Kohlberg Capital Corp. Reports Operating Results (10-Q)

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May 28, 2010
Kohlberg Capital Corp. (KCAP, Financial) filed Quarterly Report for the period ended 2010-03-31.

Kohlberg Capital Corp. has a market cap of $102.4 million; its shares were traded at around $4.69 with a P/E ratio of 2.9 and P/S ratio of 2.1. The dividend yield of Kohlberg Capital Corp. stocks is 14.5%.

Highlight of Business Operations:

The annual management fees which Katonah Debt Advisors receives are generally based on a fixed percentage of the par value of assets under management and are recurring in nature for the term of the CLO Fund so long as Katonah Debt Advisors manages the fund. As a result, the annual management fees earned by Katonah Debt Advisors are not subject to market value fluctuations in the underlying collateral. The annual management fees Katonah Debt Advisors receives have two components - a senior management fee and a subordinated management fee. At March 31, 2010, Katonah Debt Advisors continued to receive all senior management fees payable by the CLO Funds managed by it. However, certain CLO Funds (representing approximately $1.2 billion of the $2.1 billion of Katonah Debt Advisors assets under management), are not paying their subordinated management fee. These subordinated management fees, totaling approximately $4 million per year, have been restricted from being paid as a result of the failure by the CLO Funds to satisfy certain restrictive covenants contained in their indenture agreements. Such subordinated management fees continue to be accrued by the applicable CLO Fund (and on the books of Katonah Debt Advisors), and will be payable to Katonah Debt Advisors if and when such CLO Fund becomes compliant with the applicable covenants. As of March 31, 2010, approximately $6 million of subordinated management fees have been accrued and Katonah Debt Advisors currently expects a portion of such fees to become payable to it within the next year. However, there can be no assurance that these fees will become payable or, if they do become payable, that the applicable CLO Fund will have sufficient cash to make the payments to Katonah Debt Advisors.

Investment income for the three months ended March 31, 2010 and 2009 was approximately $7 million and $9 million, respectively. Of this amount, approximately $5 million and $7 million, respectively, was attributable to interest income on our loan and bond investments. For the three months ended March 31, 2010 and 2009, approximately $2 million and $3 million, respectively, of investment income was attributable to dividends earned on CLO equity investments.

As of March 31, 2010, our investment in Katonah Debt Advisors was approximately $56 million. For the three months ended March 31, 2010 and 2009, Katonah Debt Advisors had pre-tax net income of approximately $693,000 and net loss of $9,000, respectively. For the three months ended March 31, 2010 and 2009, Katonah Debt Advisors made no distributions of net income.

Total expenses for the three months ended March 31, 2010 and 2009 were approximately $4 million and $3 million, respectively. Interest expense and amortization on debt issuance costs for the period, which includes facility and program fees on the unused loan balance, were approximately $3 million and $2 million on average debt outstanding of $203 million and $254 million, respectively. Approximately $788,000 and $801,000, respectively, of expenses were attributable to employment compensation, including salaries, bonuses and stock option expense for the three months ended March 31, 2010 and 2009. For the three months ended March 31, 2010 and 2009, other expenses included approximately $901,000 and $690,000, respectively, for professional fees, insurance, administrative and other. For the three months ended March 31, 2010 and 2009, administrative and other costs totaled approximately $290,000 and $262,000, respectively, and include occupancy expense, insurance, technology and other office expenses.

During the three months ended March 31, 2010 and 2009, our total investments had a change in net unrealized appreciation of approximately $1 million and $4 million, respectively. For the three months ended March 31, 2010, Katonah Debt Advisors had a change in unrealized depreciation of approximately $5 million, offset by our middle market portfolio of debt securities, equity securities and CLO Fund securities, which had a change in unrealized appreciation of approximately $6 million. For the three months ended March 31, 2009, Katonah Debt Advisors had a change in unrealized appreciation of approximately $1 million and our middle market portfolio of debt securities, equity securities and CLO Fund securities had a change in unrealized appreciation of approximately $3 million.

The net increase in stockholders equity resulting from operations for the three months ended March 31, 2010 was approximately $2 million, or $0.07, per share. The net increase in stockholders equity resulting from operations for the three months ended March 31, 2009 was approximately $9 million or $0.41, per share.

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