Q1 2021 Capitala Finance Corp Earnings Call

May 4, 2021

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Okay.

At this time I would like to welcome everyone to capital of Finance Corporation's Conference call for the quarter ended March 31st 2021.

All participants are in a listen only mode.

Today's call is being recorded and a replay will be available approximately three hours. After the conclusion of the call on the company's website at Www Dot Cabotage group Dot com under the Investor Relations section.

And the hosts for today's call are Cabot to other finance Corporation's Chairman and Chief Executive Officer, Joe Alala, and Chief Financial Officer, and Chief Operating Officer, Steve Arnall.

Catheter <unk> Finance Corp issued a press release on May three 2021 with details of the company's quarterly financial and operating results call.

Copy of the press release is available on the company's website.

Please note that this call contains forward looking statements that provide information other than historical information, including statements regarding the company's goals beliefs strategies future operating results and cash flows.

Although the company believes these statements are reasonable and actual results could differ materially from those projected and the forward looking statements.

These statements are based on various underlying assumptions and I subject to numerous uncertainties and risks, including those disclosed under the section titled vs.

Factors and forward looking statements and the company used to acquire the report on form 10-Q.

Capitola undertakes no obligation to update or revise any forward looking statements.

At this time I would like to turn the meeting over to Joe Alala.

Thank you operator, good morning and thank.

And thank everyone for joining us today.

So even on a half from prepared remarks, and we will be around the balance of the day to address any questions you may have.

We have decided to not have a Q&A session for this call, but again encourage you to reach out and we will address your questions and we are around all day.

And we were pleased to report and 11% increase and NAV during the first quarter of 2021 at 44, seven and four per share. This is our fourth consecutive quarter of NAV improvement.

This is the result of improved performance of our portfolio of investments coupled with recent realized exits.

Examples Burger flex Cif and <unk>.

Moreover, we expect the portfolio to continue to run tablet.

Rotate out of both the current debt and equity and equity positions over.

Over the next several reporting periods.

Our total debt to equity at quarter and was one six to one down significantly from year end it almost two to one.

Regulatory debt to equity was one to one at quarter and during the first quarter, we repaid $20 million of SBA debentures, and 6 million of Richard Richard on March 1st 21, and 14 million and which was scheduled to mature on March 120 to two.

Since June 30 of 2020, we have repaid $79 million of SBA guaranteed debentures, and $2 2 million up 6% notes all free cash generated from the investment portfolio activity and realizations.

No at June 2020, the total debt to equity was almost $2 seven to one.

Furthermore, we forecast repay all SBA debt as part of this transaction.

On April 21, the company announced that the board of Directors has selected Mount Logan Management LLC, an affiliate of BC Partners Advisors LP interest.

To serve as the new investment advisor to the company.

We are committed to a smooth transition we plan to hold a special shareholder meeting and.

And late May seeking the approval of the new investment Advisory agreement. We think this is the right time for the company to attach to a larger credit platform as capital or group continues to focus on the management of its various private funds and focus on equity returns with yields.

As I mentioned on the Investor call. We co hosted on April 22nd with BC partners. We believe that the affiliation with Mount Logan will provide the best path to resumption of distributions and ultimately our stock price closer to NAV. We hope you will support this decision and vote in favor of the New Advisory agreement.

Proxy to be distributed this week.

At this point I would like to ask day.

Some more color on our financial results.

Thanks, Joe and good morning, everyone.

Total investment income of $4 9 million for the first quarter of 2021 compared to $7 1 billion from the first quarter of 2020.

Interest and fee income declined by 1 million $1 9 million for the comparable periods, resulting from a decrease and debt investments outstanding while payment and kind of income declined by <unk> 3 million.

Total expenses for the first quarter of 2021 were $5 7 million a decrease of $1 4 million from the first quarter of 2020.

Interest and finance and expenses declined by <unk> 8 million, resulting from the repayment of SBA debentures, and 2020 and 2021.

Based on management fees declined by <unk> 4 million due to a decline and total assets.

