Main Street Announces Fourth Quarter And Full Year 2012 Financial Results

HOUSTON, March 7, 2013 /PRNewswire/ -- Main Street Capital Corporation (NYSE: MAIN) ("Main Street") announced today its financial results for the fourth quarter and full year ended December 31, 2012. 

Full Year 2012 Highlights

• Total investment income of $90.5 million, representing a 37% increase from 2011
• Distributable net investment income of $61.9 million (or $2.09 per share), representing a 50% increase from 2011 ^{(1) (2)}
• Net Asset Value of $18.59 per share at December 31, 2012, representing an increase of 22% compared to $15.19 per share at December 31, 2011
• Fully and partially exited several lower middle market ("LMM") portfolio equity investments, which along with other portfolio investment repayments and exits, resulted in an aggregate net realized gain on the investment portfolio of $15.1 million
• Paid dividends of $1.71 per share during 2012, representing a 10% increase compared to dividends paid during 2011
• Estimated spillover taxable income (taxable income in excess of dividends paid) at December 31, 2012 of $44.4 million, or $1.28 per share
• Completed two public offerings, at 143% and 160%, respectively, of the then latest reported Net Asset Value per share, for $169.9 million in total net proceeds
• Completed $150.7 million in total LMM portfolio investments, including investments in 11 new LMM portfolio companies, resulting in a diversified portfolio of 59 LMM companies at December 31, 2012  
• Completed middle market portfolio investments representing a net increase in middle market investments of $153.8 million in 2012 and a net increase of 28 in the number of middle market companies at December 31, 2012, resulting in a diversified portfolio of 85 middle market companies at December 31, 2012
• Expanded Main Street's credit facility  (the "Credit Facility") to support future investment and operational activities from $235.0 million to $287.5 million in total commitments
• Acquired all of the remaining noncontrolling interests in the Small Business Investment Company ("SBIC") subsidiary Main Street Capital II, LP ("MSC II")

Fourth Quarter 2012 Highlights

• Total investment income of $26.2 million, representing a 33% increase from the fourth quarter of 2011
• Distributable net investment income of $18.8 million (or $0.58 per share), representing a 51% increase from the fourth quarter of 2011 ^{(1) (2)}
• Paid fourth quarter 2012 dividends of $0.45 per share, or $0.15 per share for each of October, November and December 2012, representing an 11% increase compared to fourth quarter 2011 dividends
• Declared first quarter 2013 regular monthly dividends of $0.45 per share, or $0.15 per share for each of January, February and March 2013, representing an 11% increase compared to first quarter 2012 dividends
• Declared a special cash dividend of $0.35 per share payable in January 2013
• Partially exited portfolio company investment in Laurus Healthcare, LP ("Laurus"), realizing a gain of $9.9 from the sale and a times money invested return of 3.4x  on the exited investment
• Completed $58.1 million in total LMM portfolio investments, including investments in four new LMM portfolio companies totaling $50.5 million, which after aggregate repayments on debt principal and return of invested equity capital from several LMM portfolio investments  resulted in a net increase in the LMM portfolio investments of $41.5 million
• Net increase in middle market portfolio investments of $37.4 million from September 30, 2012 and a net increase of six in the number of middle market companies at December 31, 2012
• Amended the Credit Facility to extend its final maturity through September 2017

In commenting on Main Street's results, Vincent D. Foster, Main Street's Chairman, President and Chief Executive Officer, stated, "2012 was another strong year for Main Street.  The strength and performance of our investment portfolio provided us with meaningful growth in our net investment income and also generated over $15 million of net realized gains during 2012.  This growth in net investment income allowed us to increase our regular monthly dividend three times during 2012 and the realized gains provided us the opportunity to pay our first special dividend in January 2013 of $0.35 per share.  In addition to the realized gains, the investment portfolio generated significant additional unrealized appreciation as the fair value of our investments increased substantially and resulted in a record net increase in net assets from operations of over $3.50 per share.  In addition, we continued to be active from an investing standpoint and ended the year with over $1 billion of assets, which we believe is a significant milestone for the company."

Fourth Quarter 2012 Operating Results

For the fourth quarter of 2012, total investment income was $26.2 million, a 33% increase over the $19.7 million for the corresponding period of 2011. This comparable period increase was principally attributable to (i) a $3.1 million increase in interest income from increased activity in the investment portfolio and higher average levels of portfolio debt investments, (ii) a $2.4 million increase in dividend income from portfolio equity investments and (iii) a $1.0 million increase in fee income due to the increased activity in and size of the investment portfolio.  The increase in investment income included (i) a $1.7 million increase in investment income associated with higher levels of accelerated prepayment activity for certain middle market portfolio debt investments in comparison to the fourth quarter of 2011 and (ii) special dividend activity of $1.4 million in the fourth quarter of 2012.

