Harvest Capital Credit Corporation (the “Company,” “we,” or “our”) (NASDAQ: HCAP) announced financial results for its fiscal year and fourth quarter ended December 31, 2020.

FINANCIAL HIGHLIGHTS

 

Q4-20

 

Q4-19

 

FY-20

 

FY-19

 

Amount

Per

share

 

Amount

Per

share

 

Amount

Per

share

 

Amount

Per

share

Net investment income (loss)

($382,537

)

($0.06

)

 

$1,153,280

 

$0.19

 

 

$1,664,179

 

$0.28

 

 

$3,828,786

 

$0.63

 

Core net investment income (loss) (1)

(382,537

)

(0.06

)

 

1,153,280

 

0.19

 

 

1,664,179

 

0.28

 

 

3,828,786

 

0.63

 

Net realized losses on investments

(2,908,762

)

(0.49

)

 

(2,333,549

)

(0.39

)

 

(4,923,171

)

(0.83

)

 

(2,363,853

)

(0.38

)

Net change in unrealized appreciation (depreciation) on investments

7,012,964

 

1.18

 

 

869,874

 

0.15

 

 

2,160,547

 

0.36

 

 

(2,671,388

)

(0.44

)

Provision for taxes on unrealized gains on investments

(1,236,329

)

(0.21

)

 

—

 

—

 

 

(1,236,329

)

(0.21

)

 

—

 

—

 

Net income (loss)

$2,485,336

 

$0.42

 

 

($310,395

)

($0.05

)

 

($2,334,774

)

($0.39

)

 

($1,206,455

)

($0.20

)

Weighted average shares outstanding (basic and diluted)

5,958,799

 

 

 

5,944,914

 

 

 

5,956,339

 

 

 

6,114,474

 

 

(1)

Core net investment income and core net investment income per share are non-GAAP financial measures. For each of the fiscal years and quarters ended December 31, 2020 and 2019, 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

 

December 31,

2020

 

December 31,

2019

 

 

 

 

 

Portfolio investments at fair value

$

89,554,573

 

 

$

116,809,390

 

 

 

 

 

Total assets

$

129,944,513

 

 

$

140,059,736

 

 

 

 

 

Net assets

$

62,216,521

 

 

$

66,781,482

 

 

 

 

 

Shares outstanding

5,968,296

 

 

5,945,854

 

 

 

 

 

Net asset value per share

$

10.42

 

 

$

11.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q4-20

 

Q4-19

 

FY-20

 

FY-19

Portfolio activity during the period:

 

 

 

 

 

 

 

New debt investments

$

—

 

 

$

4,426,801

 

 

$

2,219,812

 

 

$

55,322,156

 

New equity investments

193,367

 

 

10,637

 

 

425,099

 

 

3,747,775

 

Exits of debt investments

(8,285,151

)

 

—

 

 

(25,338,310

)

 

(21,438,058

)

Exits of equity investments

—

 

 

—

 

 

(289,391

)

 

(206,435

)

Principal repayments

(602,315

)

 

(1,890,347

)

 

(4,263,595

)

 

(8,073,409

)

Net activity

$

(8,694,099

)

 

$

2,547,091

 

 

$

(27,246,385

)

 

$

29,352,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

2020

 

December 31,

2019

Number of portfolio company investments

21

 

 

25

 

Number of debt investments

 

 

 

 

14

 

 

20

 

 

 

 

 

 

 

 

 

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

 

 

 

Cash

 

 

 

 

9.0

%

 

12.0

%

PIK

 

 

 

 

2.6

%

 

1.1

%

Fee amortization

 

 

 

 

0.3

%

 

0.9

%

Total

 

 

 

 

11.9

%

 

14.0

%

 

 

 

 

 

 

 

 

Weighted average yield on total investments (2):

 

 

 

Cash

 

 

 

 

6.9

%

 

9.7

%

PIK

 

 

 

 

2.0

%

 

0.9

%

Fee amortization

 

 

 

 

0.2

%

 

0.7

%

Total

 

 

 

 

9.1

%

 

11.3

%

(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 December 31, 2020 and Infinite Care, LLC and CP Holding Co., Inc. were excluded from the calculation as of December 31, 2019 because they were on non-accrual status on such 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.

