KCAP Kcap Financial, Inc.

KCAP Financial, Inc. (Nasdaq:KCAP) (“KCAP” or the “Company”) announces its full year 2017 financial results.Financial Highlights

• Net investment income for the year ended December 31, 2017 was approximately $11.0 million, or $0.30 per basic share, compared with $18.5 million, $0.50 per basic share in 2016. 
• Taxable distributable income for the year was $0.16 per basic share. 
• KCAP declared a fourth quarter shareholder distribution of $0.10 per share. 
• At December 31, 2017, the fair value of KCAP's investments totaled approximately $312.0 million. 
• Net asset value per share of $4.87 as of December 31, 2017, compared with $5.24 at December 31, 2016.

Dayl Pearson, President and Chief Executive Officer of KCAP Financial, Inc., noted, "We had a busy year in 2017 including taking action to significantly reduce leverage, adding dry powder to our balance sheet for new investments and increasing our middle market assets under management through our Joint Venture. At the same time, our Asset Manager Affiliates extended the life and increased the size of two managed CLOs and reduced the cost of capital of three managed CLOs. Business development efforts continued into 2018 as we recently closed a $50 million revolving credit facility with a syndicate of lenders.”Operating Results

For the year ended December 31, 2017, we reported total investment income of approximately $28.3 million as compared to approximately $36.2 million in the prior year, a decrease of 22%. Investment income from debt securities decreased 27% to approximately $15.1 million from approximately $20.8 million. Investment income from investments in CLO fund securities in 2017 decreased 16% to $11.2 million from $13.3 million in 2016, and dividends from our Asset Manager Affiliates decreased 67% from $1.4 million to $460,000.

For the year ended December 31, 2017, total expenses were lower by approximately $465,000 as compared to the same period in 2016, primarily attributable to a decrease in interest expense related to the lower average outstanding principal balance on our borrowings during 2017.

Net investment income for the years ended 2017 and 2016 was approximately $11.0 million and $18.5 million, or $0.30 and $0.50 per share, respectively. Net realized and unrealized depreciation on investments for the year ended 2017 was approximately $3.5 million, compared to net realized and unrealized depreciation on investments of $19.4 million for the same period in 2016.

Portfolio and Investment Activity

The fair value of our portfolio was approximately $312.0 million as of December 31, 2017. The composition of our investment portfolio at December 31, 2017 and December 31, 2016, at cost and fair value, was as follows:

		December 31, 2017									December 31, 2016
Security Type		Cost/Amortized Cost			Fair Value			%¹			Cost/Amortized Cost			Fair Value			%¹
Short-term investments²		$	77,300,320		$	77,300,320		26			$	28,699,269		$	28,699,269		8	%
Senior Secured Loan			48,337,900			44,960,146		14				207,701,078			200,322,152		55
Junior Secured Loan			62,561,913			58,941,300		19				37,251,776			35,444,440		10
Senior Unsecured Loan			12,777,283			12,777,283		4				—			—		—
First Lien Bond			—			—		—				3,060,919			1,089,338		—
Senior Secured Bond			1,502,374			1,518,750		—				1,506,461			1,487,400		—
CLO Fund Securities			72,339,032			51,678,673		17				76,851,317			54,174,350		15
Equity Securities			10,571,007			4,414,684		1				10,389,007			5,056,355		1
Asset Manager Affiliates³			52,591,230			38,849,000		12				55,341,230			40,198,000		11
Joint Venture			24,914,858			21,516,000		7				—			—		—
Total		$	362,895,917		$	311,956,156		100	%		$	420,801,057		$	366,471,304		100	%
¹  Represents percentage of total portfolio at fair value.
²  Includes money market accounts and U.S. treasury bills.
³  Represents the equity investment in the Asset Manager Affiliates.

Liquidity and Capital Resources

At December 31, 2017, we had unrestricted cash and short-term investments of approximately $79.3 million, total assets of approximately $319.8 million and stockholders' equity of approximately $181.8 million, and our net asset value per common share was $4.87. As of December 31, 2017, we had $104.4 million of borrowings outstanding ($101.4 million net of discount) with a weighted average interest rate of approximately 6.4%.

Distributions

Generally, we seek to fund distributions to shareholders from current distributable earnings, primarily from net interest and dividend income generated by our investment portfolio and any distributions from our Asset Manager Affiliates, which include Trimaran Advisors, L.L.C. and Katonah Debt Advisors, L.L.C.. However, a portion of distributions paid to shareholders may be a return of capital. We announced a regular quarterly distribution of $0.10 per share for the quarter ended December 31, 2017. The record date for this distribution was January 5, 2018 and the distribution was paid on January 25, 2018. Tax characteristics of all distributions paid by us in 2017 have been 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. Please contact your broker or other financial intermediary for more information regarding the dividend reinvestment plan.

Conference Call and Webcast

We will hold a conference call on Thursday, March 8, 2018 at 9:00 a.m. Eastern Time to discuss our full year 2017 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 p.m. on March 8, 2018 until 1:00 p.m. Eastern Time on March 16, 2018.  The dial in number for the replay is 855-859-2056 and the conference ID is 8157219.

