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Solar Capital Announces December 31, 2011 Financial Results; 4% Increase in NAV; Declares Quarterly Dividend of $0.60 per Share

Solar Capital Ltd (NASDAQ: SLRC), today reported earnings of $1.42 per share and net investment income of $20.7 million, or $0.57 per share, for the quarter ended December 31, 2011. At year end, net asset value (NAV) per share was $22.02, a 4% increase from September 30, 2011. Solar Capital also announced that its Board of Directors has declared a first quarter dividend of $0.60 per share, payable on April 3, 2012 to stockholders of record on March 20, 2012. The Company expects the dividend to be paid from taxable earnings with specific tax characteristics reported to stockholders after the end of the 2012 calendar year.

 
Year-End Balance Sheet Highlights
($ in millions, except per share amounts)
  2011   2010
Investment Portfolio $ 1,045.0 $ 976.2
Total Assets $ 1,079.4 $ 1,291.8
Net Assets $ 805.9 $ 827.0
 
NAV per share $ 22.02 $ 22.73
 
Investment Portfolio Composition:
Senior Secured Loans $ 412.4 $ 247.1
Subordinated Debt $ 546.9 $ 649.8
Equity Investments $ 85.8 $ 79.3
 
Weighted Average Portfolio Statistics:
Yield on Fair Value 14.2 % 14.3 %
Yield on Cost 13.2 % 13.8 %
 
 
Income Highlights for the Quarter and Year
($ in millions)
       

Quarter ended

December 31,

2011

Quarter ended

December 31,

2010

Year ended

December 31,

2011

Year ended

December 31,

2010

 
Investment Income $ 36.0 $ 31.6 $ 138.9 $ 124.6
 
Net Investment Income (NII) $ 20.7 $ 17.4 $ 81.9 $ 69.2
Net Realized and Unrealized Gain (Loss)   31.2   25.0   (20.6 )   72.7
Net Income $ 51.9 $ 42.4 $ 61.3   $ 141.9
 
NII per share $ 0.57 $ 0.51 $ 2.25 $ 2.08
 

“We are very pleased with our performance for 2011,” said Michael Gross, Chairman and CEO. “Our originations of approximately $400 million have resulted in a portfolio with over 70% of its fair value in assets underwritten post the 2008 credit correction. We view these post-2008 vintage assets as having highly attractive risk-reward characteristics. We are well positioned to further expand our portfolio to drive increases in earnings through the deployment of our $300 million of uninvested capital. During 2011, we increased our borrowing capacity to $540 million and obtained investment grade ratings from Standard & Poor’s and Fitch, further enhancing our funding options.”

Portfolio and Investment Activity

During the quarter ended December 31, 2011, we invested approximately $75.5 million across two new and two existing portfolio companies. We received proceeds of approximately $92.9 million from principal repayments and sales of securities during the fourth quarter.

During the year ended December 31, 2011, we invested approximately $395.6 million across 13 new and six existing portfolio companies. We received proceeds of approximately $338.2 million from principal repayments and sales of securities during the year.

As of December 31, 2011, the fair value weighted average yield on income producing investments in our portfolio was approximately 14.2%, compared to 14.6% and 14.3% at September 30, 2011 and December 31, 2010, respectively.

The portfolio was comprised of 40% senior secured loans, 52% subordinated debt, and 8% equity. As of December 31, there was one asset on non-accrual status with a total market value of approximately $5.9 million. Performing loans comprised 99.4% of the fair value of the debt portfolio.

As of December 31, 2011, the weighted average investment rating on the fair market value of our portfolio was 2.

Results of Operations

Investment income was $36.0 million and $31.6 million for the three months ended December 31, 2011 and 2010, respectively. The fourth quarter 2011 investment income was higher due to increased interest income on a higher average invested balance. Net investment income was $20.7 million or $0.57 per share and $17.4 million or $0.51 per share for the three months ended December 31, 2011 and 2010, respectively. For the quarter, increased investment income and lower interest expenses were partially offset by higher management and incentive fees, on a larger portfolio, and higher operating expenses.

The net realized and unrealized gain of $31.2 million for the three months ended December 31, 2011 was primarily due to an increase in the fair value of our portfolio during the period due to improved market trends and realizations above prior period marks.

For the years ended December 31, 2011 and 2010, investment income totaled $138.9 million and $124.6 million, respectively. Investment income was higher for 2011 primarily due to higher interest and dividend income on a larger average invested balance. Net investment income of $81.9 million for the year ended December 31, 2011 was $12.7 million higher than in 2010. During 2011, increased investment income and lower interest expenses were partially offset by higher management and incentive fees, on a larger portfolio, and higher operating expenses.

The net realized and unrealized loss of $20.6 million for the year ended December 31, 2011 was primarily attributable to a decrease in the fair value of our portfolio assets during the second half of the year primarily due to market technicals.

Conference Call and Webcast

We will host an earnings conference call and audio webcast at 10:00 a.m. (Eastern Time) on Thursday, February 23, 2012. All interested parties may participate in the conference call by dialing 866-314-4865 approximately 5-10 minutes prior to the call, international callers should dial 617-213-8050. Participants should reference Solar Capital Ltd. and the participant passcode of 70624245 when prompted. Following the call you may access a replay of the event via audio webcast. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through Solar Capital’s website, http://www.solarcapltd.com/. To listen to the live call, please go to the Company's website at least 15 minutes prior to the start of the call to register and download any necessary audio software. For those who are not able to listen to the live broadcast, a replay will be available shortly after the call on the Solar Capital website.