FOURTH QUARTER AND YEAR TO DATE 2020 OPERATING RESULTS

For the three months ended December 31, 2020, the Company recorded net income of $2.5 million, as compared to a net loss of $0.3 million in the quarter ended December 31, 2019. The increase in net income principally resulted from the Company recording a higher net change in unrealized appreciation on investments offset by a lower investment income as a result of a lower weighted-average effective yield on the Company's investment portfolio, lower prepayment and other non-recurring fees, the addition of GK Holdings, Inc. and ProAir Holdings Corporation to non-accrual status during 2020 and an increase in realized losses. During the fourth quarter of 2020, Infinite Care, LLC was removed from non-accrual status. Per share earnings (loss) were $0.42 and ($0.05) per share for the three months ended December 31, 2020 and 2019, respectively.

Net investment loss and core net investment loss was $0.4 million, or $0.06 per share, for the quarter ended December 31, 2020, compared to net investment income and core net investment income of $1.2 million, or $0.19 per share, for the quarter ended December 31, 2019, a decrease of $1.6 million in the fourth quarter of 2020 compared to 2019. The decrease in net investment income during the 2020 fourth quarter as compared to the 2019 fourth quarter primarily resulted from an increase in operating expenses between periods. The Company incurred approximately $1.0 million in expenses relating to the previously announced proposed merger with Portman Ridge Finance Corporation. In addition, investment income decreased by approximately $0.5 million between periods due to a lower weighted-average effective yield on the Company's income-earning portfolio and the reduced size of the income-earning portfolio between periods.

For the year ended December 31, 2020, the Company recorded a net loss of $2.3 million, an increase in loss of $1.1 million from a net loss of $1.2 million during the year ended December 31, 2019. The $1.1 million loss increase was primarily attributable to a $1.1 million decrease in investment income, a $1.1 million increase in operating expenses, and an increase of $2.6 million in realized losses, partially offset by a $3.6 million change between periods in net unrealized appreciation/depreciation on investments, net of provision for taxes. Per share losses were $0.39 and $0.20 per share for the years ended December 31, 2020 and 2019, respectively.

Net investment income was $1.7 million, or $0.28 per share, for the year ended December 31, 2020, compared to net investment income of $3.8 million, or $0.63 per share, for the year ended December 31, 2019, a decrease of $2.1 million in the 2020 fiscal year as compared to 2019. The decrease in net investment income during the 2020 year as compared to 2019, was primarily the result of a decrease in investment income and an increase in operating expenses, primarily relating to the previously announced proposed merger with Portman Ridge Finance Corporation.

As of December 31, 2020, our total portfolio investments at fair value and total assets were $89.6 million and $129.9 million, respectively, compared to $116.8 million and $140.0 million at December 31, 2019. Net asset value per share was $10.42 at December 31, 2020, compared to $11.23 at December 31, 2019.

During the fourth quarter of 2020, the Company made two additional equity investments in existing portfolio companies. The Company had one payoff during the three months ended December 31, 2020. The significant investment activity for the quarter ended December 31, 2020 was as follows:

New and Incremental Investments

On October 28, 2020, the Company increased its equity investment in Slappey Communications, LLC with a $0.1 million add-on funding to purchase preferred equity units.

On December 24, 2020, the Company increased its equity investment in Surge Hippodrome Partners LP with a $0.1 million add-on funding to purchase common equity units.

Investment Sales and Payoffs

On October 30, 2020, the Company received a $7.8 million repayment, at par plus a 2.0% prepayment premium, on its senior secured debt investment in Slappey Communications, LLC. The original par value of the debt investment was $7.9 million. The Company generated an internal rate of return (IRR*) of 17.81% on its investment.

