Harvest Capital Credit Corporation (the “Company,” “we,” or
“our”) (NASDAQ: HCAP) announced financial results for its third
quarter ended September 30, 2020.
FINANCIAL HIGHLIGHTS
Nine Months Ended
Nine Months Ended
Q3-2020
Q3-2019
September 30, 2020
September 30, 2019
Amount
Per share
Amount
Per share
Amount
Per share
Amount
Per share
Net investment income
$854,861
$0.14
$1,072,328
$0.18
$2,046,716
$0.34
$2,675,506
$0.43
Core net investment income (1)
854,861
0.14
1,072,328
0.18
2,046,716
0.34
2,675,506
0.43
Net realized gains (losses) on
investments
226,344
0.04
(92,615)
(0.02)
(2,014,409)
(0.34)
(30,304)
—
Net change in unrealized appreciation
(depreciation) on investments
(1,464,008)
(0.25)
(2,022,875)
(0.33)
(4,852,417)
(0.81)
(3,541,262)
(0.58)
Net loss
($382,803)
($0.06)
($1,043,162)
($0.17)
($4,820,110)
($0.81)
($896,060)
($0.15)
Weighted average shares outstanding (basic
and diluted)
5,958,479
6,053,807
5,955,513
6,171,616
(1)
Core net investment income and core net investment income per share
are non-GAAP financial measures. For each of the three months ended
September 30, 2020 and 2019, there were no adjustments to GAAP net
investment income and GAAP net investment income per share to
arrive at core net investment income and core net investment income
per share.
PORTFOLIO ACTIVITY
September 30, 2020
December 31, 2019
Portfolio investments at fair value
$
95,981,268
$
116,809,390
Total assets
$
135,325,035
$
140,059,736
Net assets
$
60,619,074
$
66,781,482
Shares outstanding
5,958,479
5,945,854
Net asset value per share
$
10.17
$
11.23
Nine Months Ended
Nine Months Ended
Q3-2020
Q3-2019
September 30, 2020
September 30, 2019
Portfolio activity during the period:
New debt investments
$
964,812
$
14,633,066
$
2,219,812
$
50,895,354
New equity investments
$
31,732
$
597,579
$
231,732
$
3,737,138
Exits of debt investments
$
(7,956,707)
$
(6,967,480)
$
(17,053,159)
$
(21,438,059)
Exits of equity investments
$
(186,970)
$
—
$
(289,391)
$
(206,435)
Principal repayments
$
(1,915,147)
$
(1,088,225)
$
(3,661,280)
$
(6,183,061)
Net activity
$
(9,062,280)
$
7,174,940
$
(18,552,286)
$
26,804,937
September 30, 2020
December 31, 2019
Number of portfolio companies
22
25
Number of debt investments
16
20
Weighted average yield of debt and other
income producing investments (1):
Cash
10.6
%
12.0
%
PIK
1.5
%
1.1
%
Fee amortization
0.5
%
0.9
%
Total
12.6
%
14.0
%
Weighted average yield on total
investments (2):
Cash
7.2
%
9.7
%
PIK
1.0
%
0.9
%
Fee amortization
0.4
%
0.7
%
Total
8.6
%
11.3
%
(1)
The dollar-weighted average annualized effective yield is computed
using the effective interest rates for our debt investments and
other income producing investments, including cash and PIK interest
as well as the accretion of deferred fees. The individual
investment yields are then weighted by the respective fair values
of the investments (as of the date presented) in calculating the
weighted average effective yield of the portfolio as a percentage
of our debt and other income producing investments. The
dollar-weighted average annualized yield on the Company’s
investments for a given period will generally be higher than what
investors in our common stock would realize in a return over the
same period because the dollar-weighted average annualized yield
does not reflect the Company’s expenses or any sales load that may
be paid by investors. Infinite Care, LLC, General Nutrition
Centers, Inc., GK Holdings, Inc., and ProAir Holdings Corporation
were excluded from the calculation as of September 30, 2020 because
they were on non-accrual status as of that date. Infinite Care, LLC
and CP Holding Co., Inc. (Choice Pet) were excluded from the
calculation as of December 31, 2019 because they were on
non-accrual status as of that date.
