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Stellus Capital Investment Corporation Reports Results for its Second Fiscal Quarter Ended June 30, 2020

July 31, 2020 at 6:00 AM EDT

HOUSTON, July 31, 2020 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2020.

"The second quarter brought very positive results for the Company: net investment income of $0.28 per share exceeded distributions of $0.25 per share, net asset value increased by 15%, or $1.79 per share, and liquidity and access to funding exceeded $45 million. Given the stabilization of asset quality, capital base and liquidity, the Company is declaring a regular dividend of $0.25 per share for the third quarter," reported Robert T. Ladd, Chief Executive Officer of Stellus Capital Investment Corporation.

FINANCIAL HIGHLIGHTS




($ in millions, except data relating to per share amounts and shares outstanding)

















Q2-20


YTD-20



Amount

Per Share


Amount

Per Share








Net investment income


$5.44

$0.28


$11.68

$0.60








Core net investment income (1)


5.72

0.29


11.28

0.58








Net realized loss on investments


(3.89)

(0.20)


(2.60)

(0.13)








Total realized income(2)


1.54

0.08


9.08

0.47








Distributions


(4.87)

(0.25)


(11.49)

(0.59)








Net unrealized appreciation







(depreciation) on investments


38.33

1.96


(13.18)

(0.68)








Provision for taxes on unrealized gains







on investments in taxable subsidiaries


(0.06)

(0.00)


(0.03)

(0.00)








Net increase in net assets resulting







from operations


39.81

2.04


(4.13)

(0.21)








Weighted average shares outstanding


19,484,217


19,456,849

 

(1)

Core net investment income, as presented, excludes the impact of capital gains incentive fees and income taxes, the majority of which are excise taxes. The company believes presenting core net investment income and the related per share amount is a useful supplemental disclosure for analyzing its financial performance. However, core net investment income is a non-U.S GAAP measure and should not be considered as a replacement for net investment income and other earnings measures presented in accordance with U.S GAAP. A reconciliation of net investment income in accordance with U.S GAAP to core net investment income is presented in the table below the financial statements.              

(2)

Total realized income is the sum of net investment income and net realized gains on investments; both U.S GAAP measures.   

 

 

PORTFOLIO ACTIVITY










($ in millions, except data relating to per share amounts and number of portfolio companies)
















As of


As of









June 30,


December 31,









2020


2019







Investments at fair value


$640.7


$628.9







Total assets


$666.7


$648.5







Net assets


$260.0


$270.6







Shares outstanding


19,486,003


19,131,746







Net asset value per share


$13.34


$14.14

































Quarter Ended


Year Ended









June 30,


June 30,









2020


2020


















New investments


$6.7


$68.2







Repayments of investments


(10.5)


(42.3)







Net activity


$(3.8)


$25.9




























As of


As of









June 30,


December 31,









2020


2019














Number of portfolio company investments


65


63

Number of debt investments


51


51






Weight average yield of debt and other income producing investments (1)





Cash


7.7%


8.7%

PIK


0.0%


0.0%

Fee amortization


0.4%


0.5%

Total


8.1%


9.2%






Weighted average yield on total investments (2)





Cash


7.3%


8.3%

PIK


0.0%


0.0%

Fee amortization


0.4%


0.5%

Total


7.7%


8.8%














 

(1)

The dollar-weighted average annualized effective yield is computed using the effective interest rate for our debt investments and other income producing investments, including cash and PIK interest, as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective cost of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be higher than what investors of our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expense or any sales load that may be paid by investors.

(2)

The dollar weighted average yield on total investments takes the same yields as calculated in the footnote above, but weights them to determine the weighted average effective yield as a percentage of the Company's total investments, including non-income producing loans and equity.

 

Results of Operations

Investment income for the three months ended June 30, 2020 and 2019 totaled $13.8 million and $14.2 million, respectively, most of which was interest income from portfolio investments. 

Operating expenses for the three months ended June 30, 2020 and 2019, totaled $8.4 million and $8.8 million, respectively. For the same respective periods, base management fees totaled $2.7 million and $2.3 million, income incentive fees totaled $0.2 million and $1.4 million, capital gains incentive fees totaled $0.0 million and $0.1 million, fees and expenses related to our borrowings totaled $4.1 million and $3.4 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.4 million and $0.4 million, income tax totaled $0.3 million and $0.3 million, and other expenses totaled $0.7 million and $0.9 million, respectively.

