Patriot Capital Funding Reports 2008 Second Quarter Results
WESTPORT, CT – August 5, 2008 — Patriot Capital Funding, Inc. (NasdaqGS: PCAP) (“Patriot Capital Funding” or the “Company”), a specialty finance company providing flexible financing solutions to private equity sponsors focused on making investments in small- to mid-sized companies, today announced results for the three- and six-month periods ended June 30, 2008.
2008 Second Quarter Summary
•
Total investment income of $10.7 million
•
Net investment income of $6.4 million, or $0.31 per basic and diluted share
•
Net income of $3.7 million, or $0.18 per basic and diluted share
•
Net asset value per share of common stock at June 30, 2008 was $10.08, versus $10.22 at March 31, 2008
Portfolio Activity
During the 2008 second quarter, we provided a $2.0 million senior secured term loan to Custom Direct, Inc., an existing portfolio company.
In addition, during the 2008 second quarter:
•
We received proceeds of $15.3 million in conjunction with the full repayment of a revolving line of credit and a senior secured term loan in Cheeseworks, Inc.
•
We received proceeds of $10.7 million in connection with the full repayment of senior secured term loans in Innovative Concepts in Entertainment, Inc.
•
We received $1.0 million in proceeds from the recapitalization of Encore Legal Solutions, Inc., which partially repaid our subordinated debt investment. In conjunction with the recapitalization, we converted the remainder of our subordinated debt investment into equity ownership. Subsequent to the conversion, Patriot Capital Funding’s equity interest exceeds 25%.
Subsequent to the 2008 second quarter:
•
We funded a $2.0 million senior secured term loan debt investment in Cengage Learning Acquisitions, Inc., a marketer of highly customized learning solutions.
•
We funded a $1.1 million equity investment in Nupla Corporation (“Nupla”), a manufacturer and marketer of professional high-grade fiberglass-handled striking and digging tools, to support its acquisition of Hisco, Inc. Nupla is an existing portfolio company and subsequent to this investment, Patriot Capital Funding’s equity interest exceeds 25%.
•
We funded a $5.5 million debt investment, comprised of a senior secured revolving line of credit and a secured term loan in L.A. Spas, Inc., an existing portfolio company.
“During the 2008 second quarter, we once again elected not to initiate any new portfolio investments in our core lower middle market as a result of unfavorable market conditions and a scarcity of attractive transactions. While the pipeline of potential transactions is beginning to improve, because of competitive forces we are not that optimistic about returning to a more consistent pattern of closing proprietary investments until 2009,” stated Patriot Capital Funding President and Chief Executive Officer Richard Buckanavage.
“In the interim, in an effort to offset sluggish deployment in our core market, we will continue to deploy capital in the syndicated debt markets. While new financings were scarce, we again continued to demonstrate our commitment to the lower middle market by closing two add-on investments subsequent to quarter-end for two existing portfolio companies.
“Given the weakness in the U.S. economy, we are pleased that credit quality in our loan portfolio remained essentially flat, with a weighted average risk rating of 2.08 at June 30, 2008, compared to 2.12 and 2.11 at March 31, 2008 and December 31, 2007, respectively. In this regard we maintain over 75 percent of our investments in the top two ratings categories and the fair value of the loan portfolio is more than 95 percent of cost,” concluded Mr. Buckanavage.
We recorded net unrealized depreciation on our investments in the amount of approximately $3.4 million during the 2008 second quarter. A portion of this amount, approximately $217,000, resulted from quoted market prices on our syndicated loan portfolio, and approximately $3.6 million resulted from a decline in cash flows of our portfolio companies, both of which were partially offset by approximately $452,000 of unrealized appreciation, which resulted from the adoption of Statement of Financial Accounting Standards No. 157 – Fair Value Measurements (“SFAS 157”).
Portfolio Yield
The weighted average yield on all of our debt investments for the three months ended June 30, 2008 was 12.3%, compared to 12.4% for the three months ended June 30, 2007. The weighted average balance of our debt investment portfolio for the three months ended June 30, 2008 was $337.3 million, compared to $283.2 million for the three months ended June 30, 2007.
Portfolio Asset Quality
We utilize the following investment rating system for our entire portfolio of debt investments:
Investment Rating 1 –Investments that exceed expectations and/or a capital gain is expected. Investment Rating 2 –Investments that are generally performing in accordance with expectations. Investment Rating 3 –Investments that require closer monitoring. Investment Rating 4 –Investments performing below expectations where a higher risk of loss exists. Investment Rating 5 –Investments performing significantly below expectations where we expect a loss.
