Capitala Finance Corp. (NASDAQ:CPTA) Q1 2019 Earnings Conference Call Transcript

May 07, 2019 • 08:30 am ET

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Capitala Finance Corp. (NASDAQ:CPTA) Q1 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

At this time, I would like to welcome, everyone, to Capitala Finance Corp.'s Conference Call for the Quarter Ended March 31, 2019.

(Operator Instructions)

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.capitalagroup.com under the Investor Relations section. The host for today's call are Capitala Finance Corp.'s Chairman and Chief Executive Officer, Joe Alala; and Chief Financial Officer and Chief Operating Officer, Steve Arnall. Capitala Finance Corp. issued a press release on May 6, 2019, with details of the Company's quarterly financial and operating results. A 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, actual results could differ materially from those projected in 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 sections titled Risk Factors and Forward-Looking Statements in the Company's quarterly report on Form 10-Q. Capitala 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.

Executive
Joseph B. Alala

Thank you, operator. Good morning, everyone, and thank you for joining us today. It is our pleasure to discuss our first quarter 2019 performance and address any questions you may have. Net investment income for the first quarter was $0.26 per share in excess of our quarterly distribution paid of $0.25 per share. Consistent distribution coverage remains one of our highest priorities. I would also like to point out that since the IPO, we have paid $138 million in distributions and have never had a return of capital. Net asset value per share declined by approximately 2% during the quarter. Stability and ultimately growth in net asset value per share is our highest priority.

Asset quality continue to improve during the quarter. Non-accrual balances are at their lowest level since 2014 at 1.4% of the portfolio on a fair value basis. Moreover, risk rated three balance is currently representing 16% of the portfolio at quarter end or at their lowest level since early 2016. We continue to rebalance our investment portfolio, focusing on senior secured debt investments and reducing mezzanine and equity investments. Since we started rebalancing in early 2016, first-lien debt investments as a percentage of the debt portfolio on a fair value basis, has increased from 45% to 69%. Mezzanine investments have decreased from 55% to 23% over the same time frame.

Our equity portfolio represents 12.8% and 20.5% of the investment portfolio on a cost and fair value basis at quarter end. During the quarter, we recognized a $5.9 million gain from the sale of our pending warrant in B&W Quality Growers, LLC. Part of the rebalancing of our portfolio is the need to