Share-based compensation expense of $0.7 million was recognized during the fourth quarter of 2012 related to non-cash amortization expense for restricted share grants.  Cash operating expenses (total operating expenses excluding non-cash, share-based compensation expense) increased to $7.3 million in the fourth quarter of 2012 from $7.2 million in the corresponding period of 2011.  This comparable period increase in operating expenses was principally attributable to higher compensation expenses of $0.3 million related to increases in personnel and incentive compensation, partially offset by a decrease in other operating expenses of $0.2 million compared to the corresponding period of 2011. The ratio of total operating expenses, excluding interest expense, as a percentage of average total assets was 1.8% on an annualized basis for the three months ended December 31, 2012, compared to 2.3% on an annualized basis for the corresponding period of 2011, and was 1.8% for the year ended December 31, 2012, compared to 2.2% for the prior year.

Distributable net investment income, which is net investment income before non-cash, share-based compensation expense, increased 51% to $18.8 million, or $0.58 per share, compared with $12.5 million, or $0.48 per share, in the corresponding period of 2011. ^{(1) (2)}  The increase in distributable net investment income was primarily due to the higher level of total investment income discussed above.  Distributable net investment income on a per share basis for the fourth quarter of 2012 reflects (i) an increase of approximately $0.04 per share from the comparable period in 2011 in investment income attributable to higher levels of accelerated prepayment activity and repricing activity for certain portfolio debt investments and marketable securities investments, (ii) approximately $0.04 per share from the special dividend activity in the fourth quarter of 2012 and (iii) a greater number of average shares outstanding compared to the corresponding period in 2011 primarily due to the October 2011,  June 2012 and December 2012 follow-on stock offerings. 

Distributable net realized income, which is net realized income before non-cash, share-based compensation expense, increased 123% to $30.0 million, or $0.93 per share, compared with distributable net realized income of $13.4 million, or $0.51 per share, in the corresponding period of 2011. ^{(1) (2)} This increase was primarily attributable to (i) the higher level of total distributable net investment income in the fourth quarter of 2012 compared to the corresponding period of 2011 and (ii) the $9.9 million realized gain on the partial exit of Laurus.     

The net increase in net assets resulting from operations attributable to common stock during the fourth quarter of 2012 was $24.5 million, or $0.76 per share, compared with a net increase of $20.6 million, or $0.79 per share, in the fourth quarter of 2011. This $3.9 million increase was a result of the increase in net realized income discussed above, partially offset by differences in the net changes in unrealized appreciation from portfolio investments, marketable securities, SBIC debentures and investment in Main Street Capital Partners, LLC, the wholly owned investment manager ("Investment Manager") and the difference in the income tax provision.  For the three months ended December 31, 2012, the $0.6 million net change in unrealized appreciation from portfolio investments was principally attributable to (i) unrealized appreciation on 27 LMM portfolio investments totaling $15.3 million, partially offset by unrealized depreciation on 9 LMM portfolio investments totaling $3.2 million, (ii) $0.9 million of net unrealized appreciation on the middle market investment portfolio and (iii) $0.2 million of net unrealized appreciation on the Other Portfolio investments and Marketable securities and idle funds investments, partially offset by (iv) accounting reversals of net unrealized appreciation from prior periods of $12.5 million related to portfolio investment exits and repayments. For the three months ended December 31, 2012, the $1.6 million net change in unrealized appreciation attributable to SBIC debentures and investment in the Investment Manager was primarily attributable to unrealized depreciation on the SBIC debentures held by MSC II. For the three months ended December 31, 2012, we also recognized a net income tax provision of $3.8 million related to deferred taxes of $2.4 million and to other taxes of $1.4 million.   The deferred taxes are primarily related to net unrealized appreciation on equity investments held in our taxable subsidiaries.  The other taxes include $0.8 million related to an accrual for excise tax on our estimated spillover taxable income as of December 31, 2012 and $0.6 million related to accruals for state and other taxes.

Liquidity and Capital Resources

As of December 31, 2012, we had $63.5 million in cash and cash equivalents and $28.5 million in Marketable securities and idle funds investments. As of December 31, 2012, our net asset value totaled $643.0 million, or $18.59 per share. Main Street also had $155.5 million of unused capacity under the Credit Facility as of December 31, 2012.  

