BCP Investment Corp (BCIC) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the KCAP Financial Inc. conference call.

An earnings press release was distributed yesterday. If you did not receive a copy, the release is available on the Company's website at www.kcapfinancial.com in the investor relations section.

As a reminder, this conference call is being recorded today, Thursday, May 5, 2016. This call is also being hosted on a live webcast, which can be accessed at our company's website at www.kcapfinancial.com in the investor relations section under events.

Today's conference call includes forward-looking statements and projections and we ask that you refer to the KCAP Financial's most recent filings with the SEC for important factors that would cause actual results to differ materially from these projections. KCAP Financial does not undertake to update its forward-looking statements unless required by law.

I would now like to introduce your host for today's conference, Mr. Dayl Pearson, President and Chief Executive Officer at KCAP Financial. Mr. Pearson, you may begin.

Thank you. Good morning and thank you for joining KCAP Financial for a review of our first-quarter 2016 results.

Today I will review some of the important highlights and activities for the first quarter, as well as provide more detail on our direct lending business and the performance of our asset manager affiliates. I will then turn the call over to our Chief Financial Officer, Ted Gilpin, who will provide a brief recap of our first-quarter operating results and our financial condition of the end of the quarter. We will then open the line for your questions at the end the call.

A presentation outlining a few of our key accomplishments during the quarter can be found on the IR section of our website. To start, let me provide a brief recap of some of the important highlights from the first quarter, which are summarized on slide 3 of our earnings presentation.

For the first quarter of 2016, our NII was $0.13 per share and our taxable distributable income, or TDI, was $0.16 per share. Remember that a BDC must distribute 90% of TDI each year. Also remember that some BDCs use different terminologies to describe tactical distributable income, but that is the actual designation.

We also reported a non-GAAP metric, resources available for distribution, which is a good proxy for cash available to shareholders as well as what is a sustainable dividend. Resources available for distributional was $0.17 per share for the quarter. Our first-quarter shareholder distribution was $0.15 per share, consistent with the $0.15 paid in the fourth quarter of 2015.

I would now like to discuss the performance of our loan and securities business and asset manager affiliates in more detail.

Turning to slide 4, during the quarter we invested approximately $6 million in new originations. This is primarily funded by repayments and sales of placeholder assets. These new loans had a yield generally comparable to the assets they replaced.

Our credit quality of the portfolio continues to be strong with only two nonaccrual loans, representing less than 1%, at cost, of the Company's total investments at March 31, 2016. KCAP stands out among most of our peers with very low non-accruals as well as a limited exposure to the oil and gas industry. Most of the marks on our loan portfolio are related to market issues and not serious credit issues.

That being said, we remain vigilant in monitoring our loan portfolio and very selective on new transactions. As always, we continue to maintain our standards, as I have previously said, and will not sacrifice credit quality in order to meet short-term income goals. KCAP believes that the current asset mix and allocation of second-lien secured loans, mezzanine loans, and CLR equity represents the appropriate balance to achieve our proper risk-adjusted return.

In terms of the market for new CLO funds, the environment has become more challenging starting late last year. We continue to warehouse for our next CLO fund, but remain very cautious on asset selection. We continue to be positive regarding our ability to issue a new CLO fund in the future. However, the supply of new loans and AAA spreads, which are essential to raising new funds, are still challenging.

As of March 31, 2016, our weighted average mark-to-market value to par on our debt securities portfolio decreased to 94 compared with 95 in the fourth quarter 2015. While there was a recovery in the broadly syndicated loan market late in the quarter, most loan indices were slightly below where they were at year-end.

As far as the CLO portfolio, our weighted average mark-to-market value to par was 48. As of March 31, 2016, a decrease in the weighted average mark-to-market value to par of 53 for the fourth quarter of 2015 for the same non-redeemed CLOs. Our 100% ownership of our asset management affiliates was valued at approximately $50 million based on their assets under management, positive and prospective cash flows at March 31, 2016.

Our investment portfolio at the end of the first quarter totaled approximately $378 million.

Looking at the composition of our investment portfolio, our portfolio quality continues to hold up well with only one new asset on nonaccrual. Management believes that this $2.8 million first-lien loan will most likely begin paying interest later in the second quarter and also make its March 31 payment. This is an example of the advantage of being in a first-lien position.

At the end of the first quarter debt securities totaled approximately $266 million and represented about 70% of the investment portfolio. First-lien loans now represent 73% of the debt securities. The debt securities portfolio had junior loans at 14%. All CLOs managed by KDA and Trimaran continue to be current on equity distributions and management fees.

