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Harvest Capital Credit Corporation Announces March 31, 2021 Financial Results

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Harvest Capital Credit Corporation (the "Company," "we," or "our") (NASDAQ:HCAP) announced financial results for its first quarter ended March 31, 2021.

FINANCIAL HIGHLIGHTS

Q1-2021

Q1-2020

Amount

Per
share

Amount

Per
share

Net investment income

$120,566

$0.02

$988,670

$0.17

Core net investment income (1)

120,566

0.02

988,670

0.17

Net realized gains (losses) on investments

6,445,524

1.08

(86,427

)

(0.01

)

Net change in unrealized depreciation on investments

(3,046,949

)

(0.51

)

(4,579,537

)

(0.77

)

Benefit for taxes on unrealized losses on investments

933,742

0.16

Net income (loss)

$4,452,883

$0.75

($3,677,294

)

($0.62

)

Weighted average shares outstanding (basic and diluted)

5,968,296

5,949,548

(1)

Core net investment income and core net investment income per share are non-GAAP financial measures. For the quarters ended March 31, 2021 and 2020, there were no adjustments to GAAP net investment income and GAAP net investment income per share to arrive at core net investment income and core net investment income per share.

PORTFOLIO ACTIVITY

March 31, 2021

December 31, 2020

Portfolio investments at fair value

$

77,137,550

$

89,554,573

Total assets

$

106,992,348

$

129,944,513

Net assets

$

66,669,404

$

62,216,521

Shares outstanding

5,968,296

5,968,296

Net asset value per share

$

11.17

$

10.42

Q1-2021

Q1-2020

Portfolio activity during the period:

New debt investments

$

$

1,225,000

New equity investments

200,000

Exits of debt investments

(5,490,788

)

(2,196,600

)

Exits of equity investments

(2,791,241

)

(102,421

)

Principal repayments

(1,594,893

)

(846,241

)

Net activity

$

(9,876,922

)

$

(1,720,262

)

March 31, 2021

December 31, 2020

Number of portfolio company investments

20

21

Number of debt investments

13

14

Weighted average yield of debt and other income producing investments (1):

Cash

9.1

%

9.0

%

PIK

2.3

%

2.6

%

Fee amortization

0.9

%

0.3

%

Total

12.3

%

11.9

%

Weighted average yield on total investments (2):

Cash

7.4

%

6.9

%

PIK

1.8

%

2.0

%

Fee amortization

0.8

%

0.2

%

Total

10.0

%

9.1

%

(1)

The dollar-weighted average annualized effective yield is computed using the effective interest rates for our debt investments and other income producing investments, including cash and PIK interest as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective fair values of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio as a percentage of our debt and other income producing investments. The dollar-weighted average annualized yield on the Company’s investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company’s expenses or any sales load that may be paid by investors. GK Holdings, Inc. and ProAir Holdings Corporation were excluded from the calculation as of March 31, 2021 and December 31, 2020 because they were on non-accrual status as of those dates.

(2)

The dollar-weighted average yield on total investments takes the same yields but weights them to determine the weighted average effective yield as a percentage of the Company's total investments. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be higher than what investors in our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expenses or any sales load that may be paid by investors.

FIRST QUARTER 2021 OPERATING RESULTS

Net investment income was $0.1 million, or $0.02 per share, for the quarter ended March 31, 2021, compared to net investment income of $1.0 million, or $0.17 per share, for the quarter ended March 31, 2020, a decrease of $0.9 million in the first quarter of 2021 compared to 2020. The decrease in net investment income during the 2021 first quarter as compared to the 2020 first quarter primarily resulted from a reduction in the size of the Company's income-earning portfolio in 2021, a lower weighted-average effective yield on the income-producing portfolio, and increased professional fees incurred, primarily in connection with the pending merger with Portman Ridge Finance Corporation ("PTMN"), partially offset by lower interest expense, due to lower weighted-average borrowings outstanding during the first quarter of 2021, and reduced management fees. The Company incurred $0.3 million, or $0.04 per share, in professional fees in connection with the pending merger with PTMN during the three months ended March 31, 2021 and the Company expects to incur an additional $1.5 million, or $0.24 per share, in professional fees relating to the pending merger with PTMN.