Net realized losses totaled $14 million or $5 17 per share for the first quarter of 2021.

Compared to net realized gains of $1 8 million for the same period and 2020.

During the first quarter of 2021, the company realized a $14 2 million other loss on its investment and currency capital LLC.

However, the loss did not have an impact on net asset value as the realized amount was in line with our previous valuation.

Net unrealized appreciation totaled $27 2 million for the first quarter 2021.

<unk> to net unrealized depreciation of $43 4 million for the first quarter of 2020.

The net increase and net assets, resulting from operations totaled $12 4 million or $4 56 per share for the fourth quarter of 2021 compared to a net decrease of $42 4 million for the comparable period in 2020.

Net assets at March 31, and 2021 were $121 3 million or <unk>, $44 74 per share compared to $108 9 million or $40 and 19% per share at December 31, and 2020.

Yeah.

At March 31, and 2021, we had $59 7 million and cash and cash equivalents and.

In addition, we had zero drawn and $25 million available on our senior secured credit facility with Keybank.

Also the company had SBA debentures outstanding totaling $71.0 million with the weighted average annual interest rate of 262% said.

$72 8 million.

Fixed rate notes bearing an interest rate of 6% and $52 1 million of convertible notes bearing an interest rate of 575%.

The company's total debt to equity ratio at March 31, 2021, with one six to one compared to $1 98 to one at the prior year and.

At March 31, 2021, our investment portfolio includes 35 investments with a fair value of $258 $2 million on a cost basis of $234 million.

First lien debt investments on a fair value basis at March 31, and 2021 comprised 53 five percentage of portfolio second lien investments represent 15, 2% and equity warrant investments represented 31, 3%.

At quarter end March 31, 2021, we had three investments on non accrual status with a cost basis and fair market value of $21 3 million and $16 6 million respectively.

At this point I'll turn the call back over to Joe for some closing comments.

Thanks, Steve.

And so we're not having a Q&A today with Steve and I are around all day.

I'll get proxy distributed this week for the shareholder meeting proposal on May 27th.

Most of the shareholders, we've talked to strongly support.

The transition of the BDC to management about Mount Logan and BC partners.

We as management strongly supported and the board of directors unanimously approved it.

We're around all day. Thank you for your participation participation on this call and we look forward and hearing from you and everyone have a great day.

This concludes today's conference call. Thank you all for participating and you may now disconnect have a great day.

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Free cash.

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And.

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Moving.

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And this quarter.

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And then.

[music].

At this time I would like to welcome everyone to capital of Finance Corporation's Conference call for the quarter ended March 31st 2021.

All participants are and and this doesn't mean much.

Today's call is being recorded and a replay will be available approximately three hours. After the conclusion of the call on the company's website at Www Dot Cabot Towergroup dotcom on.

The Investor Relations section.

Your host for today's call on Cabot to other finance Corporation's Chairman and Chief Executive Officer, Joe Alala, and Chief Financial Officer, and Chief Operating Officer, Steve on.

Capital Low Finance Corporation issued a press release on May three 2021, we detail the other companies quite a lead financial and operating results a copy of the press release is available on the company's website.

Although the company believes these statements are reasonable and actual results could differ materially from those projected and the forward looking statements.

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the section titled risk factors and forward looking statements and the company used to acquire the report on form 10-Q.

Capitola undertakes no obligation to update or revise any forward looking statements.

Yeah.

At this time I would like to turn the meeting over to Joe Alala.

Thank you operator, good morning and thank.

And thank everyone for joining us today.

So even on a half from prepared remarks, and we will be around the balance of the day to address any questions you may have.

We have decided to not have a Q&A session for this call, but again encourage you to reach out to us and we will address your questions and we are around all day.

We were pleased to report and 11% increase and NAV during the first quarter of 2021 at $44 74 per share. This is our fourth consecutive quarter of NAV improvement.

This is the result of improved performance of our portfolio of investments coupled with recent realized exits.

Examples Berg reflect Cif and <unk>.

Moreover, we expect the portfolio to continue to reach out to rotate out of both the current debt and equity and equity positions.