(2)
The dollar-weighted average yield on total investments takes the
same yields but weights them to determine the weighted average
effective yield as a percentage of the Company's total investments.
The dollar-weighted average annualized yield on the Company's
investments for a given period will generally be higher than what
investors in our common stock would realize in a return over the
same period because the dollar-weighted average annualized yield
does not reflect the Company's expenses or any sales load that may
be paid by investors.
THIRD QUARTER AND YEAR TO DATE 2020 OPERATING RESULTS
For the three months ended September 30, 2020, the Company
recorded a net operating loss of $0.4 million, as compared to a net
operating loss of $1.0 million in the quarter ended September 30,
2019. The $0.6 million decrease in net operating loss between
comparable periods principally resulted from the Company recording
$0.9 million less in aggregate realized and unrealized losses on
investments between periods. This was offset by a reduction in
investment income earned on the Company's investment portfolio,
primarily attributable to a smaller income-earning portfolio, the
addition of three portfolio companies to non-accrual status earlier
in 2020, a lower weighted-average effective yield on the Company's
income-earning portfolio and an increase in interest expense
between periods. Operating loss was $0.06 and $0.17 per share for
the three months ended September 30, 2020 and 2019,
respectively.
Net investment income was $0.9 million, or $0.14 per share, for
the quarter ended September 30, 2020, compared to net investment
income of $1.1 million, or $0.18 per share, for the quarter ended
September 30, 2019, a decrease of $0.2 million in the third quarter
of 2020 compared to 2019. The decrease in net investment income
during the 2020 third quarter as compared to the 2019 third quarter
primarily resulted from a decrease of $0.3 million in investment
income between periods and an increase of $0.1 million in interest
expense, offset by a decrease of $0.2 million in other operating
expenses during the three months ended September 30, 2020 as
compared to the three months ended September 30, 2019.
For the nine months ended September 30, 2020, the Company
recorded a net operating loss of $4.8 million, compared to a net
operating loss of $0.9 million in the nine months ended September
30, 2019. Per share operating loss was $0.81 in the nine months
ended September 30, 2020 compared to an operating loss of $0.15 per
share in the nine months ended September 30, 2019. The $3.9 million
increase in operating loss between periods was primarily
attributable to a $0.6 million decrease in net investment income, a
$1.3 million increase in net unrealized depreciation on
investments, and a $2.0 million increase in net realized loss on
investments. The increase in unrealized depreciation during the
nine months ended September 30, 2020 as compared to the 2019 period
is primarily the result of the immediate adverse economic effects
of the COVID-19 pandemic and the continuing uncertainty surrounding
its long-term impact.
Net investment income was $2.0 million, or $0.34 per share, for
the nine months ended September 30, 2020, compared to net
investment income of $2.7 million, or $0.43 per share, for the nine
months ended September 30, 2019, a decrease of $0.7 million in the
first nine months of 2020 compared to the first nine months of
2019. The decrease in net investment income during the first nine
months of 2020 as compared to the first nine months of 2019
primarily resulted from a decrease of $0.4 million in investment
income and an increase in expenses of $0.2 million between
periods..
As of September 30, 2020, our total portfolio investments at
fair value and total assets were $96.0 million and $135.3 million,
respectively, compared to $116.8 million and $140.1 million at
December 31, 2019. Net asset value per share was $10.17 at
September 30, 2020, compared to $11.23 at December 31, 2019.
During the third quarter of 2020, the Company made two
additional investments in existing portfolio companies. The Company
had one portfolio investment payoff and one debt investment mature
during the three months ended September 30, 2020. The investment
activity for the quarter ended September 30, 2020 was as
follows:
New and Incremental Investments
On July 23, 2020, the Company increased its
debt investment in General Nutrition Centers, Inc., with a $1.0
million investment in the DIP New Money Term Loan.
On September 3, 2020, the Company increased
its equity investment in KC Engineering & Construction
Services, LLC with a $31,732 pro rata increase through one add-on
funding to purchase Class A Units.
Investment Sales and Payoffs
On September 28, 2020, the Company received a
$7.1 million repayment, at par, on its senior secured debt
investment in Kleen-Tech Acquisition, LLC and sold its warrants and
received proceeds of $0.6 million. The Company recorded $0.3
million in exit and prepayment fees related to this transaction.
