Harvest Capital Credit Corporation (the “Company,” “we,” or
“our”) (NASDAQ: HCAP) announced financial results for its second
quarter ended June 30, 2020.
FINANCIAL HIGHLIGHTS
Six Months Ended
Six Months Ended
Q2-2020
Q2-2019
June 30, 2020
June 30, 2019
Amount
Per share
Amount
Per share
Amount
Per share
Amount
Per share
Net investment income
$
203,184
$
0.03
$
840,910
$
0.14
$
1,191,854
$
0.20
$
1,603,180
$
0.26
Core net investment income (1)
203,184
0.03
840,910
0.14
1,191,854
0.20
1,603,180
0.26
Net realized gains (losses) on
investments
(2,154,326
)
(0.36
)
26,901
—
(2,240,753
)
(0.38
)
62,311
0.01
Net change in unrealized appreciation
(depreciation) on investments
1,191,129
0.20
(781,701
)
(0.13
)
(3,388,408
)
(0.57
)
(1,518,386
)
(0.24
)
Net income (loss)
($
760,013
)
($
0.13
)
$
86,110
$
0.01
($
4,437,307
)
($
0.75
)
$
147,105
$
0.02
Weighted average shares outstanding (basic
and diluted)
5,958,479
6,161,052
5,954,014
6,231,496
(1) Core net investment income and core net investment income
per share are non-GAAP financial measures. For each of the three
months ended June 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
June 30, 2020
December 31, 2019
Portfolio investments at fair value
$
104,283,736
$
116,809,390
Total assets
$
135,824,588
$
140,059,736
Net assets
$
61,001,877
$
66,781,482
Shares outstanding
5,958,479
5,945,854
Net asset value per share
$
10.24
$
11.23
Six Months Ended
Six Months Ended
Q2-2020
Q2-2019
June 30, 2020
June 30, 2019
Portfolio activity during the period:
New debt investments
$
—
$
14,912,500
$
1,255,000
$
36,262,288
New equity investments
$
—
$
2,981,307
$
200,000
$
3,139,559
Exits of debt investments
$
(6,899,852
)
$
(4,045,931
)
$
(9,096,452
)
$
(14,470,579
)
Exits of equity investments
$
—
$
—
$
(102,421
)
$
(206,435
)
Principal repayments
$
(899,892
)
$
(1,746,688
)
$
(1,746,133
)
$
(5,094,836
)
Net activity
$
(7,799,744
)
$
12,101,188
$
(9,490,006
)
$
19,629,997
June 30, 2020
December 31, 2019
Number of portfolio companies
22
25
Number of debt investments
17
20
Weighted average yield of debt and other
income producing investments (1):
Cash
10.6
%
12.0
%
PIK
1.5
%
1.1
%
Fee amortization
0.7
%
0.9
%
Total
12.8
%
14.0
%
Weighted average yield on total
investments (2):
Cash
7.5
%
9.7
%
PIK
1.0
%
0.9
%
Fee amortization
0.5
%
0.7
%
Total
9.0
%
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 June 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.
SECOND QUARTER AND YEAR TO DATE 2020 OPERATING
RESULTS
For the three months ended June 30, 2020, the Company recorded a
net operating loss of $0.8 million, as compared to net operating
income of $0.1 million in the quarter ended June 30, 2019. The $0.9
million decrease in net operating results in comparable periods
principally resulted from the Company recording lower investment
income as a result of a lower weighted average effective yield on
the Company's income-earning portfolio and the addition of two
portfolio companies to non-accrual status, which resulted in a
smaller income-earning portfolio, an increase in interest expense,
and an increase in realized losses offset by an increase in
unrealized appreciation on investments. Per share earnings (loss)
were ($0.13) and $0.01 per share for the three months ended June
30, 2020 and 2019, respectively.
Net investment income was $0.2 million, or $0.03 per share, for
the quarter ended June 30, 2020, compared to net investment income
of $0.8 million, or $0.14 per share, for the quarter ended June 30,
2019, a decrease of $0.6 million in the second quarter of 2020
compared to 2019. The decrease in net investment income during the
2020 second quarter as compared to the 2019 second quarter
primarily resulted from a decrease of $0.4 million in investment
income between periods and an increase in expenses, principally
interest, of $0.2 million during the three months ended June 30,
2020 as compared to the three months ended June 30, 2019.