Financial Statements and Tables

 
SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

   
December 31, December 31,
2011 2010
 
Assets
Investments at fair value:
Companies more than 25% owned (cost: $47,910 and $20,511, respectively) $ 53,454 $ 20,508
Companies 5% to 25% owned (cost: $41,819 and $34,806, respectively) 35,820 29,235
Companies less than 5% owned (cost: $1,062,844 and $1,008,244, respectively)   955,769     926,478  
Total investments (cost: $1,152,573 and $1,063,561, respectively) 1,045,043 976,221
 
Cash and cash equivalents 11,787 288,732
Interest and dividends receivable 9,763 5,592
Deferred credit facility costs 3,635 5,904
Fee revenue receivable 4,379 3,935

Derivative assets (cost $2,938 and $0, respectively)

649 604
Receivable for investments sold 3,225 10,560
Deferred offering costs 469
Prepaid expenses and other receivables   481     243  
Total Assets   1,079,431     1,291,791  
 
Liabilities
Credit facilities payable 201,355 400,000
Term Loan 35,000 35,000
Payable for investments purchased 22,443 14,625
Due to Solar Capital Partners LLC:
Investment advisory and management fee payable 5,277 4,892
Performance-based incentive fee payable 5,203 4,347
Interest payable 1,063 597
Deferred fee revenue 318 1,242
Due to Solar Capital Management LLC 1,069 773
Derivative liabilities 1,539
Income taxes payable 720 329
Other accrued expenses and payables   1,042     1,453  
Total Liabilities   273,490     464,797  
 
Net Assets
Common stock, par value $0.01 per share 36,608,038 and 36,383,158 shares issued and outstanding, respectively, 200,000,000 shares authorized 366 364
Paid-in capital in excess of par 928,180 926,991
Under (over) distributed net investment income 2,245 (1,545 )
Accumulated net realized losses (18,379 ) (10,541 )
Net unrealized depreciation   (106,471 )   (88,275 )
Total Net Assets $ 805,941   $ 826,994  
 
Number of shares outstanding 36,608,038 36,383,158
Net Asset Value Per Share $ 22.02 $ 22.73
 

 
SOLAR CAPITAL LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

     
Year ended

December 31, 2011

Year ended

December 31, 2010

Year ended

December 31, 2009

 
INVESTMENT INCOME:
Interest and dividends:
Companies more than 25% owned $ 6,963 $ 670 $
Companies 5% to 25% owned 7,673 9,190
Other interest and dividend income   131,937     116,298     100,480  
Total investment income   138,900     124,641     109,670  
 
EXPENSES:
Investment advisory and management fees 20,596 18,296 16,738
Performance-based incentive fee 20,476 17,305 16,815
Interest and other credit facility expenses 9,212 14,276 2,636
Administrative service fee 1,638 1,294 2,020
Other general and administrative expenses   4,326     3,930     3,971  
Total operating expenses   56,248     55,101     42,180  
Net investment income before income tax expense   82,652     69,540     67,490  
Income tax expense   748     328     228  
Net investment income   81,904     69,212     67,262  
 
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, DERIVATIVES AND FOREIGN CURRENCIES:
Net realized gain (loss):
Investments:
Companies more than 25% owned (30 )
Companies 5% to 25% owned 784 16,397
Companies less than 5% owned   3,092     (55,762 )   (253,364 )
Net realized gain (loss) on investments 3,876 (39,365 ) (253,394 )
Derivatives (5,620 ) (3,124 ) (12,608 )
Foreign currency exchange   (418 )   3,521     1,104  
Net realized loss before income taxes   (2,162 )   (38,968 )   (264,898 )
Income tax expense   231     -     -  
Net realized loss   (2,393 )   (38,968 )   (264,898 )
 
Net change in unrealized gain (loss):
Investments:
Companies more than 25% owned 5,547 997 (3,900 )
Companies 5% to 25% owned (428 ) (13,892 ) 3,823
Companies less than 5% owned   (25,309 )   126,403     287,748  
Net unrealized gain (loss) on investments (20,190 ) 113,508 287,671
Derivatives (1,354 ) (1,204 ) (2,583 )
Foreign currency exchange   3,348     (663 )   (516 )
Net change in unrealized gain (loss)   (18,196 )   111,641     284,572  
 
Net realized and unrealized gain (loss) on investments, derivatives and foreign currencies   (20,589 )   72,673     19,674  
 
Net increase in net assets resulting from operations $ 61,315   $ 141,885   $ 86,936  
 
Earnings per share $ 1.68 $ 4.27 $ 2.65
 

ABOUT SOLAR CAPITAL LTD.

Solar Capital Ltd. is a closed-end investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. The Company invests primarily in leveraged, middle market companies in the form of senior secured loans, mezzanine loans, and equity securities.

FORWARD-LOOKING STATEMENTS

Statements included herein may constitute “forward-looking statements,” which relate to future events or our future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the Securities and Exchange Commission. Solar Capital Ltd. undertakes no duty to update any forward-looking statements made herein.

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