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Harvest Capital Credit Corporation Announces September 30, 2019 Financial Results and Declares Regular Monthly Distributions for October, November, December 2019 and January 2020

Harvest Capital Credit Corporation (the “Company,” “we,” or “our”) (NASDAQ: HCAP) announced financial results for its third quarter ended September 30, 2019 and that its Board of Directors declared distributions of $0.08 per share for each of the months of October, November, December of 2019 and January of 2020. The October distribution is payable on November 27, 2019 to shareholders of record on November 20, 2019. The November distribution is payable on December 27, 2019 to shareholders of record on December 20, 2019. The December distribution is payable on January 31, 2020 to shareholders of record on January 24, 2020. The January 2020 distribution is payable on February 28, 2020 to shareholders of record on February 21, 2020.*

*The Company's distributions may include a return of capital to shareholders to the extent that the Company's net investment income and net capital gains are insufficient to support the distributions. Distributions that are treated for tax purposes as a return of capital will reduce each shareholder's basis in his, her or its shares. Returns of shareholder capital also have the effect of reducing the Company's assets. Of the aggregate distributions declared and paid during the nine months ended September 30, 2019, and paid or to be paid subsequent to September 30, 2019, and through December 31, 2019, the Company estimates that, on a tax basis and subject to revision, those distributions will be derived from the following sources: (1) 80% ordinary income ($0.78 per share) and (2) 20% return of capital ($0.20 per share) based on distributions of $0.98 paid through December 31, 2019. The amount and source of these distributions, however, are estimates only and are provided solely pursuant to Section 19(a) of the 1940 Act. These estimates are not being provided for tax reporting purposes and should not be relied upon for tax reporting or any other purposes. The final determination of the amount and source of 2019 distributions will be made after the end of our fiscal year, will be reported to stockholders on Form 1099-DIV, and could differ significantly from these estimates.

FINANCIAL HIGHLIGHTS

Q3-19

Q3-18

YTD-19

YTD-18

Amount

Per share

Amount

Per share

Amount

Per share

Amount

Per share

Net investment income

$1,072,328

 

$0.18

$1,586,663

 

$0.25

$2,675,506

 

$0.43

$4,407,258

 

$0.69

Core net investment income (1)

1,072,328

 

0.18

1,586,663

 

0.25

2,675,506

 

0.43

4,407,258

 

0.69

Net realized gains (losses) on investments

(92,615)

 

(0.02)

120,175

 

0.02

(30,304)

 

(2)

(609,120)

 

(0.10)

Net change in unrealized depreciation on investments

(2,022,875)

 

(0.33)

(1,581,906)

 

(0.25)

(3,541,262)

 

(0.57)

(263,977)

 

(0.04)

Provision (benefit) for taxes on unrealized gains on investments

 

507,894

 

0.08

 

(15,584)

 

(2)

Net income (loss)

($1,043,162)

 

($0.17)

$632,826

 

$0.10

($896,060)

 

($0.15)

$3,518,577

 

$0.55

Weighted average shares outstanding (basic and diluted)

6,053,807

 

6,398,077

 

6,171,616

 

6,408,547

 

(1) Core net investment income and core net investment income per share are non-GAAP financial measures. For the quarters ending September 30, 2019 and 2018, respectively, 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.

(2) Rounds to less than $0.01 per share.

PORTFOLIO ACTIVITY

September 30, 2019

December 31, 2018

Portfolio investments at fair value

$

115,577,300

$

94,913,862

Total assets

$

134,920,998

$

125,319,701

Net assets

$

68,828,625

$

78,395,964

Shares outstanding

5,975,677

6,372,581

Net asset value per share

$

11.52

$

12.30

Q3-19

Q3-18

YTD-19

YTD-18

Portfolio activity during the period:

New debt investments

$

14,633,066

$

5,950,000

$

50,895,354

$

18,612,500

New equity investments

597,579

447,132

3,737,138

881,899

Exits of debt investments

(6,967,480

)

(12,250,109

)

(21,438,059

)

(19,147,825

)

Exits of equity investments

(950,000

)

(206,435

)

(1,357,133

)

Principal repayments

(1,088,225

)

(1,035,202

)

(6,183,061

)

(4,241,557

)

Net activity

$

7,174,940

$

(7,838,179

)

$

26,804,937

$

(5,252,116

)

September 30, 2019

December 31, 2018

Number of portfolio company investments

26

24

Number of debt investments

20

17

Weighted average yield of debt and other income producing investments (1):

Cash

12.1

%

12.5

%

PIK

0.9

%

1.0

%

Fee amortization

0.6

%

1.3

%

Total

13.6

%

14.8

%

Weighted average yield on total investments (2):

Cash

9.6

%

10.7

%

PIK

0.7

%

0.9

%

Fee amortization

0.4

%

1.1

%

Total

10.7

%

12.7

%

(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 was excluded from the calculation as of September 30, 2019 and December 31, 2018, and CP Holding Co., Inc. and Deluxe Entertainment Services Group, Inc. were excluded from the calculation as of September 30, 2019 because they were on non-accrual status on such dates.