At June 30, 2008, the distribution of our debt investments on the 1 to 5 investment rating scale at fair value was as follows:
Investment Rating 1investments totaled $68.0 million (22.2% of the total portfolio). Investment Rating 2investments totaled $162.2 million (53.0% of the total portfolio). Investment Rating 3investments totaled $62.8 million (20.5% of the total portfolio). Investment Rating 4investments totaled $9.3 million (3.0% of the total portfolio). Investment Rating 5investments totaled $3.9 million (1.3% of the total portfolio).
Subsequent to June 30, 2008, we placed one of our portfolio companies on non-accrual status. We received approximately $545,000 of investment income from such portfolio company during the six months ended June 30, 2008.
Liquidity and Capital Resources
At June 30, 2008, we had cash and cash equivalents of $1.1 million, total assets of $335.1 million and net assets of $208.6 million. We had $116.1 million of borrowings outstanding at June 30, 2008 under our $225 million securitization revolving credit facility. At June 30, 2008, the interest rate on our securitization revolving credit facility was 4.5%, up from 4.1% at March 31, 2008, but down from 6.2% at December 31, 2007. Our regulatory asset coverage was 280%, up from 248% at March 31, 2008 and 234% at December 31, 2007. We are required to maintain regulatory asset coverage of at least 200%.
In light of the current turmoil in the credit markets and uncertainty in the capital markets, we have taken a number of steps over the last several months to help ensure the continued availability of liquidity. First, we increased the borrowing availability under our securitization revolving credit facility from $175 million to $225 million in April 2008. Second, we obtained stockholder approval at our 2008 annual meeting of stockholders to (i) issue securities to subscribe to, convert to, or purchase shares of common stock and (ii) sell shares of our common stock below the then current net asset value per share. Although we believe that these measures should provide us with sufficient sources of liquidity to support our operations and continued growth, we cannot provide any assurance that these measures will be sufficient given the current state of the debt and equity markets. If we are unable to access debt or equity capital, our ability to grow our investment portfolio may be limited, which may, in turn, limit our ability to make distributions to our stockholders at a specified level or to increase the amount of these distributions from time to time.
Dividend Information
On August 1, 2008, we announced that our board of directors had declared a cash dividend of $0.33 per share for the third quarter of 2008. The dividend is payable as follows:
Record date: September 12, 2008 Payment date: October 15, 2008
Our dividend is paid from taxable income. Our board of directors determines the dividend based on annual estimates of taxable income, which differs from book income due to changes in unrealized appreciation and depreciation of investments and due to temporary and permanent differences in income and expense recognition.
We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of our dividends on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if we declare a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends. If your shares of our common stock are held through a brokerage firm or other financial intermediary and you wish to participate in the DRIP, please contact your broker or other financial intermediary.
2008 Second Quarter Conference Call/Webcast Information
Conference Call:
Today – August 5, 2008 at 10:30 a.m. EDT
Dial-in Number:
800/925-4216
Call Replay Until:
August 7, 2008 at 12:30 p.m. EDT
Replay Number:
800/633-8284
Replay Access Code:
21389673
Webcast:
www.patcapfunding.com
Web Replay:
30 days
About Patriot Capital Funding, Inc. Patriot Capital Funding, Inc. (www.patcapfunding.com) is a specialty finance company providing customized financing solutions primarily to private equity sponsors focused on making investments in small- to mid-sized companies. Patriot Capital Funding typically invests in companies with annual revenues ranging from $10 million to $100 million that operate in diverse industry sectors. Investments usually take the form of senior secured loans, junior secured loans, and/or subordinated debt investments – which may contain equity or equity-related instruments. Patriot Capital Funding also offers “one-stop” financing, which typically includes a revolving credit line, one or more senior term loans and a subordinated debt investment. Patriot Capital Funding also makes equity co-investments of generally up to $3.0 million and, to a lesser extent, investments in broadly syndicated loans.
