Fifth StreetFifth Street

Investor Relations News Release

Fifth Street Finance Corp.
Printer Friendly Version View printer-friendly version
<< Back
Fifth Street Finance Corp. Announces Quarter Ended June 30, 2012 Financial Results

WHITE PLAINS, N.Y., Aug. 8, 2012 (GLOBE NEWSWIRE) -- Fifth Street Finance Corp. (Nasdaq:FSC) ("Fifth Street" or "we") announces its financial results for the third fiscal quarter ended June 30, 2012.

Third Quarter 2012 Financial Highlights

  • Net investment income for the quarter ended June 30, 2012 was $21.9 million or $0.27 per share, as compared to $16.5 million or $0.25 per share for the quarter ended June 30, 2011;
     
  • Net asset value per share was $9.85 as of June 30, 2012, as compared to $9.87 as of March 31, 2012;
     
  • Net unrealized appreciation for the quarter ended June 30, 2012 was $0.2 million or $0.00 per share, as compared to $18.5 million (including $14.0 million of reclassifications to realized losses) or $0.28 per share for the quarter ended June 30, 2011;
     
  • There were no net realized losses for the quarter ended June 30, 2012.  For the quarter ended June 30, 2011, $14.1 million or $0.21 per share of net realized losses were recognized; and
     
  • Net increase in net assets resulting from operations for the quarter ended June 30, 2012 was $22.1 million or $0.27 per share, as compared to $20.8 million or $0.31 per share for the quarter ended June 30, 2011.

Fourth Quarter 2012 and First Five Months of 2013 Dividend Declarations

Our Board of Directors has declared monthly dividends for the fourth fiscal quarter of 2012 and the first five months of fiscal year 2013 as follows:

  • $0.0958 per share, which was paid on July 31, 2012 to stockholders of record on July 13, 2012;
  • $0.0958 per share, payable on August 31, 2012 to stockholders of record on August 15, 2012;
  • $0.0958 per share, payable on September 28, 2012 to stockholders of record on September 14, 2012;
  • $0.0958 per share, payable on October 31, 2012 to stockholders of record on October 15, 2012;
  • $0.0958 per share, payable on November 30, 2012 to stockholders of record on November 15, 2012;
  • $0.0958 per share, payable on December 28, 2012 to stockholders of record on December 14, 2012;
  • $0.0958 per share, payable on January 31, 2013 to stockholders of record on January 15, 2013; and
  • $0.0958 per share, payable on February 28, 2013 to stockholders of record on February 15, 2013.

Portfolio and Investment Activity

Our Board of Directors determined the fair value of our portfolio at June 30, 2012 to be $1.20 billion, as compared to $1.12 billion at September 30, 2011. Total assets at June 30, 2012 were $1.32 billion, as compared to $1.21 billion at September 30, 2011.

During the quarter ended June 30, 2012, we closed $220.6 million of investments in 10 new and six existing portfolio companies, and funded $203.5 million across new and existing portfolio companies. This compares to closing $120.1 million of new investments and funding $119.2 million during the quarter ended June 30, 2011.  During the quarter ended June 30, 2012, we also received $55.1 million in connection with the exits of three of our portfolio companies, all of which were exited at or above par.

At June 30, 2012, our portfolio consisted of investments in 76 companies, 67 of which were completed in connection with investments by private equity sponsors and nine of which were in private equity funds. At fair value, 97.5% of our portfolio consisted of debt investments (69.4% were first lien loans, 11.1% were second lien loans and 17.0% were subordinated loans). Our average portfolio company investment size at fair value (excluding equity-only investments) was $19.3 million at June 30, 2012, versus $20.4 million at September 30, 2011.

"Our deal activity continued to grow last quarter, with the number of transactions increasing over second quarter levels, which strengthens our platform as we head towards the end of our 2012 fiscal year," stated Fifth Street's President, Bernard D. Berman.

