Harvest Capital Credit Corporation (the “Company,” “we,” or
“our”) (NASDAQ: HCAP) announced financial results for its first
quarter ended March 31, 2020.
FINANCIAL HIGHLIGHTS
Q1-2020
Q1-2019
Amount
Per share
Amount
Per share
Net investment income
$988,670
$0.17
$762,270
$0.12
Core net investment income (1)
988,670
0.17
762,270
0.12
Net realized gains (losses) on
investments
(86,427
)
(0.01
)
35,410
0.01
Net change in unrealized depreciation on
investments
(4,579,537
)
(0.77
)
(736,685
)
(0.12
)
Net income (loss)
($3,677,294
)
($0.62
)
$60,995
$0.01
Weighted average shares outstanding (basic
and diluted)
5,949,548
6,302,724
(1)
Core net investment income and core net
investment income per share are non-GAAP financial measures. For
the quarters ended March 31, 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
March 31, 2020
December 31, 2019
Portfolio investments at fair value
$
111,069,696
$
116,809,390
Total assets
$
135,643,093
$
140,059,736
Net assets
$
61,761,890
$
66,781,482
Shares outstanding
5,958,479
5,945,854
Net asset value per share
$
10.37
$
11.23
Q1-2020
Q1-2019
Portfolio activity during the period:
New debt investments
$
1,255,000
$
21,349,788
New equity investments
200,000
158,252
Exits of debt investments
(2,196,600
)
(10,424,648
)
Exits of equity investments
(102,421
)
(206,435
)
Principal repayments
(846,241
)
(3,348,148
)
Net activity
$
(1,690,262
)
$
7,528,809
March 31, 2020
December 31, 2019
Number of portfolio company
investments
24
25
Number of debt investments
19
20
Weighted average yield of debt and other
income producing investments (1):
Cash
11.7
%
12.0
%
PIK
1.1
%
1.1
%
Fee amortization
0.6
%
0.9
%
Total
13.4
%
14.0
%
Weighted average yield on total
investments (2):
Cash
8.7
%
9.7
%
PIK
0.8
%
0.9
%
Fee amortization
0.4
%
0.7
%
Total
9.9
%
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, CP
Holding Co., Inc. (Choice Pet), and ProAir Holdings Corporation
were excluded from the calculation as of March 31, 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.
FIRST QUARTER OF 2020 OPERATING RESULTS
Net investment income was $1.0 million, or $0.17 per share, for
the quarter ended March 31, 2020, compared to net investment income
of $0.8 million, or $0.12 per share, for the quarter ended March
31, 2019, an increase of $0.2 million in the first quarter of 2020
compared to 2019. The increase in net investment income during the
2020 first quarter as compared to the 2019 first quarter primarily
resulted from an increase of $0.2 million in investment income
between periods.
For the quarter ended March 31, 2020, the Company recorded a net
operating loss of $3.7 million, compared to $60,995 of net
operating income in the quarter ended March 31, 2019. Per share
loss was $0.62 in the three months ended March 31, 2020 compared to
net earnings of $0.01 per share in the three months ended March 31,
2019. The $3.7 million decrease between periods was primarily
attributable to a $3.8 million increase in unrealized depreciation,
an increase in realized loss of $0.1 million, offset by a $0.2
million increase in net investment income. The increase in
unrealized depreciation during the three months ended March 31,
2020 is primarily the result of the immediate adverse economic
effects of the COVID-19 pandemic and the continuing uncertainty
surrounding its long-term impact.
As of March 31, 2020, our total portfolio investments at fair
value and total assets were $111.1 million and $135.6 million,
respectively, compared to $116.8 million and $140.1 million at
December 31, 2019. Net asset value per share was $10.37 at March
31, 2020, compared to $11.23 at December 31, 2019.
During the first quarter of 2020, the Company made investments
in three companies totaling $1.5 million. All three were additional
investments in existing portfolio companies. The Company had one
investment mature during the three months ended March 31, 2020. The
significant investment activity for the quarter ended March 31,
2020 was as follows:
New and Incremental Investments
On January 21, 2020, the Company increased
its debt investment in Slappey Communications, LLC with a $1.1
million increase in its senior secured term loan.
On January 22, 2020, the Company increased
its senior secured debt investment in Infinite Care, LLC, with a
$0.2 million increase in its senior secured revolving credit
facility.
On January 31, 2020, the Company increased
its equity investment in KC Engineering & Construction
Services, LLC with a $0.2 million pro-rata increase through one
add-on funding to purchase Class A Units.
Investment Sales and Payoffs
On March 31, 2020, the Company’s senior
secured debt investment in Regional Engine Leasing, LLC matured.
Payment was subsequently received in April 2020. The Company
generated an internal rate of return (IRR*) of 12.15% 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.
"Given the severe negative impact on the US economy from the
COVID-19 pandemic since late February, we quickly shifted our
strategy from growing our investment portfolio to preserving our
capital and actively managing our current investments to limit the
negative impact from the downturn," said Joseph Jolson, Chairman
and CEO. "We continue to negotiate with our lenders to extend our
revolving line of credit until the end of July 2020 or a later
date, otherwise it will term out over an 18-month period unless
further extended or replaced with a new agreement. Because we will
likely be in this mode for the next few quarters, our Board of
Directors decided to preserve our cash and capital and defer the
payment of our March and April cash dividends and suspend future
dividends, until we have better visibility to the depth and
duration of this economic debacle," 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 March 31, 2020, the weighted average risk rating of the
debt investments in the Company's portfolio decreased to 2.75 from
2.43 in the previous quarter. Also, as of March 31, 2020, three of
the Company’s nineteen debt investments were rated 1, eight
investments were rated 2, four investments were rated 3, three
investments were rated 4, and one investment was rated 5. As of
March 31, 2020, three investments with a combined fair value of
$17.7 million were on non-accrual status.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2020, the Company had $20.8 million of cash and
restricted cash and $7.6 million of undrawn borrowing capacity on
its $55.0 million senior secured revolving credit facility. The
credit facility is secured by all of the Company’s assets. The
revolving period under the credit facility ended on April 30, 2020
and, as a result, the Company is no longer able to borrow
additional amounts under the credit facility. The Company is
currently in negotiations with the lenders to extend the revolving
period from April 30, 2020 to July 31, 2020 or some other date, but
there is no assurance that the lenders will agree to do so or of
any timing thereof. Please see the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 2020, as filed with
the Securities and Exchange Commission on May 13, 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 three months ended March 31, 2020, as filed
with the Securities and Exchange Commission on May 13, 2020, for
more information.
