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Harvest Capital Credit Corporation Announces June 30, 2018 Financial Results and Declares Regular Monthly Distributions for July, August and September

August 9, 2018

NEW YORK--(BUSINESS WIRE)--Aug 9, 2018--Harvest Capital Credit Corporation (the “Company”) (NASDAQ: HCAP) announced that its Board of Directors declared distributions of $0.095 per share for the months of July, August and September. The July distribution is payable on August 30, 2018 to shareholders of record on August 23, 2018. The August distribution is payable on September 27, 2018 to shareholders of record on September 20, 2018. The September distribution is payable on October 25, 2018 to shareholders of record on October 18, 2018. The Company’s distributions may include a return of capital to shareholders to the extent that the Company’s net investment income and net capital gains are insufficient to support the distributions. Distributions that are treated for tax purposes as a return of capital will reduce each shareholder’s basis in his, her or its shares. Returns of shareholder capital also have the effect of reducing the Company’s assets.

SECOND QUARTER AND YEAR TO DATE 2018 OPERATING RESULTS

For the quarter ended June 30, 2018, the Company reported net income of $0.8 million, an increase of $2.7 million from $(1.9) million of net loss in the quarter ended June 30, 2017. Per share earnings (loss) were $0.13 and $(0.29) per share for the three months ended June 30, 2018 and 2017, respectively.

For the quarter ended June 30, 2018, the Company reported a $0.9 million decrease in net investment income and core net investment income, compared to the quarter ended June 30, 2017. Net investment income and core net investment income were $1.6 million, or $0.25 per share, for the quarter ended June 30, 2018, compared to $2.5 million, or $0.39 per share, for the quarter ended June 30, 2017.

The $2.7 million improvement in net income for the quarter ended June 30, 2018, compared to the quarter ended June 30, 2017, was primarily attributable to a $3.6 million positive change in net unrealized depreciation (which is net of $0.5 million of deferred taxes), decrease in interest expense of $0.2 million and a decrease in professional fees of $0.1 million, partially offset by a $1.0 million decrease in investment income, $0.2 million increase in management and administrative fees and a $0.1 million decrease in net realized gains, for the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017.

Net investment income and core net investment income decreased in the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017, primarily as a result of lower investment income offset by lower operating expenses. Investment income was lower as a result of a smaller investment portfolio and slightly lower weighted average effective yield for the quarter ended June 30, 2018, as compared to the quarter ended June 30, 2017.

As of June 30, 2018, our total portfolio investments at fair value and total assets were $120.6 million and $133.6 million, respectively, compared to $115.6 million and $128.2 million at December 31, 2017. Net asset value per share was $12.52 at June 30, 2018, compared to $12.66 at December 31, 2017.

During the second quarter of 2018, the Company made investments in three companies totaling $4.9 million. One of the investments was in a new portfolio company and two were additional investments in existing portfolio companies. The Company also had investment sales, payoffs and commitment expirations totaling $2.5 million during the three months ended June 30, 2018. The investment activity for the quarter ended June 30, 2018 was as follows:

NEW AND INCREMENTAL INVESTMENTS

During the second quarter of 2018, the Company increased its debt investment in Infinite Care, LLC by $0.7 million through two over-advances on its revolver commitment. The revolver carries an interest rate of LIBOR plus 12.0%. Infinite Care was on non-accrual status, however, as of June 30, 2018.

On June 29, 2018, the Company made a $4.0 million senior secured debt investment and a $0.2 million equity investment in National Program Management & Project Controls, LLC. The debt investment consists of a $3.6 million term loan and a $0.4 million revolver. The loans carry an interest rate of 1 month LIBOR plus 10.0% with a 1.95% LIBOR floor.

During the second quarter of 2018, the Company increased its equity investment in King Engineering Associates, Inc., with a $0.1 million pro-rata increase through two add-on fundings to purchase Class A common stock.

INVESTMENT SALES AND PAYOFFS

On May 23, 2018, the Company received a full repayment, at par, on its senior secured debt investment in Bridgewater Engine Ownership III, LLC. The original par value of the debt investment was $1.4 million. The Company generated an internal rate of return (“IRR”) of 11.6% 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.

“Our second quarter results continue to reflect our reduced capital deployment as well as stable, but below our historical, credit quality,” said Joseph A. Jolson, Chairman and CEO. “We are increasingly optimistic that both these issues could improve over the next few quarters. We currently have three mandated deals totaling $17.1 million that could close in the next few months, though we do expect an increase in payoffs. We have also implemented specific resolution plans on each of our 3, 4 and 5 rated credits and hope to show improved credit metrics in the next six months,” 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. 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 some 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 some loss of return and principal is expected.

As of June 30, 2018, the weighted average risk rating of the debt investments in the Company’s portfolio remained stable at 2.24 from the previous quarter. Also, as of June 30, 2018, eight of the Company’s twenty-three debt investments were rated 1, ten investments were rated 2, three investments were rated 3, one investment was rated 4, and one investment was rated 5. As of June 30, 2018, one investment was on non-accrual status.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2018, the Company had $11.8 million of cash and restricted cash and $11.3 million of undrawn capacity on its $55.0 million senior secured revolving credit facility. The credit facility is secured by all of the Company’s assets and has an accordion feature that allows the size of the facility to increase up to $85.0 million.

Additionally, the Company held three syndicated loans totaling $8.3 million at fair value as of June 30, 2018. These investments could be sold and the proceeds re-invested in our core lower-middle market strategy, as attractive opportunities arise. Subsequent to June 30, 2018, we received a full repayment on one of our syndicated loans in Sitel Worldwide Corporation totaling $1.8 million.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO JUNE 30, 2018

On July 31, 2018, the Company received a full repayment at par value plus a 1.0% prepayment fee on its junior secured term loan in Sitel Worldwide Corporation. The Company generated an IRR of 11.7% on its investment.

On August 1, 2018, the Company declared monthly distributions of $0.095 per share payable on each August 30, 2018, September 27, 2018 and October 25, 2018.

On August 2, 2018, the Company received a full repayment at par value for its senior secured term loan in AMS Flight Leasing and its senior secured term loan in IAG Engine Center, LLC. The Company generated an IRR of 15.0% on its investment in AMS Flight Leasing and an IRR of 15.7% on its investment in IAG Engine Center, LLC. The Company also received its final distribution on its revenue linked security investment in IAG Engine Center, LLC. The Company generated an IRR of 48.9% on its investment and had entered into an agreement with Flight Lease XX, Inc. regarding potential future payout of proceeds, from the sale of an asset, to the extent sales proceeds exceed $0.6 million, where the Company would receive 50% of any excess over $0.6 million with a $0.3 million cap.

On August 7, 2018, the Company made a $2.5 million junior secured debt investment in Water-Land Manufacturing & Supply, LLC. The term loan carries an interest rate of 3 month LIBOR + 10.5% with a 2.25% LIBOR floor.

CONFERENCE CALL

The Company will host a conference call on Thursday, August 9, 2018 at 11:00 a.m. Eastern Time to discuss its second quarter results. All interested parties are invited to participate in the conference call by dialing (888) 566-6060 (domestic) or (973) 200-3100 (international). Participants should enter the Conference ID 4884932 when prompted.

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 subordinated debt, senior 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 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 results and conditions to differ materially from those projected in these forward-looking statements. These factors are identified from time to time in our filings with the Securities and Exchange Commission. We undertake no obligation to update such statements to reflect subsequent events, except as may be required by law.

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