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BlackRock Kelso Capital Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 9, 2011 10:24AM
BlackRock Kelso Capital Corp. (BKCC) filed Quarterly Report for the period ended 2011-03-31.
Highlight of Business Operations:
During the three months ended March 31, 2011, we invested approximately $39.6 million across two new and several existing portfolio companies. The new investments consisted primarily of senior loans secured by first liens ($35.9 million, or 91% of the total invested) or second liens ($5.1 million, or 13%), and unsecured or subordinated debt securities and equity securities ($(1.4) million, or (4%), representing the cancellation of an unsettled prior period equity purchase). Additionally, we received proceeds from sales/repayments and other exits of approximately $4.0 million during the three months ended March 31, 2011.
At March 31, 2011, our net portfolio of $976 million (at fair value) consisted of 52 portfolio companies and was invested 49% in senior secured loans, 24% in unsecured or subordinated debt securities, 12% in equity investments, 9% in senior secure notes and 6% in cash and cash equivalents. Our average portfolio company investment at amortized cost was approximately $18.9 million at March 31, 2011. Our largest portfolio company investment by value was approximately $51.6 million and our five largest portfolio company investments by value comprised approximately 24% of our portfolio at March 31, 2011. At December 31, 2010, our net portfolio of $882 million (at fair value) consisted of 50 portfolio companies and was invested 50% in senior secured loans, 26% in unsecured or subordinated debt securities, 14% in equity investments, 10% in senior secured notes and less than 1% in cash and cash equivalents. Our average portfolio company investment at amortized cost was approximately $19.7 million at December 31, 2010. Our largest portfolio company investment by value was approximately $53.1 million and our five largest portfolio company investments by value comprised approximately 26% of our portfolio at December 31, 2010.
Investment income totaled $25,160,129 and $27,799,099, respectively, for the three months ended March 31, 2011 and 2010, of which $12,521,315 and $14,994,235 were attributable to interest and fees on senior secured loans, $11,696,393 and $11,998,827 to interest earned on other debt securities, $923,643 and $805,808 to dividends from preferred equity securities and $18,778 and $229 to interest earned on cash equivalents, respectively. The decrease in investment income for the current period was primarily due to a lower average debt portfolio yield as compared to the prior period. In addition, the impact on investment income of net new investment activity in the current quarter was nominal as such activity was concentrated near quarter-end.
Expenses for the three months ended March 31, 2011 and 2010 were $10,283,494 and $7,533,834, respectively, which consisted of $4,465,239 and $4,322,471 in base management fees, zero and $493,951 in incentive management fees, $3,642,219 and $1,122,254 in interest expense and fees related to the Credit Facility, $608,727 and $168,292 in amortization of debt issuance costs, $425,485 and $398,664 in Advisor expenses, $359,056 and $203,266 in professional fees, $290,802 and $257,723 in administrative services, $120,725 and $152,408 in insurance expenses, $108,269 and $95,837 in director fees and $262,972 and $318,968 in other expenses, respectively. The increase in base management fees reflects an increase in the quarterly portfolio values on which the fees are paid (in arrears). The increase in interest expense and fees related to the Credit Facility primarily reflect the issuance of our Senior Secured Notes in January 2011.
For the three months ended March 31, 2011 and 2010, the change in net unrealized appreciation was a decrease in net unrealized appreciation of $46,005,949 and $52,581,109, respectively. The decrease in net unrealized appreciation for the three months ended March 31, 2011 was comprised of a decrease in net unrealized appreciation on investments of $46,289,424 and a net unrealized foreign currency translation loss of $(283,475). The decrease in net unrealized depreciation was a result of the investment restructurings and dispositions described above and improved capital market conditions. The valuations of our investments were favorably impacted by improved performance in certain portfolio companies and market-wide decreases in interest yields, as well as increased multiples used to estimate the fair value of some of our investments. Market-wide movements and trading multiples are not necessarily indicative of any fundamental change in the condition or prospects of our portfolio companies. The decrease in net unrealized depreciation for the three months ended March 31, 2010 was comprised of a decrease in net unrealized depreciation on investments of $54,045,037 and a net unrealized foreign currency translation loss of $(1,463,928).
Our senior secured, multi-currency Credit Facility provides us with $375,000,000 in total availability, consisting of $275,000,000 of revolving loan commitments and $100,000,000 of term loan commitments. The Credit Facility is secured by substantially all of the assets in our portfolio, including cash and cash equivalents. The Credit Facility has a stated maturity date of December 6, 2013 and the interest rate applicable to borrowings thereunder is generally LIBOR plus an applicable spread of either 3.00% or 3.25% for revolving loans, based on a pricing grid depending on the Companys credit rating, and LIBOR plus 3.00% for term loans. The Credit Facility does not contain a LIBOR floor requirement. At March 31, 2011, the effective LIBOR spread under the Credit Facility was 3.00%. Term loan commitments under the Credit Facility have been fully drawn and, once repaid, may not be reborrowed. The Credit Facility also includes an accordion feature that allows the Company, under certain circumstances, to increase the size of the Credit Facility by up to an additional $275,000,000 of revolving loan commitments and $250,000,000 of term loan commitments. The Credit Facility is used to supplement the Companys equity capital to make additional portfolio investments and for other general corporate purposes. At March 31, 2011, we had $100,000,000 drawn and outstanding under the Credit Facility, with $275,000,000 available to us, subject to compliance with customary affirmative and negative covenants, including the maintenance of a minimum stockholders equity, the maintenance of a ratio of not less than 200% of total assets (less total liabilities other than indebtedness) to total indebtedness, and restrictions on certain payments and issuance of debt. In addition, borrowings under the Credit Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Companys portfolio.