The Company retained its equity investment. The Company generated
an internal rate of return (IRR*) of 27.5% on its investment.
On September 30, 2020, the Company's senior
secured revolving commitment in Back Porch International, Inc.
matured and was terminated. The position was unfunded.
* IRR is the rate of return that makes the net present value of
all cash flows into or from the investment equal to zero, and is
calculated based on the amount of each cash flow received or
invested by the Company and the day it was received or
invested.
"Our third quarter results exceeded expectations, in part due to
the payoff of Kleen-Tech, which accelerated our deferred fees into
the quarter," said Joseph Jolson, Chairman and CEO. "As we have
deleveraged our balance sheet, our net investment income will
continue to be adversely affected until we can grow our investment
portfolio. On a positive note, our net asset value per share was
relatively stable in the quarter and our weighted average risk
rating improved modestly despite the payoff of a larger 1-rated
credit in the period. In addition, one of our non-accrual loans,
GNC, emerged from bankruptcy in mid-October with a substantial cash
payment to Harvest and a new performing loan. We remain hopeful
that we will make more progress in resolving the remaining 4-rated
credits in the next few quarters, assuming the economy continues to
gradually improve,” concluded Mr. Jolson.
CREDIT QUALITY
The Company employs various risk management and monitoring tools
to categorize and assess its investments. No less frequently than
quarterly, the Company applies an investment risk rating system
which uses a five-level numeric scale. In determining an investment
rating, Company management takes into account various aspects of a
company's performance during the measurement period and assigns an
investment rating to each aspect, which are then averaged. Such
averages may inform, but do not necessarily determine, the
investment rating assigned to a company. The following is a
description of the conditions associated with each investment
rating:
- Investment Rating 1 is used for investments that are performing
above expectations, and whose risks remain favorable compared to
the expected risk at the time of the original investment.
- Investment Rating 2 is used for investments that are performing
within expectations and whose risks remain neutral compared to the
expected risk at the time of the original investment. All new loans
are initially rated 2.
- Investment Rating 3 is used for investments that are performing
below expectations and that require closer monitoring, but where no
loss of return or principal is expected. Portfolio companies with a
rating of 3 may be out of compliance with financial covenants.
- Investment Rating 4 is used for investments that are performing
substantially below expectations and whose risks have increased
substantially since the original investment. These investments are
often in workout. Investments with a rating of 4 are those for
which there is an increased possibility of loss of return, but no
loss of principal is expected.
- Investment Rating 5 is used for investments that are performing
substantially below expectations and whose risks have increased
substantially since the original investment. These investments are
almost always in workout. Investments with a rating of 5 are those
for which loss of return and principal is expected.
As of September 30, 2020, the weighted average risk rating of
the debt investments in the Company's portfolio improved to 2.80
from 3.00 in the previous quarter. Also, as of September 30, 2020,
four of the Company’s sixteen debt investments were rated 1, three
investments were rated 2, four investments were rated 3, five
investments were rated 4, and no investments were rated 5. As of
September 30, 2020, four investments with a combined fair value of
$18.6 million were on non-accrual status.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, the Company had $37.7 million of cash
and restricted cash and was fully drawn on its $45.0 million senior
secured revolving credit facility. On October 1, 2020, the Company
repaid $27.6 million on the senior secured revolving credit
facility. The credit facility is secured by all of the Company’s
assets. The revolving period under the credit facility was
scheduled to end on October 31, 2020. However, on October 30, 2020,
the Company amended the credit facility to, among other things, (i)
extend the revolving period to January 31, 2021, until which date
the Company may receive additional advances at the discretion of
the lenders, and (ii) amend the definition of "debt service" under
the credit facility to exclude certain amounts from the calculation
of the Company's debt service coverage ratio for any period from
August 1, 2020 through December 31, 2020. Please see the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2020, as filed with the Securities and Exchange Commission on
November 5, 2020, for more information.