For the six months ended June 30, 2020, the Company recorded a
net operating loss of $4.4 million, compared to $0.2 million of net
operating income in the six months ended June 30, 2019. Per share
operating loss was $0.75 in the six months ended June 30, 2020
compared to net operating income of $0.02 per share in the six
months ended June 30, 2019. The $4.6 million decrease between
periods was primarily attributable to a $0.4 million decrease in
net investment income, a $1.9 million increase in net unrealized
depreciation, a $2.3 million increase in net realized loss, and a
$0.2 million increase in expenses, principally interest. The
increase in unrealized depreciation during the six months ended
June 30, 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.
Net investment income was $1.2 million, or $0.20 per share, for
the six months ended June 30, 2020, compared to net investment
income of $1.6 million, or $0.26 per share, for the six months
ended June 30, 2019, a decrease of $0.4 million in the first six
months of 2020 compared to the first six months of 2019. The
decrease in net investment income during the first six months of
2020 as compared to the first six months of 2019 primarily resulted
from a decrease of $0.2 million in investment income between
periods and an increase in expenses of $0.2 million during the six
months ended June 30, 2020 as compared to the six months ended June
30, 2019.
As of June 30, 2020, our total portfolio investments at fair
value and total assets were $104.3 million and $135.8 million,
respectively, compared to $116.8 million and $140.1 million at
December 31, 2019. Net asset value per share was $10.24 at June 30,
2020, compared to $11.23 at December 31, 2019.
During the second quarter of 2020, the Company did not make
additional investments in portfolio companies. The Company had two
payoffs during the three months ended June 30, 2020. The
significant investment activity for the quarter ended June 30, 2020
was as follows:
Investment Sales and Payoffs
On June 15, 2020, the Company sold its $2.9 million junior
secured debt investment in CP Holding Co., Inc. and received
proceeds of $1.1 million. The Company generated an internal rate of
return (IRR*) of 9.9% on its investment.
On June 25, 2020, the Company received a $4.0 million repayment,
at par, on its junior secured debt investment in Flavors Holdings
Inc. The original par value of the debt investment was $4.0
million. The Company generated an internal rate of return (IRR*) of
13.3% 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.
"Our second quarter results reflect the negative impact on
certain of our portfolio companies that resulted from the sharp
economic recession since February 2020, due to forced business
closures in the US caused by the COVID-19 global pandemic, and the
high costs associated with the recent short term extension of our
revolving line of credit," said Joseph Jolson, Chairman and CEO.
"We continue to work with our portfolio companies that have been
hurt by the current economic environment, with a focus on
minimizing the negative impact, wherever possible, to net asset
value, including by lowering cash interest rates to affordable
levels. We are also focused on maintaining high levels of liquidity
given the uncertainty about replacing the agent bank in our credit
line in the context of this difficult environment. While these
tactics will continue to have a negative short term effect on our
net investment income, we are optimistic they will help support
shareholders’ value until business conditions normalize over time,”
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 June 30, 2020, the weighted average risk rating of the
debt investments in the Company's portfolio deteriorated to 3.00
from 2.75 in the previous quarter. Also, as of June 30, 2020, two
of the Company’s seventeen debt investments were rated 1, six
investments were rated 2, four investments were rated 3, four
investments were rated 4, and one investment was rated 5. As of
June 30, 2020, four investments with a combined fair value of $17.8
million were on non-accrual status.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2020, the Company had $30.2 million of cash and
restricted cash and was fully drawn on its $45.0 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 was scheduled to end on July 31, 2020. However, on
August 6, 2020, the Company amended the credit facility to, among
other things, (i) extend the revolving period to October 31, 2020,
until which date the Company may receive additional advances at the
discretion of the lenders; and (ii) commence the amortization
period beginning August 1, 2020. Please see the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2020, as filed
with the Securities and Exchange Commission on August 6, 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 June 30, 2020, as filed with the
Securities and Exchange Commission on August 6, 2020, for more
information.