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 ofDecember 31, 2017				As ofDecember 31, 2016
ASSETS
Investments at fair value:
Short-term investments (cost: 2017 - $77,300,320; 2016 - $28,699,269)			$	77,300,320			$	28,699,269
Debt securities (amortized cost: 2017 - $125,179,470; 2016 - $249,520,234)				118,197,479				238,343,330
CLO Fund Securities managed by affiliates (amortized cost: 2017 - $67,212,139; 2016 - $71,734,809)				49,488,393				51,908,784
CLO Fund Securities managed by non-affiliates (amortized cost: 2017 - $5,126,893; 2016 - $5,116,508)				2,190,280				2,265,566
Equity securities (cost: 2017 - $10,571,007; 2016 - $10,389,007)				4,414,684				5,056,355
Asset Manager Affiliates (cost: 2017 - $52,591,230; 2016 - $55,341,230)				38,849,000				40,198,000
Joint Venture (cost: 2017 - $24,914,858)				21,516,000				—
Total Investments at Fair Value (cost: 2017 - $362,895,917; 2016 - $420,801,057)				311,956,156				366,471,304
Cash				2,034,095				1,307,257
Restricted cash				—				8,528,298
Interest receivable				1,051,271				1,033,917
Receivable for open trades				2,993,750				2,950,658
Due from affiliates				1,243,493				612,854
Other assets				530,209				467,695
Total Assets			$	319,808,974			$	381,371,983
LIABILITIES
6.125% Notes Due 2022 (net of offering costs of: 2017-$2,734,248)			$	74,672,952			$	—
7.375% Notes Due 2019 (net of offering costs of: 2017 - $259,635; 2016 - $550,774)				26,740,365				32,980,151
Notes issued by KCAP Senior Funding I, LLC (net of discount and offering costs of: $2,286,425 and $2,459,156, respectively)				—				142,604,419
Payable for open trades				34,215,195				7,884,943
Accounts payable and accrued expenses				2,350,803				2,047,405
Accrued interest payable				—				930,086
Due to affiliates				25,083				54
Total Liabilities				138,004,398				186,447,058
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share, 100,000,000 common shares authorized; 37,507,402 issued, and 37,339,224 outstanding at December 31, 2017, and 37,282,296 issued, and 37,178,294 outstanding at December 31, 2016				373,392				371,783
Capital in excess of par value				329,789,716				353,404,155
Excess distribution of net investment income				(9,987,928	)			(14,630,319	)
Accumulated net realized losses				(86,031,799	)			(88,491,896	)
Net unrealized depreciation on investments				(52,338,805	)			(55,728,798	)
Total Stockholders' Equity				181,804,576				194,924,925
Total Liabilities and Stockholders' Equity			$	319,808,974			$	381,371,983
NET ASSET VALUE PER COMMON SHARE			$	4.87			$	5.24

KCAP FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
			For the Years Ended December 31,
			2017				2016				2015
Investment Income:
	Interest from investments in debt securities		$	15,063,193			$	20,828,916			$	24,101,257
	Interest from cash and time deposits			71,934				29,383				10,239
	Investment income on CLO Fund Securities managed by affiliates			10,807,490				12,642,625				14,691,428
	Investment income on CLO Fund Securities managed by non-affiliates			420,766				630,647				1,008,634
	Dividends from Asset Manager Affiliates			460,000				1,400,000				5,348,554
	Investment income from Joint Venture			949,037				—				—
	Capital structuring service fees			491,279				668,527				366,859
		Total investment income		28,263,699				36,200,098				45,526,971
Expenses:
	Interest and amortization of debt issuance costs			7,661,407				9,110,603				11,727,880
	Compensation			4,571,309				4,103,558				3,843,799
	Professional fees			2,942,059				2,391,038				3,520,461
	Insurance			347,175				412,764				433,561
	Administrative and other			1,722,618				1,692,140				1,818,480
		Total expenses		17,244,568				17,710,103				21,344,181
Net Investment Income				11,019,131				18,489,995				24,182,790
Realized And Unrealized Gains (Losses) On Investments:
	Net realized losses from investment transactions			(6,899,044	)			(6,167,467	)			(6,202,290	)
	Net change in unrealized (depreciation) appreciation on:
		Debt securities		4,194,914				2,492,707				(10,748,262	)
		Equity securities		(823,671	)			(4,413,354	)			(210,167	)
		CLO Fund Securities managed by affiliates		2,102,279				4,380,974				(12,990,404	)
		CLO Fund Securities managed by non-affiliates		(85,671	)			284,625				(977,483	)
		Asset Manager Affiliates investments		1,401,000				(15,933,000	)			(11,243,554	)
		Joint Venture investment		(3,398,858	)			—				—
	Total net appreciation (depreciation) from investment transactions			3,389,993				(13,188,048	)			(36,169,870	)
	Net realized and unrealized loss on investments			(3,509,051	)			(19,355,515	)			(42,372,160	)
	Realized losses on extinguishments of debt			(4,121,998	)			(174,211	)			(445,189	)
Net (Decrease) Increase In Stockholders’ Equity Resulting From Operations			$	3,388,082			$	(1,039,731	)		$	(18,634,559	)
	Net Increase (Decrease) in Stockholders' Equity Resulting from Operations per Common Share:
	Basic:		$	0.09			$	(0.03	)		$	(0.50	)
	Diluted:		$	0.09			$	(0.03	)		$	(0.50	)
	Net Investment Income Per Common Share:
	Basic:		$	0.30			$	0.50			$	0.65
	Diluted:		$	0.30			$	0.50			$	0.65
	Weighted Average Shares of Common Stock Outstanding—Basic			37,235,130				37,149,663				36,964,444
	Weighted Average Shares of Common Stock Outstanding—Diluted			37,235,130				37,149,663				36,964,444

KCAP-GCONTACT: Ted Gilpingilpin@kcapinc.com(212) 455-8300Source: KCAP Financial, Inc.News Provided by Acquire Media