three quarters of 2015.
The $1.5 million of cumulative premature payments of Part I and Part II fees will be fully refunded by the limited partners of Fifth Street Holdings LP, the owner of our investment adviser, by December 31, 2015, and the prior period financial impacts have been reflected in FSFR's September 30, 2015 Form 10-K.
Liquidity and Capital Resources
As of September 30, 2015, we had $52.7 million of cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $623.6 million, receivables from unsettled transactions of $13.5 million, payables from unsettled transactions of $11.8 million, $136.7 million of borrowings outstanding under our Citibank credit facility and $186.4 million of borrowings outstanding under our debt securitization.
As of September 30, 2014, we had $109.6 million of cash and cash equivalents (including restricted cash), portfolio investments (at fair value) of $300.0 million, distribution payable of $8.8 million and payables from unsettled transactions of $27.9 million.
Dividend Declaration
On November 30, 2015, our Board of Directors declared the following distributions:
- $0.075 per share, payable on December 22, 2015 to stockholders of record on December 11, 2015;
- $0.075 per share, payable on January 15, 2016 to stockholders of record on January 4, 2016; and
- $0.075 per share, payable on February 16, 2016 to stockholders of record on February 5, 2016.
Dividends are paid primarily from distributable (taxable) income. To the extent our taxable earnings for a fiscal taxable year fall below the total amount of our dividend distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders. 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.
Non-GAAP Financial Measures
Certain of the terms used in this press release, including Adjusted Net Investment Income, may not be comparable to similarly titled measures used by other companies. Further, Adjusted Net Investment Income is not a performance measure calculated in accordance with GAAP. Adjusted Net Investment Income has been included in this press release to adjust Net Investment Income, the most comparable GAAP financial measure, for certain one-time and non-recurring items. We use Adjusted Net Investment Income as a measure of our operating performance, not as a measure of liquidity. We believe that the use of Adjusted Net Investment Income provides investors with a meaningful indication of our core operating performance and the use of Adjusted Net Investment Income is evaluated regularly by our management as a decision tool for deployment of resources. The use of Adjusted Net Investment Income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analyzing our results prepared in accordance with GAAP due to the adjustments described herein. Please refer to the chart herein for a reconciliation of Net Investment Income to Adjusted Net Investment Income.
Portfolio Asset Quality
We utilize the following investment ranking system for our investment portfolio:
- Investment Ranking 1 is used for investments that are performing above expectations and/or capital gains are expected.
- Investment Ranking 2 is used for investments that are performing substantially within our expectations, and whose risks remain materially consistent with the potential risks at the time of the original or restructured investment. All new investments are initially ranked 2.
- Investment Ranking 3 is used for investments that are performing below our expectations and for which risk has materially increased since the original or restructured investment. The portfolio company may be out of compliance with debt covenants and may require closer monitoring.
- Investment Ranking 4 is used for investments that are performing substantially below our expectations and for which risk has increased substantially since the original or restructured investment. Investments with a ranking of 4 are those for which some loss of principal is expected and are generally those on which we are not accruing cash interest.
At September 30, 2015 and September 30, 2014, the distribution of our investments on the 1 to 4 investment ranking scale at fair value was as follows:
| Investment Ranking | September 30, 2015 | September 30, 2014 | ||||||||||||||||||
| Fair Value | % of Portfolio | Leverage Ratio | Fair Value | % of Portfolio | Leverage Ratio | |||||||||||||||
| 1 | — | — | — | — | — | — | ||||||||||||||
| 2 | $ | 596,955,786 | 95.72 | % | 4.71 | $ | 300,001,397 | 100.00 | % | 4.48 | ||||||||||
| 3 | 26,691,688 | 4.28 | 5.87 | — | — | — | ||||||||||||||
| 4 | — | — | — | — | — | — | ||||||||||||||
| Total | $ | 623,647,474 | 100.00 | % | 4.76 | $ | 300,001,397 | 100.00 | % | 4.48 | ||||||||||
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 September 30, 2015, we had modified the payment terms of our investments in two portfolio companies. 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.