CONFERENCE CALL
The Company will host a conference call on Friday, August 7,
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 6167939 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
June 30,
December 31,
2020
2019
ASSETS:
Non-affiliated/non-control investments, at
fair value (cost of $50,851,230 at 6/30/20 and $61,379,670 at
12/31/19)
$
46,680,895
$
60,973,556
Affiliated investments, at fair value
(cost of $49,417,580 at 6/30/20 and $48,111,833 at 12/31/19)
49,354,892
47,431,234
Control investments, at fair value (cost
of $14,043,651 at 6/30/20 and $13,958,202 at 12/31/19)
8,247,949
8,404,600
Cash
8,764,304
11,199,083
Restricted cash
21,458,381
10,648,199
Interest receivable
560,097
663,191
Accounts receivable – other
143,819
184,804
Deferred financing costs
332,330
425,379
Other assets
281,921
129,690
Total assets
$
135,824,588
$
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 $518,659 at 6/30/20 and $623,276 at
12/31/19)
28,231,341
28,126,724
Accrued interest payable
96,378
152,544
Accounts payable - base management
fees
549,808
593,266
Accounts payable - administrative
services
350,000
350,000
Accounts payable - accrued expenses
595,184
355,720
Total liabilities
74,822,711
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 6/30/20 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 6/30/20 and 12/31/19
(6,723,505
)
(6,723,505
)
Accumulated over distributed earnings
(23,243,503
)
(17,378,360
)
Total net assets
61,001,877
66,781,482
Total liabilities and net
assets
$
135,824,588
$
140,059,736
Common stock outstanding
5,958,479
5,945,854
Net asset value per common share
$
10.24
$
11.23
Harvest Capital Credit
Corporation
Consolidated Statements of
Operations
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Investment Income:
Interest:
Cash - non-affiliated/non-control
investments
$
1,067,603
$
1,349,743
$
2,631,690
$
2,830,855
Cash - affiliated investments
1,105,081
1,100,708
2,406,871
2,061,654
PIK - non-affiliated/non-control
investments
110,582
18,647
220,216
30,766
PIK - affiliated investments
144,527
187,598
299,855
382,112
Amortization of fees, discounts and
premiums
Non-affiliated/non-control investments
103,647
200,200
193,642
427,062
Affiliated investments
55,797
34,423
115,544
57,155
Total interest income
2,587,237
2,891,319
5,867,818
5,789,604
Other income
3,610
102,987
9,790
242,946
Total investment income
2,590,847
2,994,306
5,877,608
6,032,550
Expenses:
Interest expense – revolving line of
credit
339,900
92,295
661,019
102,781
Interest expense - unused line of
credit
34,105
92,135
89,501
193,884
Interest expense - deferred financing
costs
124,155
55,629
182,160
110,640
Interest expense - 2022 Notes
440,235
440,235
880,470
880,470
Interest expense - deferred offering costs
and discount
52,765
49,210
104,618
97,570
Total interest expense
991,160
729,504
1,917,768
1,385,345
Professional fees
248,279
297,546
457,324
817,880
General and administrative
248,416
236,619
479,688
491,572
Base management fees
549,808
539,727
1,130,974
1,034,573
Administrative services expense
350,000
350,000
700,000
700,000
Total expenses
2,387,663
2,153,396
4,685,754
4,429,370
Net Investment Income
203,184
840,910
1,191,854
1,603,180
Net realized gains (losses):
Non-Affiliated / Non-Control
investments
(2,089,775
)
6,151
(2,176,202
)
52,451
Affiliated investments
(64,551
)
20,750
(64,551
)
20,750
Control investments
—
—
—
(10,890
)
Net realized gains (losses)
(2,154,326
)
26,901
(2,240,753
)
62,311
Net change in unrealized appreciation
(depreciation) on investments:
Non-Affiliated / Non-Control
investments
(522,115
)
49,377
(3,764,219
)
(689,578
)
Affiliated investments
2,345,794
67,816
617,911
6,586
Control investments
(632,550
)
(898,894
)
(242,100
)
(835,394
)
Net change in appreciation
(depreciation) on investments
1,191,129
(781,701
)
(3,388,408
)
(1,518,386
)
Total net unrealized and realized
losses on investments
(963,197
)
(754,800
)
(5,629,161
)
(1,456,075
)
Net increase (decrease) in net assets
resulting from operations
$
(760,013
)
$
86,110
$
(4,437,307
)
$
147,105
Net investment income per share
$
0.03
$
0.14
$
0.20
$
0.26
Net increase (decrease) in net assets
resulting from operations per share
($
0.13
)
$
0.01
($
0.75
)
$
0.02
Weighted average shares outstanding, basic
and diluted
5,958,479
6,161,052
5,954,014
6,231,496
© 2020 Harvest Capital Credit Corporation
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200807005062/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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