Main Street Announces 2019 Fourth Quarter And Annual Results

HOUSTON, Feb. 27, 2020 /PRNewswire/ -- Main Street Capital Corporation (NYSE: MAIN) ("Main Street") is pleased to announce its financial results for the fourth quarter and full year ended December 31, 2019.

Fourth Quarter 2019 Highlights

• Net investment income of $39.2 million (or $0.62 per share)
• Distributable net investment income⁽¹⁾ of $42.1 million (or $0.66 per share)
• Total investment income of $60.6 million
• Industry leading ratio of total non-interest operating expenses as a percentage of quarterly average total assets ("Operating Expenses to Assets Ratio") of 1.2% on an annualized basis
• Declared regular monthly dividends totaling $0.615 per share for the first quarter of 2020, or $0.205 per share for each of January, February and March 2020, representing a 5.1% increase from the regular monthly dividends paid for the first quarter of 2019
• Paid semi-annual supplemental cash dividend of $0.24 per share in December 2019
• Completed $36.3 million in total lower middle market ("LMM") portfolio investments, including an investment of $24.8 million in one new LMM portfolio company, which after aggregate repayments of debt principal and return of invested equity capital from several LMM portfolio investments resulted in a net increase of $13.2 million in total LMM portfolio investments
• Net decrease of $18.3 million in middle market portfolio investments
• Net increase of $71.2 million in private loan portfolio investments
• Further diversified capital structure by issuing an additional $75.0 million of 5.20% Notes due 2024 ("5.20% Notes") at a premium to par of approximately 105%, resulting in a yield-to-maturity of approximately 3.95%

Full Year 2019 Highlights

• Net investment income of $157.4 million (or $2.50 per share)
• Distributable net investment income⁽¹⁾ of $167.4 million (or $2.66 per share)
• Total investment income of $243.4 million
• Industry leading Operating Expenses to Assets Ratio of 1.4%
• Generated net realized gains of $13.8 million resulting from the full exits of four LMM portfolio companies
• Net increase in net assets resulting from operations of $129.6 million (or $2.06 per share)
• Paid regular monthly dividends totaling $2.415 per share, representing a 5.2% increase compared to $2.295 for 2018
• Paid supplemental cash dividends totaling $0.49 per share
• Completed $135.2 million in total LMM portfolio investments, including investments totaling $77.7 million in five new LMM portfolio companies, which after aggregate repayments of debt principal and return of invested equity capital from several LMM portfolio investments resulted in a net increase of $5.8 million in total LMM portfolio investments
• Net decrease of $41.6 million in middle market portfolio investments
• Net increase of $176.5 million in private loan portfolio investments
• Further diversified capital structure by issuing $325.0 million of 5.20% Notes

In commenting on Main Street's results, Dwayne L. Hyzak, Main Street's Chief Executive Officer, stated, "We are pleased that we again generated distributable net investment income per share in excess of our regular monthly dividends, exceeding the monthly dividends paid during the fourth quarter by approximately 7% and for the full year by approximately 10%, and we achieved this after increasing our monthly dividends paid in 2019 by over 5% from prior year. In addition, during 2019 we were also able to successfully execute on our previously stated goal of growing our private loan investment portfolio and being very selective with new investments in our middle market portfolio. Lastly, we were also successful in further strengthening our capital structure and liquidity position over the last 12 months, and we believe that the benefits of our conservative capital structure and significant liquidity position, coupled with the advantages of our differentiated investment strategy and efficient operating structure, have us well positioned for long-term growth and continued future success." 

Fourth Quarter 2019 Operating Results

The following table provides a summary of our operating results for the fourth quarter of 2019:

The $1.4 million increase in total investment income in the fourth quarter of 2019 from the comparable period of the prior year was principally attributable to a $1.6 million increase in dividend income from investment portfolio equity investments, partially offset by a $0.2 million decrease in interest income. The $1.4 million increase in total investment income in the fourth quarter of 2019 is net of the negative impact of a decrease of $0.4 million related to lower accelerated prepayment, repricing and other activity for certain investment portfolio debt investments when compared to the same period in 2018.