 

(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 2019 OPERATING RESULTS

For the three months ended September 30, 2019, the Company recorded a net loss of $1.0 million, as compared to net income of $0.6 million in the quarter ended September 30, 2018. The decrease in net income principally resulted from the Company recording lower investment income as a result of a lower income earning portfolio and lower effective yield and an increase in unrealized depreciation offset by lower operating expenses. Per share earnings (loss) were ($0.17) and $0.10 per share for the three months ended September 30, 2019 and 2018, respectively.

Net investment income and core net investment income was $1.1 million, or $0.18 per share, for the quarter ended September 30, 2019, compared to net investment income and core net investment income of $1.6 million, or $0.25 per share, for the quarter ended September 30, 2018. For the three months ended September 30, 2019, the Company's net investment income and core net investment income decreased by $0.5 million compared to the quarter ended September 30, 2018. Net investment income decreased in the quarter ended September 30, 2019, as compared to the quarter ended September 30, 2018, primarily as a result of a decrease of $1.0 million in investment income, offset by the Company realizing lower expenses of $0.5 million during the three months ended September 30, 2019.

For the nine months ended September 30, 2019, the Company recorded a net loss of $0.9 million, a decrease of $4.4 million from $3.5 million of net income in the nine months ended September 30, 2018. The $4.4 million decrease was primarily attributable to a $2.8 million decrease in investment income, a $3.2 million increase in the change in unrealized depreciation, offset by a $0.6 million positive change in net realized gains, and a decrease in expenses of $1.0 million. Per share earnings (loss) were ($0.15) and $0.55 per share for the nine months ended September 30, 2019 and 2018, respectively.

Net investment income was $2.7 million, or $0.43 per share, for the nine months ended September 30, 2019, compared to net investment income of $4.4 million, or $0.69 per share, for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, the Company's net investment income decreased by $1.7 million compared to the nine months ended September 30, 2018. Net investment income decreased in the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily as a result of the Company recording $2.8 million of lower investment income resulting from lower investment income as a result of a lower income earning portfolio and lower effective yield, offset by lower expenses for the nine months ended September 30, 2019.

As of September 30, 2019, our total portfolio investments at fair value and total assets were $115.6 million and $134.9 million, respectively, compared to $94.9 million and $125.3 million at December 31, 2018. Net asset value per share was $11.52 at September 30, 2019, compared to $12.30 at December 31, 2018.

During the third quarter of 2019, the Company made investments in five companies totaling $15.2 million. Two of the investments were in new portfolio companies and three were additional investments in existing portfolio companies. The Company also had investment sales, payoffs and commitment expirations totaling $7.0 million during the three months ended September 30, 2019. The investment activity for the quarter ended September 30, 2019 was as follows:

New and Incremental Investments

On August 1, 2019, the Company made a $5.5 million last-out senior secured term loan to Surge Hippodrome Holdings LLC ("Hippodrome") and purchased 10.1% of common equity for $0.4 million. The Company also received warrants to purchase an additional 9.5% of common equity in Hippodrome worth $0.2 million on deal close. The last-out senior secured term loan carries an interest rate of LIBOR, plus 11.5%.

On September 6, 2019, the Company increased its senior secured debt investment in Infinite Care, LLC, with a $0.2 million increase in its revolver.

On September 9, 2019, the Company increased its debt investment in Deluxe Entertainment Services Group Inc. by participating in its pro-rata share of the senior secured priming delayed draw term loan for $0.5 million.

On September 17, 2019, the Company increased its senior secured debt investment in Slappey Communications, LLC, with a $1.0 million increase in its term loan.

On September 30, 2019, the Company made a $7.5 million senior secured debt investment in Back Porch International, Inc. The debt investment consists of a $7.0 million term loan and a $0.5 million revolver (unfunded at close). The loans carry interest rates of LIBOR plus 10.25% with a 2.25% LIBOR floor, plus 1.0% PIK for the term loan and LIBOR plus 8.0% with a 2.25% LIBOR floor for the revolver.

Investment Sales and Payoffs

On July 1, 2019, Peerless Media, LLC terminated its $0.5 million revolving line of credit facility with the Company. The Company generated an internal rate of return (IRR*) of 17.2% on its investment and retains the senior secured term loan investment.