In November 2012, Main Street amended the Credit Facility to extend the final maturity to five years.  The amended Credit Facility contains an upsized accordion feature which allows Main Street to increase the total commitments under the facility up to $400 million from new or existing lenders on the same terms and conditions as the existing commitments.  The Credit Facility includes an initial revolving period through September 2015 followed by a two-year term out period with a final maturity in September 2017, and contains two, one-year extension options which could extend both the revolving period and the final maturity by two years, subject to certain conditions, including lender approval.  Borrowings under the Credit Facility bear interest on a per annum basis equal to the applicable LIBOR rate plus 2.5%.  As of December 31, 2012, Main Street had $132.0 million in outstanding borrowings under the Credit Facility, bearing interest at an annual interest rate of 2.7%. 

As of December 31, 2012, Main Street had $225 million of SBIC debenture leverage outstanding which bears a weighted average fixed interest rate of approximately 4.7%, paid semi-annually, and matures ten years from original issuance.  The weighted average remaining duration for the existing SBIC leverage is approximately 6.4 years as of December 31, 2012.  During the fourth quarter ended December 31, 2012, Main Street issued $16 million of new SBIC debentures to reach the $225 million SBIC leverage cap for affiliated investment funds. 

Lower Middle Market Portfolio Information (all as of December 31, 2012) ⁽³⁾

Main Street had debt and equity investments in 59 LMM companies collectively totaling approximately $510.3 million in fair value with a total cost basis of approximately $408.0 million.  Approximately 76% of Main Street's LMM portfolio investments at cost were in the form of secured debt investments, and 94% of these debt investments were secured by first priority liens on the assets of portfolio companies.  The weighted average annual effective yield on Main Street's LMM portfolio debt investments as of December 31, 2012 was 14.2%. ⁽⁴⁾ 

Based on information provided by Main Street's LMM portfolio companies, which Main Street has not independently verified, the portfolio companies had an average net senior debt (senior interest-bearing debt through Main Street's debt position less cash and cash equivalents) to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio of approximately 2.0 to 1.0 and a total EBITDA to senior interest expense ratio of approximately 4.0 to 1.0. ⁽⁵⁾  Including all debt that is junior in priority to Main Street's debt position, these ratios were approximately 2.2 to 1.0 and 3.8 to 1.0, respectively. ⁽⁵⁾       

Main Street had equity ownership in 90% of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was approximately 32%.  The fair value of Main Street's LMM portfolio company equity investments at December 31, 2012 was approximately 205% of the cost of such equity investments. 

Based upon Main Street's internal investment rating system, with a rating of "1" being the highest and a rating of "5" being the lowest, the weighted average investment rating for Main Street's total LMM investment portfolio was 2.1 at both December 31, 2012 and September 30, 2012. 

Middle Market Portfolio Information (all as of December 31, 2012) ⁽⁶⁾

Main Street had middle market portfolio investments in 85 companies collectively totaling approximately $390.0 million in fair value with a total cost basis of approximately $385.5 million.  Middle market portfolio investments primarily include investments made through direct or secondary purchases of interest-bearing debt securities in companies that are generally larger in size than Main Street's LMM portfolio companies and are included in the "Non-Control/Non-Affiliate investments" section of Main Street's balance sheet.  The weighted average annual revenues for the 85 middle market portfolio company investments was approximately $514 million. Main Street's middle market portfolio investments are primarily in the form of debt investments, and approximately 92% of such debt investments at cost were secured by first priority liens on portfolio company assets.  The weighted average annual effective yield on Main Street's middle market portfolio debt investments as of December 31, 2012 was approximately 8.8%. ⁽⁴⁾

Portfolio Quality

As of December 31, 2012, Main Street had no investments with positive fair value on non-accrual status and one fully impaired investment which comprised approximately 0.2% of the investment portfolio at cost.  Main Street's total portfolio investments at fair value were approximately 113% of the related cost basis as of December 31, 2012.

Fourth Quarter and Full Year Financial Results Conference Call / Webcast

Main Street has scheduled a conference call for Friday, March 8, 2013 at 10:00 a.m. Eastern Time to discuss the fourth quarter and full year 2012 financial results.

You may access the conference call by dialing 480-629-9835 or 877-941-0844 and quote passcode 4599646 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 15, 2013 and may be accessed by dialing 303-590-3030 and using the passcode 4599646#.  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 Form 10-K for the annual period ended December 31, 2012 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street's Year End 2012 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 in middle market 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.

Contacts:
Main Street Capital Corporation
Dwayne Hyzak, CFO and Senior Managing Director
dhyzak@mainstcapital.com  / 713-350-6000

Dennard ▪ Lascar Associates, LLC
Ken Dennard / ken@dennardlascar.com
Ben Burnham / bburnham@dennardlascar.com
773-599-3745

 

 

 

 

 

 

SOURCE Main Street Capital Corporation