For the three months ended June 30, 2020 and 2019, net investment income was $5.4 million and $5.4 million, or $0.28 and $0.29 per common share based on weighted average common shares outstanding of 19,484,217 and 18,883,745, respectively.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended June 30, 2020 and 2019, of $38.3 million and ($2.1) million, respectively.  For the three months ended June 30, 2020 and 2019, the Company had realized gains (losses) of ($3.9) million and $2.7 million, respectively. 

For the three months ended June 30, 2020 and 2019, net increase in net assets resulting from operations totaled $39.8 million and $6.0 million, or $2.04 per common share and $0.32 per common share, based on weighted average common shares outstanding of 19,484,217 and 18,883,745, respectively. The majority of the increase resulted from the $38.3 million of net unrealized appreciation for the three months ended June 30, 2020, which was primarily from the normalization of the primary index utilized in the valuation process in the second quarter to pre-COVID-19 pandemic levels, offset by approximately $1.1 million of additional company-specific unrealized depreciation during the three months ended June 30, 2020

Liquidity and Capital Resources

As of June 30, 2020 and 2019, our credit facilities provided for borrowings in an aggregate amount up to $230.0 and $180.0 million, respectively, on a committed basis.  As of June 30, 2020, our credit facility had an accordion feature which allowed for potential future expansion of the facility size up to $250.0 million. As of June 30, 2020 and December 31, 2019, we had $185.0 million and $161.6 million in outstanding borrowings under the credit facility, respectively. As of June 30, 2020 and December 31, 2019, we had approximately $45.0 million and $58.4 million, respectively, of unused borrowing capacity.

For the six months ended June 30, 2020, our operating activities used cash of $12.4 million primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments.  For the same period, our financing activities provided cash of $19.5 million, due to net borrowings under our Credit Facility.

For the six months ended June 30, 2019, our operating activities used cash of $7.9 million, primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $8.7 million, due to a secondary offering during the year, offset by repayments on our Credit Facility.

Distributions

During the three months ended June 30, 2020 and 2019, we declared aggregate distributions for each quarter of $0.25 and $0.34 per share, respectively ($4.9 million and $6.4 million, respectively) for each quarter. Tax characteristics of all distributions during the calendar year will be reported to stockholders on Form 1099-DIV after the end of the calendar year.  None of these distributions is expected to include a return of capital.

Portfolio Activity During the Quarter

On April 1, 2020, we invested an additional $0.9 million in the revolver of Elliott Aviation, LLC, an existing portfolio company. Subsequent paydowns totaling $1.8 million were received by the Company throughout the quarter.

On April 1, 2020, we invested $1.3 million in the revolver of Sales Benchmark Index, LLC, an existing portfolio company. A subsequent paydown of $0.4 million was received by the Company on May 29, 2020.

On April 1, 2020, we invested an additional $0.9 million in the revolver of Lynx FBO Operating, LLC, an existing portfolio company. Subsequent paydowns totaling $1.9 million were received by the Company throughout the quarter.

On April 1, 2020, our investments in Furniture Factory Outlet, LLC and Furniture Factory Holdings, LLC were placed on non-accrual.

On April 2, 2020, our $1.6 million commitment in the delayed draw term loan of GS HVAM Intermediate, LLC expired.

On April 3, 2020, our existing second lien investment of $9.5 million in KidKraft was terminated in exchange for a $1.5 million last out term loan and $4.0 million of preferred equity.

On April 3, 2020, we invested $0.6 million in the revolver of Integrated Oncology Network, LLC, an existing portfolio company.

On April 10, 2020, we invested $0.7 million in the delayed draw term loan of Munch's Supply, LLC, an existing portfolio company.

On April 14, 2020, we invested $1.1 million in the revolver of Venbrook Buyer, LLC, an existing portfolio company, and on May 15, 2020, we invested an additional $1.1 million in the revolver.

On April 24, 2020, our delayed draw term loan commitment of $4.4 million for Venbrook Buyer, LLC was amended such that the borrower would not be permitted to borrow the delayed draw term loan before July 15, 2020.

On April 28, 2020, our delayed draw term loan commitment of $4.0 million to Exacta Land Surveyors, LLC, was amended to allow us, as administrative agent, to have full discretion to fund the delayed draw term loan commitment.

On April 29, 2020, our $1.7 million commitment in the delayed draw term loan of BFC Solmetex, LLC was extinguished.

On May 27, 2020, we invested $0.1 million in the equity of USASF Blocker IV, LLC, an existing portfolio company.

On June 29, 2020, we invested $0.02 million in the equity of TFH Reliability Group, LLC, an existing portfolio company.