On September 6, 2019, the Company received a $2.6 million repayment, at par, on its junior secured debt investment in Shannon Specialty Floors, LLC. The original par value of the debt investment was $4.0 million. The Company generated an internal rate of return (IRR*) of 13.81% on its investment.

On September 13, 2019, the Company received a $3.9 million repayment, at par, on its junior secured debt investment in Bradford Soap International. The original par value of the debt investment was $7.5 million. The Company generated an internal rate of return (IRR*) of 13.5% on its investment.

* 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.

"We showed some improvements in third quarter results as our investment portfolio has now grown for the third consecutive quarter and by almost 22% from December 2018 levels," said Joseph Jolson, Chairman and CEO. "Our progress on resolving our 4 and 5 rated credits has been frustratingly slow. We remain optimistic that the $12.1 million in currently non-interest earning assets will be contributing to our net investment income in the next year. We also completed the most recent 250k share repurchase authorization recently, and have bought nearly 8% of the shares outstanding during 2019 at prices that are immediately accretive to NAV and net investment income per share," 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 some 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 some loss of return and principal is expected.

As of September 30, 2019, the weighted average risk rating of the debt investments in the Company's portfolio increased slightly to 2.51 from 2.44 in the previous quarter. Also, as of September 30, 2019, three of the Company’s twenty debt investments were rated 1, twelve investments were rated 2, one investment was rated 3, two investments were rated 4, and two investments were rated 5. As of September 30, 2019, three investments with a combined fair value of $12.1 million were on non-accrual status.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2019, the Company had $17.8 million of cash and restricted cash and $3.8 million of undrawn capacity on its $55.0 million senior secured revolving credit facility. The credit facility is secured by all of the Company’s assets and has an accordion feature that allows the size of the facility to increase up to $85.0 million.

Additionally, the Company holds four syndicated debt investments totaling $12.5 million at fair value as of September 30, 2019. These investments could be sold and the proceeds re-invested in our core lower-middle market strategy, as attractive opportunities arise.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO SEPTEMBER 30, 2019

Since the end of the third quarter of 2019, the Company has repurchased 39,467 shares of its common stock at an average price of $9.99 per share. With those shares repurchased in the fourth quarter of 2019, the Company reached the 250,000 share limit under the stock repurchase program authorized by the Company's board of directors in May 2019.

On October 31, 2019, the Company increased the commitment of its junior secured term loan in Northeast Metal Works, LLC by $1.7 million. Northeast Metal Works, LLC used the proceeds to payoff its senior secured revolving line of credit with a third party lender and, as a result of this transaction, the Company's junior secured term loan is converted into a senior secured term loan.

On October 31, 2019, the Company sold its warrants in Fox Rent A Car, Inc. As part of the transaction, the Company received $0.2 million in cash, 11,959 shares of Europcar Mobility Group, and contingent consideration in the form of an earn out. The Company is in the process of liquidating all of its shares in Europcar Mobility Group.

On October 31, 2019, the Company declared monthly distributions of $0.08 per share payable on November 27, 2019, December 27, 2019, January, 31, 2020 and February 28, 2020.

CONFERENCE CALL

The Company will host a conference call on Friday, November 8, 2019 at 11:00 a.m. Eastern Time to discuss its third 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 6432449 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 subordinated debt, senior 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 results and conditions to differ materially from those projected in these forward-looking statements. These factors are identified from time to time in our filings with the Securities and Exchange Commission. 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 (Unaudited)

   

September 30,

 

December 31,

 

2019

 

2018

 

ASSETS:

 

 

Non-affiliated/non-control investments, at fair value (cost of $54,372,280 at 9/30/19 and $59,603,853 at 12/31/18)

$

52,806,683

$

61,919,954

Affiliated investments, at fair value (cost of $54,888,708 at 9/30/19 and $25,848,928 at 12/31/18)

54,783,841

 

24,645,597

 

Control investments, at fair value (cost of $13,826,508 at 9/30/19 and $13,430,013 at 12/31/18)

7,986,776

8,348,311

Cash

16,344,322

 

26,963,310

 

Restricted cash

1,417,488

1,812,238

Interest receivable

754,603

 

721,195

 

Accounts receivable – other

192,056

 

178,883

 

Deferred financing costs

477,755

 

623,442

 

Other assets

157,474

 

106,771

 

Total assets

$

134,920,998

$

125,319,701

 

 

LIABILITIES:

 

 

Revolving line of credit

$

36,300,000

$

17,000,000

2022 Notes (net of deferred offering costs of $674,233 at 9/30/19 and $821,879 at 12/31/18)

28,075,767

 

27,928,121

 

Accrued interest payable

132,495

 

115,919

 

Accounts payable - base management fees

578,465

 

531,628

 

Accounts payable - incentive management fees

361,090

Accounts payable - administrative services

350,000

 