For the quarter ended March 31, 2021, the Company recorded net operating income of $4.5 million, compared to a net operating loss of $3.7 million during the quarter ended March 31, 2020. Per share earnings were $0.75 during the three months ended March 31, 2021, compared to net loss of $0.62 per share in the three months ended March 31, 2020. The $8.2 million increase between periods was primarily attributable to a $1.5 million change in unrealized appreciation between comparative periods, an increase in realized gains of $6.5 million, and a $0.9 million benefit for deferred taxes on unrealized losses on investments incurred during the three months ended March 31, 2021, offset by a $0.9 million decrease in net investment income as discussed above.

As of March 31, 2021, our total portfolio investments at fair value and total assets were $77.1 million and $107.0 million, respectively, compared to $89.6 million and $129.9 million at December 31, 2020, respectively. Net asset value per share was $11.17 at March 31, 2021, compared to $10.42 at December 31, 2020.

The Company exited one portfolio company during the three months ended March 31, 2021. The significant investment activity for the quarter ended March 31, 2021 was as follows:

Investment Sales and Payoffs

On March 1, 2021, the Company received $5.5 million from National Program Management & Project Controls, LLC ("NPMPC") representing full payoffs at par for both of the senior secured term loan and the senior secured delayed draw term loan and the Company also received a prepayment fee of $0.1 million. In addition, the Company received proceeds of $9.0 million for the sale of its Class A membership interests in NPMPC. An additional $0.1 million is held in escrow and is scheduled to be released to the Company at a later date once certain conditions are met. The Company generated an internal rate of return (IRR*) of 13.9% on its debt investments and 81.2% on its equity investment in NPMPC.

* IRR is the rate of return that makes the net present value of all cash flows into or from the investment equal to zero, and is calculated based on the amount of each cash flow received or invested by the Company and the day it was received or invested.

"We had a successful quarter. Despite the shrinking portfolio of interest earning assets and the elevated operating expenses related to the pending merger with Portman Ridge Finance Corporation, we generated net investment income for shareholders. Furthermore, we continue to benefit from our focus on active portfolio management that, coupled with a recovering US economy, resulted in significant realized gains and led to a material increase in our net asset value to $11.17 per share at period end, compared to a pre-pandemic net asset value of $11.23 at December 2019," concluded Mr. Jolson.

CREDIT QUALITY

The Company employs various risk management and monitoring tools to categorize and assess its investments. No less frequently than quarterly, the Company applies an investment risk rating system which uses a five-level numeric scale. In determining an investment rating, Company management takes into account various aspects of a company's performance during the measurement period and assigns an investment rating to each aspect, which are then averaged. Such averages may inform, but do not necessarily determine, the investment rating assigned to a company. The following is a description of the conditions associated with each investment rating:

  • Investment Rating 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.

  • Investment Rating 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2.

  • Investment Rating 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants.

  • Investment Rating 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout. Investments with a rating of 4 are those for which there is an increased possibility of loss of return, but no loss of principal is expected.

  • Investment Rating 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout. Investments with a rating of 5 are those for which loss of return and principal is expected.

As of March 31, 2021, the weighted average risk rating of the debt investments in the Company's portfolio decreased to 2.79 from 2.74 in the previous quarter. Also, as of March 31, 2021, three of the Company’s thirteen debt investments were rated 1, three investments were rated 2, three investments were rated 3, four investments were rated 4, and no investments were rated 5. As of March 31, 2021, two investments with a combined fair value of $6.2 million were on non-accrual status.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are derived from our senior secured revolving credit facility, proceeds received from offerings of our securities, if any, such as the 2022 Notes in August 2017, cash flows from operations, including investment sales and repayments, and cash income earned. Our primary uses of funds from operations include investments in portfolio companies and other operating expenses we incur, as well as the payment of distributions to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as proceeds from any future public and private offerings of securities to finance our investment activities. To the extent the pending merger with PTMN does not close, we may amend or refinance our leverage facilities and borrowings, in order to, among other things, modify covenants or the interest rates payable and extend the reinvestment period or maturity date.