* 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 made good progress in migrating away from assets rated lower on our internal investment rating scale and increasing our liquidity in the fourth quarter of 2020. At year end, non-accrual loans had been reduced to $5.6 million (at fair value), including $1.6 million that was under contract for sale to close in the second quarter of 2021. Recently, one large credit in our portfolio paid off its loan as a result of a sale transaction, and we utilized a portion of the proceeds to pay down our bank line of credit and currently have $18.8 million in cash," said Joseph Jolson, Chairman and CEO. "Despite absorbing $0.17 per share in merger-related costs in the fourth quarter of 2020, our NAV rose 9.9% on an annualized basis to $10.42 per share, as a result of improving fundamentals at our portfolio companies, the expected exit of selected credits at higher valuations than their September 2020 fair values, and tightening credit spreads overall in the lower middle market. Our merger with Portman Ridge Finance Corporation is expected to close in the second quarter of 2021 and our shareholders will have an opportunity to elect to receive cash or stock consideration prior to closing, subject to a maximum amount of approximately 15 million shares of Portman Ridge's common stock being issued," 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 December 31, 2020, the weighted average risk rating of the debt investments in the Company's portfolio improved slightly to 2.74 from 2.80 in the previous quarter. Also, as of December 31, 2020, three of the Company’s fourteen debt investments were rated 1, four investments were rated 2, three investment were rated 3, four investments were rated 4, and no investments were rated 5. As of December 31, 2020, two investments with a combined fair value of $5.6 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 use of funds from operations includes 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 proposed merger with Portman Ridge Finance Corporation 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 December 31, 2020, the Company had $7.9 million of unrestricted cash and $31.5 million of restricted cash and had $35.6 million outstanding under its senior secured revolving credit facility. On January 4, 2021, the Company repaid $30.0 million on the senior secured revolving credit facility. As of March 12, 2021, the Company fully repaid the balance on its senior secured revolving credit facility. The revolving period under the credit facility was scheduled to end on January 31, 2021. However, on January 22, 2021, the Company amended the credit facility to, among other things, extend the revolving period to June 30, 2021, until which date the Company may receive additional advances at the discretion of the lenders. Please see the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 12, 2021, for more information.

SIGNIFICANT PORTFOLIO DEVELOPMENTS SUBSEQUENT TO DECEMBER 31, 2020

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 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 interest in NPMPC. An additional $0.1 million is held in escrow and will be released to the Company at a later date.

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 proposed merger with Portman Ridge Finance Corporation, 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 Portman Ridge Finance Corporation, 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 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

 

 

December 31,

 

December 31,

 

2020

 

2019

ASSETS:

 

 

 

Non-affiliated/non-control investments, at fair value (cost of $45,081,806 at 12/31/20 and $61,379,670 at 12/31/19)

$

43,075,802

 

 

$

60,973,556

 

Affiliated investments, at fair value (cost of $34,972,335 at 12/31/20 and $48,111,833 at 12/31/19)

35,563,428

 

 

47,431,234

 

Control investments, at fair value (cost of $13,980,200 at 12/31/20 and $13,958,202 at 12/31/19)

10,915,343

 

 

8,404,600

 

Cash

7,905,299

 

 

11,199,083

 

Restricted cash

31,478,661

 

 

10,648,199

 

Interest receivable

545,330

 

 

663,191

 

Accounts receivable – other

106,415

 

 

184,804

 

Deferred financing costs

205,630

 

 

425,379

 

Other assets

148,605

 

 

129,690

 

Total assets

$

129,944,513

 

 

$

140,059,736

 

 

 

 

 

LIABILITIES:

 

 

 

Revolving line of credit

$

35,591,406

 

 

$

43,700,000

 

2022 Notes (net of deferred offering costs of $410,330 at 12/31/20 and $623,276 at 12/31/19)

28,339,670

 

 

28,126,724

 

Accrued interest payable

114,367

 

 

152,544

 

Accounts payable - base management fees

474,217

 

 

593,266

 

Accounts payable - administrative services expenses

350,000

 

 

350,000

 

Accounts payable - accrued expenses

1,622,003

 

 

355,720

 

Deferred tax liability

1,236,329

 

 

—

 

Total liabilities

67,727,992

 

 

73,278,254

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

NET ASSETS:

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 6,610,261 issued and 5,968,296 outstanding at 12/31/20 and 6,587,819 issued and 5,945,854 outstanding at 12/31/19

6,610

 

 

6,588

 

Capital in excess of common stock

89,578,243

 

 

90,876,759

 

Treasury shares at cost 641,965 shares at each of 12/31/20 and 12/31/19

(6,723,505

)

 

(6,723,505

)

Accumulated over distributed earnings

(20,644,827

)

 

(17,378,360

)

Total net assets

62,216,521

 

 

66,781,482

 

Total liabilities and net assets

$

129,944,513

 

 

$

140,059,736

 

 

 

 

 

Common stock outstanding

5,968,296

 

 

5,945,854

 

 

 

 

 

Net asset value per common share

$

10.42

 

 

$

11.23

 

 

Harvest Capital Credit Corporation

Consolidated Statements of Operations

 

 

Three Months Ended December 31,

 

Year Ended December 31,

 

2020

(Unaudited)

 

2019

(Unaudited)

 

2020

 

2019

Investment Income:

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

Cash - non-affiliated/non-control investments

$

981,641

 

 

$

1,693,943

 

 

$

4,580,619

 

 

$

5,941,454

 