We added one investment to noncash non-accrual status during the quarter ended September 30, 2015. While this investment was current with its cash interest payments, we reversed approximately $14,000 of OID income related to this investment for the quarter.
| Fifth Street Senior Floating Rate Corp. | ||||||||
| Consolidated Statements of Assets and Liabilities | ||||||||
| (audited) | ||||||||
| September 30, 2015 | September 30, 2014 | |||||||
| ASSETS | ||||||||
| Investments at fair value: | ||||||||
| Control investments (cost September 30, 2015: $58,977,973; cost September 30, 2014: $0) | $ | 57,156,921 | $ | — | ||||
| Non-control/Non-affiliate investments (cost September 30, 2015: $574,538,984; cost September 30, 2014: $297,098,712) | 566,490,553 | 300,001,397 | ||||||
| Total investments at fair value (cost September 30, 2015: $633,516,957; cost September 30, 2014: $297,098,712) | 623,647,474 | 300,001,397 | ||||||
| Cash and cash equivalents | 41,433,301 | 107,429,760 | ||||||
| Restricted cash | 11,258,796 | 2,127,405 | ||||||
| Interest, dividends and fees receivable | 2,783,379 | 1,120,010 | ||||||
| Due from portfolio companies | 11,587 | 200,840 | ||||||
| Receivables from unsettled transactions | 13,541,056 | — | ||||||
| Deferred financing costs | 5,001,675 | 1,625,932 | ||||||
| Other assets | 33,216 | — | ||||||
| Total assets | $ | 697,710,484 | $ | 412,505,344 | ||||
| LIABILITIES AND NET ASSETS | ||||||||
| Liabilities: | ||||||||
| Accounts payable, accrued expenses and other liabilities | $ | 1,964,249 | $ | 1,213,683 | ||||
| Base management fee payable | 1,656,205 | 475,437 | ||||||
| Part I incentive fee payable | 253,076 | 77,803 | ||||||
| Part II incentive fee payable | 145,898 | 912,450 | ||||||
| Due to FSC CT | 379,641 | 239,617 | ||||||
| Interest payable | 1,669,012 | 205,646 | ||||||
| Distributions payable | — | 8,840,030 | ||||||
| Payables from unsettled transactions | 11,809,500 | 27,863,000 | ||||||
| Credit facility payable | 136,659,800 | — | ||||||
| Notes payable | 186,366,000 | — | ||||||
| Total liabilities | 340,903,381 | 39,827,666 | ||||||
| Commitments and contingencies | ||||||||
| Net assets: | ||||||||
| Common stock, $0.01 par value, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding at September 30, 2015 and September 30, 2014 | 294,668 | 294,668 | ||||||
| Additional paid-in-capital | 373,995,934 | 374,101,816 | ||||||
| Net unrealized appreciation (depreciation) on investments | (9,869,483 | ) | 2,902,685 | |||||
| Net realized gain on investments | 1,800,070 | 1,115,453 | ||||||
| Accumulated overdistributed net investment income | (9,414,086 | ) | (5,736,944 | ) | ||||
| Total net assets (equivalent to $12.11 and $12.65 per common share at September 30, 2015 and September 30, 2014, respectively) | 356,807,103 | 372,677,678 | ||||||
| Total liabilities and net assets | $ | 697,710,484 | $ | 412,505,344 | ||||
| Fifth Street Senior Floating Rate Corp. | ||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||
| (audited) | ||||||||||||||||
| Three months ended September 30, 2015 | Three months ended September 30, 2014 | Year ended September 30, 2015 | Year ended September 30, 2014 | |||||||||||||
| Interest income: | ||||||||||||||||
| Control investments | $ | 1,015,914 | $ | — | $ | 1,770,130 | $ | — | ||||||||
| Non-control/Non-affiliate investments | 10,673,916 | 3,440,028 | 39,269,556 | 10,468,094 | ||||||||||||
| Interest on cash and cash equivalents | 12,344 | 6,319 | 28,571 | 8,889 | ||||||||||||
| Total interest income | 11,702,174 | 3,446,347 | 41,068,257 | 10,476,983 | ||||||||||||
| Fee income: | ||||||||||||||||
| Non-control/Non-affiliate investments | 1,709,630 | 1,471,506 | 9,673,649 | 2,039,691 | ||||||||||||
| Total fee income | 1,709,630 | 1,471,506 | 9,673,649 | 2,039,691 | ||||||||||||
| Dividend and other income: | ||||||||||||||||
| Control investments | 656,250 | — | 730,625 | — | ||||||||||||
| Total dividend and other income | 656,250 | — | 730,625 | — | ||||||||||||
| Total investment income | 14,068,054 | 4,917,853 | 51,472,531 | 12,516,674 | ||||||||||||
| Expenses: | ||||||||||||||||
| Base management fee | 1,656,205 | 630,312 | 5,931,155 | 1,757,492 | ||||||||||||
| Part I incentive fee | 1,854,021 | 652,762 | 5,689,371 | 708,235 | ||||||||||||
| Part II incentive fee | — | 468,727 | (766,552 | ) | 774,841 | |||||||||||