Our weighted average yield on debt investments at June 30, 2012 was 12.13%, and included a cash component of 10.92%.

At June 30, 2012 and September 30, 2011, $795.3 million and $739.8 million, respectively, of our portfolio of debt investments at fair value were at floating rates, which represented 68.1% and 67.3%, respectively, of our total portfolio of debt investments at fair value.

Results of Operations

Total investment income for the quarters ended June 30, 2012 and June 30, 2011 was $41.0 million and $32.4 million, respectively. For the quarter ended June 30, 2012, this amount primarily consisted of $32.6 million of interest income from portfolio investments (which included $3.9 million of PIK interest). For the quarter ended June 30, 2011, total investment income primarily consisted of $29.0 million of interest income from portfolio investments (which included $3.6 million of PIK interest).

The increase in our total investment income for the quarter ended June 30, 2012 as compared to the quarter ended June 30, 2011 was primarily attributable to a higher average level of outstanding debt investments, which was principally due to a net increase of 10 debt investments in our portfolio and fee income related to debt payoffs, partially offset by amortization payments received and a decrease in the weighted average yield on our debt investments from 12.64% to 12.13% during the year-over-year period.

Expenses for the quarters ended June 30, 2012 and June 30, 2011 were $19.3 million and $15.9 million, respectively. Expenses increased during the quarter ended June 30, 2012 as compared to the quarter ended June 30, 2011 primarily due to increases in the base management fee, the incentive fee and interest expense.

Liquidity and Capital Resources

As of June 30, 2012, we had $105.7 million in cash and cash equivalents, portfolio investments (at fair value) of $1.20 billion, $5.9 million of interest and fees receivable, $150.0 million of SBA debentures payable, $228.5 million of borrowings outstanding under our credit facilities, $115.0 million of convertible senior notes payable and unfunded commitments of $96.0 million.

As of September 30, 2011, we had $67.6 million in cash and cash equivalents, portfolio investments (at fair value) of $1.12 billion, $6.8 million of interest and fees receivable, $150.0 million of SBA debentures payable, $178.0 million of borrowings outstanding under our credit facilities, $135.0 million of convertible senior notes payable and unfunded commitments of $108.8 million.

Calendar Year 2012 Dividends

For calendar year 2012, our Board of Directors has declared monthly dividends as follows:

  • $0.0958 per share, which was paid on January 31, 2012 to stockholders of record on January 13, 2012;
  • $0.0958 per share, which was paid on February 29, 2012 to stockholders of record on February 15, 2012;
  • $0.0958 per share, which was paid on March 30, 2012 to stockholders of record on March 15, 2012;
  • $0.0958 per share, which was paid on April 30, 2012 to stockholders of record on April 13, 2012;
  • $0.0958 per share, which was paid on May 31, 2012 to stockholders of record on May 15, 2012;
  • $0.0958 per share, which was paid on June 29, 2012 to stockholders of record on June 15, 2012;
  • $0.0958 per share, which was paid on July 31, 2012 to stockholders of record on July 13, 2012;
  • $0.0958 per share, payable on August 31, 2012 to stockholders of record on August 15, 2012;
  • $0.0958 per share, payable on September 28, 2012 to stockholders of record on September 14, 2012;
  • $0.0958 per share, payable on October 31, 2012 to stockholders of record on October 15, 2012;
  • $0.0958 per share, payable on November 30, 2012 to stockholders of record on November 15, 2012; and
  • $0.0958 per share, payable on December 28, 2012 to stockholders of record on December 14, 2012.

Dividends are paid primarily from distributable (taxable) income. Our Board of Directors determines dividends based on estimates of distributable (taxable) income, which differs from book income due to temporary and permanent differences in income and expense recognition and changes in unrealized appreciation and depreciation on investments.

Our dividend policy is based upon the following additional key principles:

  • Pay dividends consistent with our current and future earnings potential;
  • Set dividend rates that are projected to be stable and growing over time, reflecting confidence in our future financial performance; and
  • Provide clarity that we intend to cover our dividend payout level with net investment income.