OTHER SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO MARCH 31,
2020
On April 13, 2020, in light of the economic and financial
disruptions caused by the COVID-19 pandemic, the Company's board of
directors announced its decision to defer the record date and
payment of its previously announced distributions of $0.08 per
share payable on each of April 30, 2020 and May 28, 2020 until such
later time as the board of directors determines is prudent in light
of the Company's capital needs and contractual obligations, and in
the best interests of the Company and its stockholders. The board
of directors has also determined to suspend the declaration of any
future dividends until further notice.
CONFERENCE CALL
The Company will host a conference call on Wednesday, May 13,
2020 at 11:00 a.m. Eastern Time to discuss its first 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 4695473 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 Quarterly Report on Form 10-Q for the three months
ended March 31, 2020. 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
March 31,
December 31,
2020
2019
ASSETS:
Non-affiliated/non-control investments, at
fair value (cost of $58,893,829 at 3/31/2020 and $61,379,670 at
12/31/19)
$
55,245,610
$
60,973,556
Affiliated investments, at fair value
(cost of $49,287,516 at 3/31/20 and $48,111,833 at 12/31/19)
46,879,036
47,431,234
Control investments, at fair value (cost
of $14,108,202 at 3/31/20 and $13,958,202 at 12/31/19)
8,945,050
8,404,600
Cash
285,647
11,199,083
Restricted cash
20,464,943
10,648,199
Interest receivable
831,825
663,191
Accounts receivable – other
2,260,248
184,804
Deferred financing costs
367,373
425,379
Other assets
363,361
129,690
Total assets
$
135,643,093
$
140,059,736
LIABILITIES:
Revolving line of credit
$
44,000,000
$
43,700,000
2022 Notes (net of deferred offering costs
of $571,424 at 3/31/20 and $623,276 at 12/31/19)
28,178,576
28,126,724
Accrued interest payable
163,851
152,544
Accounts payable - base management
fees
581,166
593,266
Accounts payable - administrative
services
350,000
350,000
Accounts payable - accrued expenses
607,612
355,720
Total liabilities
73,881,205
73,278,254
Commitments and contingencies (Note 8)
NET ASSETS:
Common stock, $0.001 par value,
100,000,000 shares authorized, 6,600,444 issued and 5,958,479
outstanding at 3/31/20 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 3/31/20 and 12/31/19
(6,723,505
)
(6,723,505
)
Accumulated over distributed earnings
(22,483,490
)
(17,378,360
)
Total net assets
61,761,890
66,781,482
Total liabilities and net
assets
$
135,643,095
$
140,059,736
Common stock outstanding
5,958,479
5,945,854
Net asset value per common share
$
10.37
$
11.23
Harvest Capital Credit
Corporation
Consolidated Statements of
Operations
Three Months Ended March
31,
2020
2019
Investment Income:
Interest:
Cash - non-affiliated/non-control
investments
$
1,564,087
$
1,481,111
Cash - affiliated investments
1,301,790
960,946
PIK - non-affiliated/non-control
investments
109,634
12,119
PIK - affiliated investments
155,328
194,515
Amortization of fees, discounts and
premiums
Non-affiliated/non-control investments
89,995
226,862
Affiliated investments
59,747
22,732
Total interest income
3,280,581
2,898,285
Other income
6,180
139,959
Total investment income
3,286,761
3,038,244
Expenses:
Interest expense – revolving line of
credit
321,119
10,486
Interest expense - unused line of
credit
55,396
101,749
Interest expense - deferred financing
costs
58,005
55,011
Interest expense - 2022 Notes
440,235
440,235
Interest expense - deferred offering
costs
51,853
48,360
Total interest expense
926,608
655,841
Professional fees
209,045
520,334
General and administrative
231,272
254,953
Base management fees
581,166
494,846
Incentive management fees
—
—
Administrative services expense
350,000
350,000
Total expenses
2,298,091
2,275,974
Net Investment Income
988,670
762,270
Net realized gains (losses):
Non-Affiliated / Non-Control
investments
(86,427
)
46,300
Control investments
—
(10,890
)
Net realized gains (losses)
(86,427
)
35,410
Net change in unrealized appreciation
(depreciation) on investments:
Non-Affiliated / Non-Control
investments
(3,242,104
)
(738,955
)
Affiliated investments
(1,727,883
)
(61,230
)
Control investments
390,450
63,500
Net change in appreciation depreciation
on investments
(4,579,537
)
(736,685
)
Total net unrealized and realized
losses on investments
(4,665,964
)
(701,275
)
Net increase (decrease) in net assets
resulting from operations
$
(3,677,294
)
$
60,995
Net investment income per share
$0.17
$0.12
Net increase (decrease) in net assets
resulting from operations per share
($0.62
)
$0.01
Weighted average shares outstanding (basic
and diluted)
5,949,548
6,302,724
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200513005125/en/
Investor & Media Relations Contacts 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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