This stable income stream from our asset manager affiliates allows them to make periodic distributions to us. During the first quarter they made a distribution of $1.1 million to the Company. Additionally, as of March 31, 2016, our asset manager affiliates had approximately $2.6 billion of par value assets under management, which is consistent with the end of the fourth quarter of 2015.

As always, we continue to evaluate our equity and debt financing options, which allow us to focus on continued balance sheet growth, increasing net investment income, and dividend distributions. The Company completed the retirement of its convertible bond issue on March 15, 2016.

And now I will ask Ted Gilpin to walk through the details of our financials.

Thank you, Dayl. Good morning, everyone. For the quarter ended March 31, 2016, net investment income, or NII, was $4.8 million, or $0.13 per basic share, down from $6.5 million, or $0.18 per basic share, for the first quarter of 2015 and down from $5.3 million and $0.14 per basic share for the fourth quarter of 2015.

Taxable distributable income, or TDI, for the first quarter of 2016 was $5.9 million, or $0.16 per share, compared with $7 million, or $0.19 per share, for the first quarter of 2015. Resources available for distribution, a non-GAAP measure which is NII plus taxable distributable excess cash on CLOs plus cash distributed by the AMAs in excess of their taxable earnings, was $6.4 million, or $0.17 per basic share, for the first quarter of 2016 versus $8.3 million, or $0.23 per share, for the first quarter of 2015.

The Company declared a $0.15 distribution in the first quarter of 2016, as Dayl said, consistent with December of 2015. As of March 31, 2016, our net asset value stood at $5.50, down from $5.82 at the end of the fourth quarter of 2015; $7.16 on March 31, 2015.

As Dayl mentioned, volatile markets starting in the latter half of 2015, which continued into the beginning of 2016, resulted in realized and unrealized depreciation of $11.6 million, or approximately $0.31 per weighted average basic share.

At this point I would like to discuss the details of our first-quarter results for 2016.

First, interest income on our debt securities for the quarter ended March 31, 2016, was $5.7 million, potentially flat compared to $5.7 million for the fourth quarter of 2015. Interest income on our debt securities of $6.2 million at the first quarter of 2015. Our debt securities portfolio continues to grow as a percent of total NII contribution, which today stands at 60% at the end of the first quarter of 2016; compares to 56% contribution in the fourth quarter of 2015 and 50% in the first quarter of 2015.

Second, investment income for CLO fund securities was $3.2 million in the first quarter of 2016 compared with $3.3 million in the fourth quarter of 2015 and $4.6 million in the first quarter of 2015. Lastly, we received dividend income from our asset manager affiliates of $550,000 in the first quarter of 2016, a decrease of approximately $600,000 from the fourth quarter of 2015.

In addition, the asset management affiliates distributed $500,000 in excess of their tax basis earnings and profits as a return on capital in the first quarter of 2016, compared with a return of capital of approximately $600,000 in the fourth quarter of 2015 and $1.3 million in the first quarter of 2015.

The Company recorded net realized and unrealized depreciation of approximately $11.6 million, $0.31 per share, during the quarter ended March 31, 2016, primarily attributable to our investments in CLO fund securities and our asset manager affiliates, as compared to net realized and unrealized depreciation of approximately $16.5 million, or $0.45 per share, in the fourth quarter of 2015 and net realized and unrealized appreciation of approximately $1.2 million, or $0.03 per share, in the first quarter of 2015.

On the liability side of our balance sheet as of March 30, 2016, par value of our debt outstanding was $188.8 million, consisting of $41.4 million of senior notes due in October of 2019 at a fixed rate of 7.375% and $147.4 million of our debt securitization financing transaction, which has a stated interest rate that resets on a quarterly basis based upon the then-current level of the benchmark three-month LIBOR. During the quarter we had convertible notes mature which were repaid on March 15, 2016, and our asset coverage ratio at year-end or at quarter end was 205%, above the minimum required 200% for BDCs.

For additional information regarding the above metrics for the first-quarter 2016 results, please refer to our earnings release and our recently filed 10-Q. All of our filings are available online with the SEC or on our website at www.kcapfinancial.com.

We would now like to turn it over to you for your questions.

(Operator Instructions) I am showing no questions from our phone lines. I will now to turn the conference back over to Mr. Pearson for any closing remarks.

I just want to thank everyone for being on the call and we will talk to you again at the end of the second quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.