Cash operating expenses (total operating expenses excluding non-cash, share-based compensation expense) increased to $18.6 million in the fourth quarter of 2019 from $14.9 million for the corresponding period of 2018. This increase in cash operating expenses was principally attributable to (i) a $1.9 million increase in compensation expense primarily due to an increase in incentive compensation accruals related principally to a $0.9 million decrease in the amount of cash bonus that was converted to a non-cash restricted stock grant and a $0.7 million increase in the fair value of our deferred compensation plan assets during the fourth quarter of 2019, in both cases as compared to the same period in 2018, (ii) a $1.6 million increase in interest expense primarily due to our 5.20% Notes, partially offset by the effect of payments on our other debt, and (iii) a $0.4 million increase in general and administrative expenses. Our Operating Expenses to Assets Ratio was 1.4% in 2019, unchanged from 2018.

The $2.8 million decrease in net investment income in the fourth quarter of 2019 was principally attributable to higher operating expenses, partially offset by the increase in total investment income, both as discussed above.

The $2.3 million decrease in distributable net investment income, which is net investment income before non-cash, share-based compensation expense, in the fourth quarter of 2019 was primarily due to higher operating expenses, partially offset by the higher level of total investment income, both as discussed above. Distributable net investment income on a per share basis for the fourth quarter of 2019 includes the impacts of (i) a decrease of approximately $0.01 per share from the comparable period in 2018 attributable to the decrease in the comparable levels of accelerated prepayment, repricing and other activity for certain investment portfolio debt investments as discussed above, (ii) a decrease of $0.03 per share due to the reduction in the amount of cash bonus converted to a non-cash restricted stock grant and the increase in the fair value of our deferred compensation plan assets during the fourth quarter of 2019, both as discussed above, and (iii) a greater number of average shares outstanding compared to the corresponding period in 2018 primarily due to shares issued through our at-the-market, or ATM, program, shares issued pursuant to our equity incentive plans and shares issued pursuant to our dividend reinvestment plan.

The $6.5 million increase in the net increase in net assets resulting from operations in the fourth quarter of 2019 was primarily the result of (i) a $5.8 million improvement in net unrealized appreciation (depreciation) from portfolio investments, including the impact of accounting reversals relating to realized gains/income (losses), (ii) a $3.3 million benefit from the change in the income tax benefit (provision) and (iii) a $0.5 million improvement in the net realized loss from investments, with these increases partially offset by a $2.8 million decrease in net investment income as discussed above. The net realized loss from investments of $0.9 million for the fourth quarter of 2019 was primarily the result of the realized loss of $2.9 million from the restructure of a middle market investment, partially offset by the realized gain of $2.5 million resulting from the exit of a private loan investment.

The following table provides a summary of the total net unrealized depreciation of $23.5 million for the fourth quarter of 2019:

Liquidity and Capital Resources

As of December 31, 2019, we had $55.2 million in cash and cash equivalents, $405.0 million of unused capacity under our revolving credit facility ("Credit Facility"), which we maintain to support our investment and operating activities, and $35.2 million of remaining SBIC debenture capacity.

Several details regarding our capital structure as of December 31, 2019 are as follows:

• Our Credit Facility included $705.0 million in total commitments from a diversified group of seventeen participating lenders, plus an accordion feature which allows us to increase the total commitments under the facility to up to $800.0 million.
• $300.0 million in outstanding borrowings under our Credit Facility, with an interest rate of 3.7% based on LIBOR as of December 31, 2019 and effective as of the contractual reset date on January 1, 2020.
• $311.8 million of outstanding SBIC debentures through our three wholly owned SBIC subsidiaries. These debentures, which are guaranteed by the U.S. Small Business Administration, had a weighted-average annual fixed interest rate of approximately 3.6% and mature ten years from original issuance. The first maturity related to our SBIC debentures occurs late in the third quarter of 2020, and the weighted-average remaining duration was approximately 5.1 years.
• $325.0 million of notes outstanding that bear interest at a rate of 5.20% per year. The 5.20% Notes mature on May 1, 2024 and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions.
• $185.0 million of notes outstanding that bear interest at a rate of 4.50% per year (the "4.50% Notes due 2022"). The 4.50% Notes due 2022 mature on December 1, 2022 and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions.
• Our net asset value totaled $1,536.4 million, or $23.91 per share.