366,667

Accounts payable - accrued expenses

655,646

 

620,312

 

Total liabilities

66,092,373

 

46,923,737

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

NET ASSETS:

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 6,578,175 issued and 5,975,677 outstanding at 9/30/19 and 6,554,010 issued and 6,372,581 outstanding at 12/31/18

6,578

 

6,554

 

Capital in excess of common stock

92,507,506

 

92,270,273

 

Treasury shares, at cost, 602,498 and 181,429 shares at 9/30/19 and 12/31/18, respectively

(6,329,262

)

(1,956,055

)

Accumulated over distributed earnings

(17,356,197

)

(11,924,808

)

Total net assets

68,828,625

 

78,395,964

 

Total liabilities and net assets

$

134,920,998

$

125,319,701

 

 

Common stock outstanding

5,975,677

 

6,372,581

 

 

 

Net asset value per common share

$

11.52

$

12.30

 

Harvest Capital Credit Corporation

Consolidated Statements of Operations (Unaudited)

 

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Investment Income:

Interest:

Cash - non-affiliated/non-control investments

$

1,416,656

$

2,643,751

$

4,247,511

$

7,359,565

Cash - affiliated investments

1,432,203

788,995

3,493,857

2,306,626

Cash - control investments

130,934

PIK - non-affiliated/non-control investments

18,471

147,340

49,236

485,168

PIK - affiliated investments

187,334

193,374

569,447

543,677

Amortization of fees, discounts and premiums

Non-affiliated/non-control investments

121,156

266,246

548,217

897,959

Affiliated investments

60,970

41,509

118,125

75,595

Total interest income

3,236,790

4,081,215

9,026,393

11,799,524

Other income

45,508

240,680

288,454

318,153

Total investment income

3,282,298

4,321,895

9,314,847

12,117,677

Expenses:

Interest expense – revolving line of credit

224,712

157,266

327,493

446,440

Interest expense - unused line of credit

74,586

83,325

268,470

247,461

Interest expense - deferred financing costs

58,258

58,804

168,898

171,515

Interest expense - 2022 Notes

440,235

440,235

1,320,705

1,320,705

Interest expense - deferred offering costs

50,076

46,702

147,646

137,544

Total interest expense

847,867

786,332

2,233,212

2,323,665

Professional fees

198,360

364,733

1,016,240

1,606,403

General and administrative

235,277

240,664

726,849

814,011

Base management fees

578,466

595,448

1,613,040

1,781,328

Incentive management fees

362,372

549,665

Administrative services expense

350,000

366,666

1,050,000

1,033,332

Total expenses, before reimbursement

2,209,970

2,716,215

6,639,341

8,108,404

Less: Professional fees reimbursed by HCAP Advisors, LLC

(449,835

)

Total expenses, after reimbursement

2,209,970

2,716,215

6,639,341

7,658,569

Net Investment Income, before taxes

1,072,328

1,605,680

2,675,506

4,459,108

Excise tax expense

8,825

8,825

Current income tax expense

10,192

43,025

Net Investment Income, after taxes

1,072,328

1,586,663

2,675,506

4,407,258

Net realized gains (losses):

Non-Affiliated / Non-Control investments

(35,429

)

52,451

(35,429

)

Affiliated investments

275,006

20,750

(610,636

)

Control investments

(92,615

)

(119,402

)

(103,505

)

36,945

Net realized gains (losses)

(92,615

)

120,175

(30,304

)

(609,120

)

Net change in unrealized appreciation (depreciation) on investments:

Non-Affiliated / Non-Control investments

(2,759,004

)

19,503

(3,448,583

)

142,184

Affiliated investments

658,765

(2,229,909

)

665,351

(745,597

)

Control investments

77,364

628,500

(758,030

)

339,436

Net change in unrealized depreciation on investments

(2,022,875

)

(1,581,906

)

(3,541,262

)

(263,977

)

Total net unrealized and realized losses on investments

(2,115,490

)

(1,461,731

)

(3,571,566

)

(873,097

)

Provision for taxes on unrealized gains on investments

507,894

(15,584

)

Net increase (decrease) in net assets resulting from operations

$

(1,043,162

)

$

632,826

$

(896,060

)

$

3,518,577

Net investment income per share

$0.18

$0.25

$0.43

$0.69

Net increase (decrease) in net assets resulting from operations per share

($0.17

)

$0.10

($0.15

)

$0.55

Weighted average shares outstanding (basic and diluted)

6,053,807

6,398,077

6,171,616

6,408,547

© 2019 Harvest Capital Credit Corporation

Contacts:

Investor & Media Relations
Harvest Capital Credit Corporation
Joseph Jolson
Chairman & Chief Executive Officer
(415) 835-8970
jjolson@harvestcaps.com

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