Forward-Looking Statements This press release may contain certain forward-looking statements, including statements with regard to the future performance of Patriot Capital Funding. Words such as “believes,” “expects,” “projects,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements, and some of these factors are enumerated in Patriot Capital Funding’s Form 10-K for the year ended December 31, 2007, and other filings with the Securities and Exchange Commission. Patriot Capital Funding undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
(financial statements follow)
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Patriot Capital Funding, Inc. Consolidated Balance Sheets (unaudited)
June 30,
December 31,
2008
2007
ASSETS
Investments at fair value:
Non-control/non-affiliate investments (cost of $227,867,732 – 2008,
$294,686,727 - 2007)
$
218,344,290
$
290,225,759
Affiliate investments (cost of $87,868,751 – 2008, $86,577,905 – 2007)
80,800,446
85,171,605
Control investments (cost of $23,517,554 – 2008, $6,980,389 – 2007)
23,265,964
9,328,389
Total investments
322,410,700
384,725,753
Cash and cash equivalents
1,102,733
789,451
Restricted cash
7,963,276
10,487,202
Interest receivable
1,357,563
1,758,954
Other assets
2,264,347
617,448
TOTAL ASSETS
$
335,098,619
$
398,378,808
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Borrowings
$
116,100,000
$
164,900,000
Interest payable
467,998
821,124
Dividends payable
6,831,820
6,814,650
Accounts payable, accrued expenses and other
3,077,175
4,245,350
TOTAL LIABILITIES
126,476,993
176,781,124
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized;
no shares issued and outstanding
—
—
Common stock, $.01 par value, 49,000,000 shares authorized;
20,702,485 and 20,650,455 shares issued and outstanding at
June 30, 2008 and December 31, 2007, respectively
207,024
206,504
Paid-in capital
234,624,380
233,722,593
Accumulated net investment loss
(1,912,061
)
(1,912,061
)
Distributions in excess of net investment income
(3,266,523
)
(2,824,651
)
Net realized loss on investments
(3,605,132
)
(3,171,365
)
Net unrealized depreciation on interest rate swaps
(545,582
)
(762,365
)
Net unrealized depreciation on investments
(16,880,480
)
(3,660,971
)
TOTAL STOCKHOLDERS’ EQUITY
208,621,626
221,597,684
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
335,098,619
$
398,378,808
NET ASSET VALUE PER COMMON SHARE
$
10.08
$
10.73
2
Patriot Capital Funding, Inc. Consolidated Statements of Operations (unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2008
2007
2008
2007
INVESTMENT INCOME
Interest and dividends:
Non-control/non-affiliate investments
$
7,133,671
$
7,535,657
$
15,432,004
$
15,114,605
Affiliate investments
2,498,499
1,214,881
5,012,922
1,834,114
Control investments
499,659
—
678,125
—
Total interest and dividend income
10,131,829
8,750,538
21,123,051
16,948,719
Fees:
Non-control/non-affiliate investments
69,389
188,099
238,086
569,725
Affiliate investments
37,787
111,174
76,448
124,403
Control investments
35,000
—
41,250
—
Total fee income
142,176
299,273
355,784
694,128
Other investment income:
Non-control/non-affiliate investments
242,388
39,842
282,243
424,129
Control investments
138,026
—
138,026
—
Total other investment income
380,414
39,842
420,269
424,129
Total Investment Income
10,654,419
9,089,653
21,899,104
18,066,976
EXPENSES
Compensation expense
1,107,324
1,331,965
2,605,499
2,551,498
Interest expense
1,925,230
1,642,509
3,984,753
3,148,721
Professional fees
408,204
106,044
670,731
413,671
General and administrative expense
794,963
617,427
1,433,523
1,216,100
Total Expenses
4,235,721
3,697,945
8,694,506
7,329,990
Net Investment Income
6,418,698
5,391,708
13,204,598
10,736,986
NET REALIZED GAIN AND LOSS AND NET UNREALIZED APPRECIATION (DEPRECIATION)
Net realized gain (loss) on investments – non-control/non- affiliate
5,783
77,934
(83,767
)
84,101
Net realized loss on investments – control
(350,000
)
—
(350,000
)
—
Net unrealized depreciation on investments – non-control/non-affiliate
(2,218,615
)
(296,850
)
(8,629,899
)
(364,950
)
Net unrealized appreciation (depreciation) on investments – affiliate
(3,070,018
)
324,600
(5,662,008
)
477,800
Net unrealized appreciation on investments – control
1,920,398
—
1,072,398
—
Net unrealized appreciation on interest rate swaps
969,634
185,472
216,783
122,144
Net Realized Gain (Loss) and Net Unrealized Appreciation (Depreciation)
(2,742,818
)
291,156
(13,436,493
)
319,095
NET INCOME (LOSS)
$
3,675,880
$
5,682,864
$
(231,895
)
$
11,056,081
Earnings (loss) per share, basic
$
0.18
$
0.31
$
(0.01
)
$
0.62
Earnings (loss) per share, diluted
$
0.18
$
0.31
$
(0.01
)
$
0.61
Weighted average shares outstanding, basic
20,693,337
18,246,987
20,671,896
17,891,914
Weighted average shares outstanding, diluted
20,693,337
18,466,510
20,671,896
18,111,437
CONTACTS
Richard Buckanavage President and Chief Executive Officer 203/429-2700
Robert Rinderman or Steven Hecht Jaffoni & Collins Incorporated 212/835-8500 orPCAP@jcir.com
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