Investment Portfolio Information as of December 31, 2019 ⁽²⁾

The following table provides a summary of the investments in our LMM portfolio, middle market portfolio and private loan portfolio as of December 31, 2019:

The fair value of our LMM portfolio company equity investments was approximately 174% of the cost of such equity investments and our LMM portfolio companies had a median net senior debt (senior interest-bearing debt through our debt position less cash and cash equivalents) to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio of 2.8 to 1.0 and a median total EBITDA to senior interest expense ratio of 2.9 to 1.0. Including all debt that is junior in priority to our debt position, these median ratios were 2.9 to 1.0 and 2.8 to 1.0, respectively.^{(2) (3)}

As of December 31, 2019, we had other portfolio investments in eleven companies, collectively totaling $106.7 million in fair value and $118.4 million in cost basis, which comprised approximately 4.1% of our investment portfolio at fair value.

As of December 31, 2019, there was no cost basis in our investment in the External Investment Manager and this investment had a fair value of $74.5 million, which comprised approximately 2.9% of our investment portfolio at fair value.

As of December 31, 2019, we had eight investments on non-accrual status, which comprised approximately 1.4% of the total investment portfolio at fair value and approximately 4.8% at cost. Our total portfolio investments at fair value were approximately 107% of the related cost basis as of December 31, 2019.

External Investment Manager

The External Investment Manager is a wholly owned portfolio company and registered investment advisor that provides investment management services to third parties. The External Investment Manager maintains an investment sub-advisory relationship with HMS Income Fund, Inc., a non-listed business development company ("HMS Income"), and earns management fees for the services provided to HMS Income. During the fourth quarter of 2019, the External Investment Manager generated $3.1 million of fee income from this relationship, which consisted of $2.7 million of base management fees and $0.4 million in incentive fees, and HMS Income ended the fourth quarter of 2019 with total assets of approximately $1.1 billion. The relationship with HMS Income benefited our net investment income by $2.8 million in the fourth quarter of 2019 through a $1.7 million reduction of our operating expenses for expenses we allocated to the External Investment Manager for services we provided to it and $1.1 million of dividend income we received from the External Investment Manager.

Fourth Quarter 2019 Financial Results Conference Call / Webcast

Main Street has scheduled a conference call for Friday, February 28, 2020 at 10:00 a.m. Eastern Time to discuss the fourth quarter and full year 2019 financial results.

You may access the conference call by dialing 412-902-0030 at least 10 minutes prior to the start time. The conference call can also be accessed via a simultaneous webcast by logging into the investor relations section of the Main Street web site at http://www.mainstcapital.com.

A telephonic replay of the conference call will be available through Friday, March 6, 2020 and may be accessed by dialing 201-612-7415 and using the passcode 13697784#. An audio archive of the conference call will also be available on the investor relations section of the company's website at http://www.mainstcapital.com shortly after the call and will be accessible for approximately 90 days.

For a more detailed discussion of the financial and other information included in this press release, please refer to the Main Street Annual Report on Form 10-K for the year ended December 31, 2019 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street's Fourth Quarter 2019 Investor Presentation to be posted on the investor relations section of the Main Street website at http://www.mainstcapital.com.

ABOUT MAIN STREET CAPITAL CORPORATION

Main Street (www.mainstcapital.com) is a principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies. Main Street's portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in diverse industry sectors. Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its lower middle market portfolio. Main Street's lower middle market companies generally have annual revenues between $10 million and $150 million. Main Street's middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies.

FORWARD-LOOKING STATEMENTS

Main Street cautions that statements in this press release which are forward-looking and provide other than historical information involve risks and uncertainties that may impact its future results of operations. The forward-looking statements in this press release are based on current conditions and include statements regarding Main Street's goals, beliefs, strategies and future operating results and cash flows. Although its management believes that the expectations reflected in those forward-looking statements are reasonable, Main Street can give no assurance that those expectations will prove to have been correct. Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: Main Street's continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which its portfolio companies operate; changes in laws and regulations that may adversely impact its operations or the operations of one or more of its portfolio companies; the operating and financial performance of its portfolio companies; retention of key investment personnel; competitive factors; and such other factors described under the captions "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors" included in its filings with the Securities and Exchange Commission (www.sec.gov). Main Street undertakes no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations.

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SOURCE Main Street Capital Corporation