Our amended dividend reinvestment plan provides for reinvestment of dividends, unless stockholders elect 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 are not 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 ranking system for our investment portfolio:

  • Investment Ranking 1 is used for investments that are performing above expectations and/or a capital gain is expected.
     
  • Investment Ranking 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 ranked 2.
     
  • Investment Ranking 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 ranking of 3 may be out of compliance with financial covenants.
     
  • Investment Ranking 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 Ranking 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 ranking of 5 are those for which some loss of principal is expected.

At June 30, 2012 and September 30, 2011, the distribution of our investments on the 1 to 5 investment ranking scale at fair value was as follows:

  June 30, 2012 September 30, 2011
Investment Ranking Fair Value (thousands) % of Portfolio Leverage Ratio Fair Value (thousands) % of Portfolio Leverage Ratio
             
1 $44,925 3.75% 2.07 $81,335 7.26% 3.16
2 1,133,015 94.57% 3.89 1,021,990 91.26% 3.87
3 3,549 0.30% NM(1)  8,660 0.77% NM(1) 
4 11,518 0.96% NM(1)  0.00%
5 5,090 0.42% NM(1)  7,852 0.71% NM(1)
Total $1,198,097 100.00% 3.83 $1,119,837 100.00% 3.82(1) 
(1)   Due 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 June 30, 2012, we had modified the payment terms of our investments in 14 portfolio companies. Such modified terms may 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.

As of June 30, 2012, we had stopped accruing cash and/or PIK interest and OID on four investments, three of which had not paid all of their scheduled cash interest payments for the period ended June 30, 2012. As of June 30, 2011, we had stopped accruing cash interest, PIK interest and OID on two investments that had not paid all of their scheduled cash interest payments for the period ended June 30, 2011.

Recent Developments

On August 6, 2012, our Board of Directors declared the following dividends:

  • $0.0958 per share, payable on October 31, 2012 to stockholders of record on October 15, 2012;
  • $0.0958 per share, payable on November 30, 2012 to stockholders of record on November 15, 2012;
  • $0.0958 per share, payable on December 28, 2012 to stockholders of record on December 14, 2012;
  • $0.0958 per share, payable on January 31, 2013 to stockholders of record on January 15, 2013; and
  • $0.0958 per share, payable on February 28, 2013 to stockholders of record on February 15, 2013.
Fifth Street Finance Corp.
 
Consolidated Statements of Assets and Liabilities
(in thousands, except per share data)
(unaudited)
     
  June 30, September 30,
  2012 2011
ASSETS    
Investments at fair value:    
Control investments (cost June 30, 2012: $15,542; cost September 30, 2011: $13,726) $14,916 $14,500
Affiliate investments (cost June 30, 2012: $1,080; cost September 30, 2011: $34,182) 2,444 25,897
Non-control/Non-affiliate investments (cost June 30, 2012: $1,203,770; cost September 30, 2011: $1,108,174) 1,180,737 1,079,440
Total investments at fair value (cost June 30, 2012: $1,220,392; cost September 30, 2011: $1,156,082) 1,198,097 1,119,837
Cash and cash equivalents 105,694 67,644
Interest and fees receivable 5,922 6,752
Due from portfolio company 449 552
Deferred financing costs 14,216 14,668
Collateral posted to bank and other assets 113 264
Total assets $1,324,491 $1,209,717
     