COVID-19 DEVELOPMENTS
The COVID-19 pandemic, and the related effects on the U.S. and
global economies, has had, and may continue to have, adverse
consequences for the business operations of some of the Company's
portfolio companies and has adversely affected, and threatens to
continue to adversely affect, the Company's operations and the
operations of HCAP Advisors. Given the dynamic nature of this
situation, the Company cannot reasonably estimate the full impact
of COVID-19 on its financial condition, results of operations or
cash flows in the future. However, the Company does expect that it
could have a material adverse impact on its future net investment
income, the fair value of its portfolio investments, and the
Company's results of operations and financial condition as well as
its portfolio companies. Please see the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2020, as filed
with the Securities and Exchange Commission on November 5, 2020,
for more information.
CONFERENCE CALL
The Company will host a conference call on Friday, November 6,
2020 at 11:00 a.m. Eastern Time to discuss its second quarter
results. All interested parties are invited to participate in the
conference call by dialing (888) 566-6060 (domestic) or (973)
200-3100 (international). Participants should enter the Conference
ID 8454508 when prompted.
ABOUT HARVEST CAPITAL CREDIT CORPORATION
Harvest Capital Credit Corporation (NASDAQ: HCAP) provides
customized financing solutions to privately held small and
mid-sized companies in the U.S., generally targeting companies with
annual revenues of less than $100 million and annual EBITDA of less
than $15 million. The Company’s investment objective is to generate
both current income and capital appreciation primarily by making
direct investments in the form of senior debt, subordinated debt
and, to a lesser extent, minority equity investments. Harvest
Capital Credit Corporation is externally managed and has elected to
be treated as a business development company under the Investment
Company Act of 1940. For more information about Harvest Capital
Credit Corporation, visit www.harvestcapitalcredit.com. However,
the contents of such website are not and should not be deemed to be
incorporated by reference herein.
Forward-Looking Statements
This press release contains forward-looking statements subject
to the inherent uncertainties in predicting future results and
conditions. Any statements that are not of historical fact
(including statements containing the words "believes", "plans",
"anticipates", "expects", "estimates", and similar expressions)
should also be considered to be forward-looking statements. Certain
factors could cause actual events, results and conditions to differ
materially from those discussed or projected in these
forward-looking statements, including, without limitation, changes
in our relationships and contractual arrangements with lenders and
changes in economic, market or other conditions, including with
respect to the impact of the COVID-19 pandemic and its effects on
the Company and its portfolio companies' results of operations and
financial condition. These factors are identified from time to time
in our filings with the Securities and Exchange Commission,
including our most recent annual report on Form 10-K and
subsequently filed quarterly reports on Form 10-Q. We undertake no
obligation to update such statements to reflect subsequent events,
except as may be required by law.
Harvest Capital Credit
Corporation
Consolidated Statements of Assets
and Liabilities
September 30,
December 31,
2020
2019
ASSETS:
Non-affiliated/non-control investments, at
fair value (cost of $51,191,614 at 9/30/20 and $61,379,670 at
12/31/19)
$
46,162,570
$
60,973,556
Affiliated investments, at fair value
(cost of $42,260,687 at 9/30/20 and $48,111,833 at 12/31/19)
41,006,699
47,431,234
Control investments, at fair value (cost
of $14,021,701 at 9/30/20 and $13,958,202 at 12/31/19)
8,811,999
8,404,600
Cash
8,406,656
11,199,083
Restricted cash
29,338,582
10,648,199
Interest receivable
652,593
663,191
Accounts receivable – other
478,499
184,804
Deferred financing costs
262,742
425,379
Other assets
204,695
129,690
Total assets
$
135,325,035