As of March 31, 2021, the Company had $28.8 million of cash and restricted cash and $7.3 million of undrawn borrowing capacity under its senior secured revolving credit facility. On April 1, 2021, the Company repaid $10.0 million on the senior secured revolving credit facility. As of May 7, 2021, the Company had fully repaid the balance on its senior secured revolving credit facility. The revolving period under the credit facility is scheduled to end on June 30, 2021. The credit facility is secured by all of the Company’s assets.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO MARCH 31, 2021

On April 5, 2021, the Company sold its membership interests in Infinite Care, LLC and received a final payment to satisfy the amounts outstanding under its senior secured term loan and revolving line of credit provided to Infinite Care, LLC. The Company received $7.6 million in gross proceeds at the closing of the transaction. An additional $2.2 million of proceeds is scheduled to be released to the Company at various dates during the two-year period following the closing date of the transaction once certain conditions are met.

On April 30, 2021, the Company received $2.5 million from Water-Land Manufacturing & Supply, LLC, representing a full payoff at par of the Company's junior secured term loan. The Company also received a $25,000 prepayment fee upon the payoff.

On May 3, 2021, the Company received $4.4 million from Safety Services Acquisition Corp., representing a full payoff at par of the Company's senior secured term loan. The Company retained its Series A preferred stock investment in Safety Services Acquisition Corp.

ABOUT HARVEST CAPITAL CREDIT CORPORATION

Harvest Capital Credit Corporation (NASDAQ:HCAP) provides customized financing solutions to privately held small and mid-sized companies in the U.S., generally targeting companies with annual revenues of less than $100 million and annual EBITDA of less than $15 million. The Company’s investment objective is to generate both current income and capital appreciation primarily by making direct investments in the form of senior debt, subordinated debt and, to a lesser extent, minority equity investments. Harvest Capital Credit Corporation is externally managed and has elected to be treated as a business development company under the Investment Company Act of 1940. For more information about Harvest Capital Credit Corporation, visit www.harvestcapitalcredit.com. However, the contents of such website are not and should not be deemed to be incorporated by reference herein.

Forward-Looking Statements

This press release contains forward-looking statements subject to the inherent uncertainties in predicting future events, results and conditions. Any statements that are not of historical fact (including statements containing the words "believes", "plans", "anticipates", "expects", "estimates", and similar expressions) should also be considered to be forward-looking statements. Certain factors could cause actual events, results and conditions, including those relating to the timing or likelihood of the closing of the pending merger with PTMN, to differ materially from those discussed or projected in these forward-looking statements, including, without limitation, the failure to secure the shareholder approval required for the consummation of the merger with PTMN, the failure to fulfill all of the other various conditions to the consummation of the merger, changes in our relationships and contractual arrangements with lenders and our portfolio companies and changes in economic, market or other conditions, including with respect to the impact of the COVID-19 pandemic and its effects on the Company and its portfolio companies' results of operations and financial condition. These factors are identified from time to time in our filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. We undertake no obligation to update such statements to reflect subsequent events, except as may be required by law.

Harvest Capital Credit Corporation

Consolidated Statements of Assets and Liabilities

March 31,

December 31,

2021

2020

(Unaudited)

ASSETS:

Non-affiliated/non-control investments, at fair value (cost of $44,009,529 at 3/31/2021 and $45,081,806 at 12/31/20)

$

43,076,198

$

43,075,802

Affiliated investments, at fair value (cost of $26,576,003 at 3/31/21 and $34,972,335 at 12/31/20)

24,090,925

35,563,428

Control investments, at fair value (cost of $14,078,735 at 3/31/21 and $13,980,200 at 12/31/20)

9,970,427

10,915,343

Cash

17,512,542

7,905,299

Restricted cash

11,250,378

31,478,661

Interest receivable

501,995

545,330

Accounts receivable – other

331,698

106,415

Deferred financing costs

144,943

205,630

Other assets

113,242

148,605

Total assets

$

106,992,348

$

129,944,513

LIABILITIES:

Revolving line of credit

$

10,000,000

$

35,591,406

2022 Notes (net of deferred offering costs and unamortized discount of $354,732 at 3/31/21 and $410,330 at 12/31/20)

28,395,268

28,339,670

Accrued interest payable

98,976

114,367

Accounts payable - base management fees

416,194

474,217

Accounts payable - administrative services

350,000

350,000

Accounts payable - accrued expenses

759,919

1,622,003

Deferred tax liability

302,587

1,236,329

Total liabilities

40,322,944

67,727,992

Commitments and contingencies (Note 8)

NET ASSETS:

Common stock, $0.001 par value, 100,000,000 shares authorized, 6,610,261 issued and 5,968,296 outstanding at 3/31/21 and 12/31/20

6,610

6,610

Capital in excess of common stock

89,578,243

89,578,243

Treasury shares, at cost, 641,965 shares at 3/31/21 and 12/31/20

(6,723,505

)

(6,723,505

)

Accumulated over distributed earnings

(16,191,944

)

(20,644,827

)

Total net assets

66,669,404

62,216,521

Total liabilities and net assets

$

106,992,348

$

129,944,513

Common stock outstanding

5,968,296

5,968,296

Net asset value per common share

$

11.17

$

10.42

Harvest Capital Credit Corporation

Consolidated Statements of Operations

Three Months Ended March 31,

2021

2020

Investment Income:

Interest:

Cash - non-affiliated/non-control investments

$

881,146

$

1,564,087

Cash - affiliated investments

570,151

1,301,790

Cash - control investments

98,535

PIK - non-affiliated/non-control investments

130,654

109,634

PIK - affiliated investments

138,064

155,328

PIK - control investments

98,535

Amortization of fees, discounts and premiums

Non-affiliated/non-control investments

55,712

89,995

Affiliated investments

97,633

59,747

Total interest income

2,070,430

3,280,581

Other income

126,210

6,180

Total investment income

2,196,640

3,286,761

Expenses:

Interest expense – revolving line of credit

59,392

321,119

Interest expense - unused line of credit

50,851

55,396

Interest expense - deferred financing costs

61,935

58,005

Interest expense - 2022 Notes

440,235

440,235

Interest expense - deferred offering costs and discount

55,597

51,853

Total interest expense

668,010

926,608

Professional fees

451,533

209,045

General and administrative

190,337

231,272

Base management fees

416,194

581,166

Administrative services expense

350,000

350,000

Total expenses

2,076,074

2,298,091

Net Investment Income

120,566

988,670

Net realized gains (losses):

Non-Affiliated / Non-Control investments

(86,427

)

Control investments

6,445,524

Net realized gains (losses)

6,445,524

(86,427

)

Net change in unrealized appreciation (depreciation) on investments:

Non-Affiliated / Non-Control investments

1,072,674

(3,242,104

)

Affiliated investments

(3,076,171

)

(1,727,883

)

Control investments

(1,043,452

)

390,450

Net change in appreciation depreciation on investments

(3,046,949

)

(4,579,537

)

Total net unrealized and realized losses on investments

3,398,575

(4,665,964

)

Benefit for taxes on unrealized losses on investments

933,742

Net increase (decrease) in net assets resulting from operations

$

4,452,883

$

(3,677,294

)

Net investment income per share

$0.02

$0.17

Net increase (decrease) in net assets resulting from operations per share

$0.75

($0.62

)

Weighted average shares outstanding (basic and diluted)

5,968,296

5,949,548

© 2021 Harvest Capital Credit Corporation

View source version on businesswire.com: https://www.businesswire.com/news/home/20210507005578/en/

Contacts

Investors & Media Relations
Harvest Capital Credit Corporation
Joseph Jolson
Chairman & Chief Executive Officer
(415) 835-8970
jjolson@harvestcaps.com

William E. Alvarez, Jr
Chief Financial Officer
(212) 906-3589
balvarez@harvestcaps.com