LIABILITIES AND NET ASSETS    
Liabilities:    
Accounts payable, accrued expenses and other liabilities $1,146 $1,175
Base management fee payable 6,094 5,710
Incentive fee payable 5,477 4,997
Due to FSC, Inc. 2,152 1,480
Interest payable 3,965 4,669
Payments received in advance from portfolio companies 36 35
Offering costs payable 9
Credit facilities payable 228,541 178,024
SBA debentures payable 150,000 150,000
Convertible senior notes payable 115,000 135,000
Total liabilities 512,420 481,090
Net assets:    
Common stock, $0.01 par value, 150,000 shares authorized, 82,462 and 72,376 shares issued and outstanding at June 30, 2012 and September 30, 2011 825 724
Additional paid-in-capital 930,188 829,620
Net unrealized depreciation on investments and interest rate swap (21,916) (35,976)
Net realized loss on investments and interest rate swap (90,904) (63,485)
Accumulated overdistributed net investment income (6,122) (2,256)
Total net assets (equivalent to $9.85 and $10.07 per common share at June 30, 2012 and September 30, 2011) 812,071 728,627
Total liabilities and net assets $1,324,491 $1,209,717
     
Fifth Street Finance Corp.
         
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
         
  Three  months Three  months Nine months Nine months
  ended ended ended ended
  June 30, June 30, June 30, June 30,
  2012 2011 2012 2011
Interest income:        
Control investments $2 $40 $434 $54
Affiliate investments 835 1,126 2,229 3,416
Non-control/Non-affiliate investments 27,822 24,271 85,131 61,963
Interest on cash and cash equivalents 11 4 29 17
         
Total interest income 28,670 25,441 87,823 65,450
         
PIK interest income:        
Control investments 211 105 249 239
Affiliate investments 158 278 467 835
Non-control/Non-affiliate investments 3,557 3,179 9,516 9,103
         
Total PIK interest income 3,926 3,562 10,232 10,177
         
Fee income:        
Control investments 127
Affiliate investments 377 283 630 550
Non-control/Non-affiliate investments 7,954 2,992 23,744 11,000
         
Total fee income 8,331 3,275 24,374 11,677
         
Dividend and other income:        
Non-control/Non-affiliate investments 81 164 154 174
         
Total dividend and other income 81 164 154 174
         
Total investment income 41,008 32,442 122,583 87,478
         
Expenses:        
Base management fee 6,094 5,381 17,226 13,946
Incentive fee 5,477 4,132 16,422 11,785
Professional fees 619 456 2,310 1,654
Board of Directors fees 30 46 156 132
Interest expense 5,611 4,977 16,936 9,640
Administrator expense 690 395 2,214 1,140
General and administrative expenses 807 529 3,201 2,043
         
Total expenses 19,328 15,916 58,465 40,340
         
Gain on extinguishment of convertible senior notes 230 1,571
         
Net investment income 21,910 16,526 65,689 47,138
         
Unrealized appreciation (depreciation) on interest rate swap (919)  51
Unrealized appreciation (depreciation) on investments:        
Control investments (2,493)  5,225 (1,404)  12,538
Affiliate investments 322 13,931 9,649 3,760
Non-control/Non-affiliate investments 2,350 215 5,815 18,573
         
Net unrealized appreciation on investments 179 19,371 14,060 34,871
         
Realized loss on investments:        
Control investments (7,806) 
Affiliate investments (14,146)  (10,620)  (14,146) 
Non-control/Non-affiliate investments (16,800)  (6,157) 
         
Net realized loss on investments (14,146) (27,420)  (28,109)
         
Net increase in net assets resulting from operations $22,089 $20,832 $52,329 $53,951
         
Net investment income per common share — basic $0.27 $0.25 $0.84 $0.77
Earnings per common share — basic $0.27 $0.31 $0.67 $0.88
Weighted average common shares outstanding — basic 82,421 67,081 78,089 61,254
Net investment income per common share — diluted $0.26 $0.24 $0.80 $0.76
Earnings per common share — diluted $0.26 $0.30 $0.64 $0.87
Weighted average common shares outstanding — diluted 90,279 76,020 86,325 64,233

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:
Dean Choksi, Senior VP of Finance & Head of Investor Relations
Fifth Street Finance Corp.
(914) 286-6855
ir@fifthstreetfinance.com

company logo

Fifth Street Finance Corp.