$
140,059,736
LIABILITIES:
Revolving line of credit
$
45,000,000
$
43,700,000
2022 Notes (net of deferred offering costs
and unamortized discount of $464,967 at 9/30/20 and $623,276 at
12/31/19)
28,285,033
28,126,724
Accrued interest payable
96,276
152,544
Accounts payable - base management
fees
512,047
593,266
Accounts payable - administrative
services
350,000
350,000
Accounts payable - accrued expenses
462,605
355,720
Total liabilities
74,705,961
73,278,254
Commitments and contingencies
NET ASSETS:
Common stock, $0.001 par value,
100,000,000 shares authorized, 6,600,444 issued and 5,958,479
outstanding at 9/30/20 and 6,587,819 issued and 5,945,854
outstanding at 12/31/19
6,601
6,588
Capital in excess of common stock
90,962,284
90,876,759
Treasury shares, at cost, 641,965 shares
at 9/30/20 and 12/31/19
(6,723,505
)
(6,723,505
)
Accumulated over distributed earnings
(23,626,306
)
(17,378,360
)
Total net assets
60,619,074
66,781,482
Total liabilities and net
assets
$
135,325,035
$
140,059,736
Common stock outstanding
5,958,479
5,945,854
Net asset value per common share
$
10.17
$
11.23
Harvest Capital Credit
Corporation
Consolidated Statements of
Operations
Three Months Ended September
30,
Nine Months Ended September
30,
2020
2019
2020
2019
Investment Income:
Interest:
Cash - non-affiliated/non-control
investments
$
967,288
$
1,416,656
$
3,598,978
$
4,247,511
Cash - affiliated investments
1,083,399
1,432,203
3,490,270
3,493,857
PIK - non-affiliated/non-control
investments
156,105
18,471
376,321
49,236
PIK - affiliated investments
136,526
187,334
436,381
569,447
Amortization of fees, discounts and
premiums
Non-affiliated/non-control investments
54,822
121,156
248,464
548,217
Affiliated investments
476,421
60,970
591,965
118,125
Total interest income
2,874,561
3,236,790
8,742,379
9,026,393
Other income
152,526
45,508
162,317
288,454
Total investment income
3,027,087
3,282,298
8,904,696
9,314,847
Expenses:
Interest expense – revolving line of
credit
351,436
224,712
1,012,455
327,493
Interest expense - unused line of
credit
25,551
74,586
115,052
268,470
Interest expense - deferred financing
costs
58,085
58,258
240,245
168,898
Interest expense - 2022 Notes
440,235
440,235
1,320,705
1,320,705
Interest expense - deferred offering costs
and discount
53,693
50,076
158,311
147,646
Total interest expense
929,000
847,867
2,846,768
2,233,212
Professional fees
151,246
198,360
608,570
1,016,240
General and administrative
229,934
235,277
709,622
726,849
Base management fees
512,046
578,466
1,643,020
1,613,040
Administrative services expense
350,000
350,000
1,050,000
1,050,000
Total expenses
2,172,226
2,209,970
6,857,980
6,639,341
Net Investment Income
854,861
1,072,328
2,046,716
2,675,506
Net realized gains (losses):
Non-Affiliated / Non-Control
investments
—
—
(2,176,202)
52,451
Affiliated investments
248,294
—
248,294
20,750
Control investments
(21,950)
(92,615)
(86,501)
(103,505)
Net realized gains (losses)
226,344
(92,615)
(2,014,409)
(30,304)
Net change in unrealized appreciation
(depreciation) on investments:
Non-Affiliated / Non-Control
investments
(858,707)
(2,759,004)
(4,622,927)
(3,448,583)
Affiliated investments
(1,191,301)
658,765
(573,390)
665,351
Control investments
586,000
77,364
343,900
(758,030)
Net change in depreciation on
investments
(1,464,008)
(2,022,875)
(4,852,417)
(3,541,262)
Total net unrealized and realized
losses on investments
(1,237,664)
(2,115,490)
(6,866,826)
(3,571,566)
Net increase (decrease) in net assets
resulting from operations
$
(382,803)
$
(1,043,162)
$
(4,820,110)
$
(896,060)
Net investment income per share
$0.14
$0.18
$0.34
$0.43
Net increase (decrease) in net assets
resulting from operations per share
($0.06)
($0.17)
($0.81)
($0.15)
Weighted average shares outstanding, basic
and diluted
5,958,479
6,053,807
5,955,513
6,171,616
© 2020 Harvest Capital Credit Corporation
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201106005045/en/
Investor & Media Relations Harvest Capital Credit
Corporation Joseph Jolson Chairman & Chief Executive Officer
(415) 835-8970 jjolson@harvestcaps.com William E. Alvarez, Jr.
Chief Financial Officer (212) 906-3589 balvarez@harvestcaps.com
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