Cash - affiliated investments

623,874

 

 

1,224,324

 

 

4,114,144

 

 

4,718,181

 

Cash - control investments

98,633

 

 

—

 

 

98,633

 

 

—

 

PIK - non-affiliated/non-control investments

177,453

 

 

85,904

 

 

553,774

 

 

135,140

 

PIK - affiliated investments

210,436

 

 

157,246

 

 

646,817

 

 

726,693

 

PIK - control investments

98,633

 

 

—

 

 

98,633

 

 

—

 

Amortization of fees, discounts and premiums, net:

 

 

 

 

 

 

 

Non-affiliated/non-control investments

89,672

 

 

94,216

 

 

338,136

 

 

642,433

 

Affiliated investments

167,778

 

 

53,547

 

 

759,743

 

 

171,672

 

Total interest income

2,448,120

 

 

3,309,180

 

 

11,190,499

 

 

12,335,573

 

Other income

195,000

 

 

46,357

 

 

357,317

 

 

334,811

 

Total investment income

2,643,120

 

 

3,355,537

 

 

11,547,816

 

 

12,670,384

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Interest expense – revolving line of credit

146,455

 

 

312,626

 

 

1,158,910

 

 

640,119

 

Interest expense - unused line of credit

44,185

 

 

59,406

 

 

159,237

 

 

327,876

 

Interest expense - deferred financing costs

61,337

 

 

57,780

 

 

301,582

 

 

226,678

 

Interest expense - unsecured notes

440,235

 

 

440,235

 

 

1,760,940

 

 

1,760,940

 

Interest expense - deferred offering costs

54,637

 

 

50,956

 

 

212,948

 

 

198,602

 

Total interest expense

746,849

 

 

921,003

 

 

3,593,617

 

 

3,154,215

 

Professional fees

990,411

 

 

82,835

 

 

1,598,981

 

 

1,099,075

 

General and administrative

364,181

 

 

255,154

 

 

1,073,803

 

 

982,003

 

Base management fees

474,216

 

 

593,265

 

 

2,117,236

 

 

2,206,305

 

Investment banking fees

100,000

 

 

—

 

 

100,000

 

 

—

 

Administrative services expense

350,000

 

 

350,000

 

 

1,400,000

 

 

1,400,000

 

Total expenses

3,025,657

 

 

2,202,257

 

 

9,883,637

 

 

8,841,598

 

Net Investment Income (Loss)

(382,537

)

 

1,153,280

 

 

1,664,179

 

 

3,828,786

 

Net realized gains (losses):

 

 

 

 

 

 

 

Non-Affiliated / Non-Control investments

(2,843,176

)

 

(2,165,243

)

 

(5,019,378

)

 

(2,112,792

)

Affiliated investments

(39,587

)

 

—

 

 

208,707

 

 

20,750

 

Control investments

(25,999

)

 

(168,306

)

 

(112,500

)

 

(271,811

)

Net realized losses

(2,908,762

)

 

(2,333,549

)

 

(4,923,171

)

 

(2,363,853

)

Net change in unrealized appreciation (depreciation) on investments:

 

 

 

 

 

 

 

Non-Affiliated / Non-Control investments

3,023,037

 

 

973,998

 

 

(1,599,890

)

 

(2,474,585

)

Affiliated investments

1,845,082

 

 

(390,254

)

 

1,271,692

 

 

275,097

 

Control investments

2,144,845

 

 

286,130

 

 

2,488,745

 

 

(471,900

)

Net change in unrealized appreciation (depreciation) on investments

7,012,964

 

 

869,874

 

 

2,160,547

 

 

(2,671,388

)

Total net unrealized and realized gains (losses) on investments

4,104,202

 

 

(1,463,675

)

 

(2,762,624

)

 

(5,035,241

)

Provision for taxes on unrealized gains on investments

(1,236,329

)

 

—

 

 

(1,236,329

)

 

—

 

Net increase (decrease) in net assets resulting from operations

$

2,485,336

 

 

$

(310,395

)

 

$

(2,334,774

)

 

$

(1,206,455

)

 

 

 

 

 

 

 

 

Net investment income (loss) per share

($0.06

)

 

$0.19

 

 

$0.28

 

 

$0.63

 

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

$0.42

 

 

($0.05

)

 

($0.39

)

 

($0.20

)

Weighted average shares outstanding (basic and diluted)

5,958,799

 

 

5,944,914

 

 

5,956,339

 

 

6,114,474