Over the next several reporting periods.

Our total debt to equity at quarter and was one six to one down significantly from year end it almost two to one.

Our regulatory debt to equity was one to one at quarter and during the first quarter, we repaid $20 million of SBA debentures, and 6 million of which matured on March 1st 21, and 14 million and which was scheduled to mature on March 120 to two.

Since June 30 of 2020, we have repaid $79 million of SBA guaranteed debentures, and $2 2 million up 6% notes all free cash generated from an investment portfolio activity and realizations.

No at June 'twenty, and 'twenty, the total debt to equity was almost $2 seven to one.

Furthermore, we forecast and repay all SBA debt as part of this transaction.

On April 20, <unk>, the company announced that the board of Directors has selected Mount Logan management LLC, an affiliate of BC partners Advisors L. P. J.

And to serve as the new investment advisor to the company.

We are committed to a smooth transition we plan to hold a special shareholder meeting and.

In late May seeking the approval of the new investment Advisory agreement. We think this is the right time for the company to attach to a larger credit platform as capital or group continues to focus on the management of its various private funds focused on equity returns with yields as.

And we hope you will support this decision and vote in favor of the New advisory agreement proxy to be distributed this week.

At this point I would like to ask Dave to provide some more color on our financial results.

Thanks, Joe and good morning, everyone.

Total investment income and $4 9 million for the first quarter of 2021 compared to $7 1 billion from first quarter of 2020.

Total expenses for the first quarter of 2021 were $5 7 million a decrease of $1 4 million from the first quarter of 2020.

Interest and finance and expenses declined by <unk> 8 million, resulting from the repayment of SBA debentures, and 2020 and 2021.

Management fees declined by <unk> 4 million due to a decline and total assets.

Net realized losses totaled $14 million or $5 17 per share from the first quarter of 2021.

Compared to net realized gains of $1 8 million for the same period and 2020.

During the first quarter of 2021, the company realized a $14 2 million other loss on its investment and currency capital LLC.

However, the loss did not have an impact on net asset value as the realized amount was in line with our previous valuation.

Net unrealized appreciation totaled $27 2 million for the first quarter of 2021 compared to net unrealized depreciation of $43 4 million from the first quarter of 2020.

Net assets at March 31, and 2021 were $121 3 million or <unk> $44 74 per share compared to $108 9 million or $40 19 per cent per share at December 31, and 2020.

At March 31, and 2021, we had $59 7 billion and cash and cash equivalents.

In addition, we had zero drawn and $25 million available on our senior secured credit facility with Keybank.

Also the company had SBA debentures outstanding totaling $71.0 million with the weighted average annual interest rate of 262%.

$72 $8 million.

Fixed rate notes bearing an interest rate of 6% and $52 1 billion of convertible notes bearing an interest rate of 575%.

The company's total debt to equity ratio at March 31, 2021, with one six to one compared to $1 98 to one at the prior year and.

At March 31, 2021, our investment portfolio includes 35 investments with a fair value of $258 2 million on a cost basis of $234 million.

First lien debt investments on a fair value basis at March 31, and 2021.

Comprised 53, 5% of the portfolio second lien investments represent 15, 2% and equity so on.

<unk> warrant investments represented 31, 3%.

At quarter end March 31, 2021, we had three investments on non accrual status with a cost basis and fair market value of $21 3 million and $16 6 million respectively.

At this point I'll turn the call back over to Joe for some closing comments.

Thanks, Steve So we're not having a Q&A today are as Steve and I are around all day.

And we'll get proxy distributed this week for the shareholder meeting proposed on May 27th.

Most of the shareholders, we would talk to strongly support.

The transition of the BDC to management about Mount Logan and BC partners.

And we as management strongly supported and the board of directors unanimously approved it.

We're around all day. Thank you for your participation participation on this call and we look forward inherent drug and everyone have a great day.

This concludes today's conference call. Thank you all for participating and you may now disconnect have a great day.

Q1 2021 Capitala Finance Corp Earnings Call

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