| Professional fees | 227,179 | 253,781 | 985,607 | 827,447 | ||||||||||||
| Board of Directors fees | 95,150 | 55,833 | 359,700 | 185,083 | ||||||||||||
| Interest expense | 2,196,506 | 442,768 | 8,950,703 | 1,555,767 | ||||||||||||
| Administrator expense | 218,382 | 153,272 | 794,725 | 514,861 | ||||||||||||
| General and administrative expenses | 418,344 | 118,080 | 1,249,792 | 583,942 | ||||||||||||
| Total expenses | 6,665,787 | 2,775,535 | 23,194,501 | 6,907,668 | ||||||||||||
| Base management fee waived | — | (154,875 | ) | — | (154,875 | ) | ||||||||||
| Net expenses | 6,665,787 | 2,620,660 | 23,194,501 | 6,752,793 | ||||||||||||
| Net investment income | 7,402,267 | 2,297,193 | 28,278,030 | 5,763,881 | ||||||||||||
| Realized and unrealized gain (loss) on investments: | ||||||||||||||||
| Control investments | (1,249,342 | ) | — | (1,821,052 | ) | — | ||||||||||
| Non-control/Non-affiliate investments | (5,865,593 | ) | 2,069,507 | (10,544,896 | ) | 3,600,076 | ||||||||||
| Net realized and unrealized gain (loss) on investments | (7,114,935 | ) | 2,069,507 | (12,365,948 | ) | 3,600,076 | ||||||||||
| Net increase in net assets resulting from operations | $ | 287,332 | $ | 4,366,700 | $ | 15,912,082 | $ | 9,363,957 | ||||||||
| Net investment income per common share — basic and diluted | $ | 0.25 | $ | 0.13 | $ | 0.96 | $ | 0.62 | ||||||||
| Earnings per common share — basic and diluted | $ | 0.01 | $ | 0.26 | $ | 0.54 | $ | 1.01 | ||||||||
| Weighted average common shares outstanding — basic and diluted | 29,466,768 | 17,075,464 | 29,466,768 | 9,290,330 | ||||||||||||
| Distributions per common share | $ | 0.18 | $ | 0.30 | $ | 1.07 | $ | 1.01 | ||||||||
Conference Call Information
We will hold a conference call at 11:00 a.m. (Eastern Time) on Tuesday, December 15, 2015, to discuss our fourth quarter and fiscal year end financial results. All interested parties are welcome to participate. Domestic callers can access the conference call by dialing (877) 369-6549. International callers can access the conference call by dialing +1 (330) 863-3349. All callers will need to enter the Conference ID Number 55957046 and reference "Fifth Street Senior Floating Corp." after being connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. An archived replay of the call will be available approximately four hours after the end of the conference call and will be available through December 23, 2015 to domestic callers by dialing (855) 859-2056 and to international callers by dialing +1 (404) 537-3406. For all replays, please reference Conference ID Number 55357046. An archived replay will also be available online on the "Investor Relations" section of FSFR's website under the "News & Events - Calendar of Events" section.
About Fifth Street Senior Floating Rate Corp.
Fifth Street Senior Floating Rate Corp. is a specialty finance company that provides financing solutions in the form of floating rate senior secured loans to mid-sized companies, primarily in connection with investments by private equity sponsors. FSFR's investment objective is to maximize its portfolio's total return by generating current income from its debt investments while seeking to preserve its capital. The company has elected to be regulated as a business development company and is externally managed by a subsidiary of Fifth Street Asset Management Inc. (NASDAQ:FSAM), a nationally recognized credit-focused asset manager with over $5 billion in assets under management across multiple public and private vehicles. With a track record of over 17 years, Fifth Street's platform has the ability to hold loans up to $250 million and structure and syndicate transactions up to $500 million. Fifth Street received the 2015 ACG New York Champion's Award for "Lender Firm of the Year," and other previously received accolades include the ACG New York Champion's Award for "Senior Lender Firm of the Year," "Lender Firm of the Year" by The M&A Advisor and "Lender of the Year" by Mergers & Acquisitions. FSFR's website can be found at fsfr.fifthstreetfinance.com.
Forward-Looking Statements
This press release may contain certain forward-looking statements, including statements with regard to the future performance of the company. Words such as "believes," "expects," "estimates," "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 the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.