Events Subsequent to June 30, 2020

On July 17, 2020, we invested $7.1 million in the first lien term loan of Industry Dive, Inc., a provider of mobile and desktop-based newsletters containing industry-specific business analysis and news targeting executives. Additionally, we committed $0.1 million in the unfunded revolver, of which $0.04 million was funded on July 17, 2020.

On July 21, 2020 we received a paydown of $2.7 million on the revolver of GS HVAM Intermediate, LLC, an existing portfolio company.

Unfunded Commitments

As of July 30, 2020, we had unfunded commitments of $30.7 million, including unfunded delayed draw term loan commitments of $12.1 million.

Credit Facility

The outstanding balance under the Credit Facility as of July 30, 2020 was $182.0 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of July 30, 2020 was $161.0 million.

Distributions

The Company paid distributions of $0.25 for shareholders of record as of July 15, 2020 on July 31, 2020, as declared on June 30, 2020.

On July 29, 2020, the Company's board of directors declared a distribution of $0.25 per share on September 30, 2020, to shareholders of record on September 15, 2020.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, July 31, 2020 at 10:00 AM, Central Time. The conference call will be led by Robert T. Ladd, chief executive officer, and W. Todd Huskinson, chief financial officer, chief compliance officer, treasurer, and secretary.

For those wishing to participate by telephone, please dial 800-353-6461 (domestic). Use passcode 6250711.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Saturday, August 8, 2020 by dialing (888) 203-1112 and entering passcode 6250711. The replay will also be available on the company's website.

About Stellus Capital Investment Corporation

The Company is an externally-managed, closed-end, non-diversified investment management company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. The Company's investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation by investing primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche), second lien and unsecured debt financing, with corresponding equity co-investments. The Company's investment activities are managed by its investment adviser, Stellus Capital Management. To learn more about Stellus Capital Investment Corporation, visit www.stelluscapital.com under the "Public Investors" tab.

Forward-Looking Statements

Statements included herein may contain "forward-looking statements" which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release, including statements about COVID-19 and its impacts, such as significant market volatility and changes in base interest rates, may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission including the final prospectus that will be filed with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Contacts

Stellus Capital Investment Corporation
W. Todd Huskinson, (713) 292-5414
Chief Financial Officer
thuskinson@stelluscapital.com

 

 

PART I — FINANCIAL INFORMATION









STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES












June 30,






2020


December 31,



(Unaudited)


2019

ASSETS







Non-controlled, non-affiliated investments, at fair value








(amortized cost of $667,649,307 and $642,707,824,








respectively)

$

640,713,831


$

628,948,077


Cash and cash equivalents


23,209,941



16,133,315


Receivable for sales and repayments of investments


113,812



123,409


Interest receivable


2,325,856



2,914,710


Other receivables


25,495



25,495


Prepaid expenses


266,843



368,221



Total Assets

$

666,655,778


$

648,513,227

LIABILITIES







Notes payable

$

48,139,950


$

47,974,202


Credit facility payable


184,075,319



160,510,633


SBA-guaranteed debentures


157,886,403



157,543,853


Dividends payable


4,871,504



2,167,630


Management fees payable


5,462,248



2,695,780


Income incentive fees payable


1,660,862



1,618,509


Capital gains incentive fees payable




880,913


Interest payable


2,167,084



2,322,314


Director fees payable


9,000




Unearned revenue


646,000



559,768


Administrative services payable


796,768



413,278


Deferred tax liability


164,664



134,713


Income tax payable


456,000



917,000


Other accrued expenses and liabilities


366,668



203,461



Total Liabilities

$

406,702,470


$

377,942,054


Commitments and contingencies (Note 7)








Net Assets

$

259,953,308


$

270,571,173

NET ASSETS







Common stock, par value $0.001 per share (100,000,000 shares








authorized; 19,486,003 and 19,131,746 issued and outstanding,








respectively)

$

19,486


$

19,132


Paid-in capital


277,116,729



272,117,091


Accumulated undistributed deficit


(17,182,907)



(1,565,050)



Net Assets

$

259,953,308


$

270,571,173



Total Liabilities and Net Assets

$

666,655,778


$

648,513,227



Net Asset Value Per Share

$

13.34


$

14.14

























 

 

STELLUS CAPITAL INVESTMENT CORPORATION
















 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


















For the


For the


For the


For the




three

three

six

six




months ended

months ended

months ended

months ended




June 30,

June 30,

June 30,

June 30,




2020

2019

2020

2019

INVESTMENT INCOME













Interest income

$

13,635,480


$

13,605,861


$

28,485,068


$

27,231,260


Other income


205,798



564,394



617,255



773,924



Total Investment Income

$

13,841,278


$

14,170,255


$

29,102,323


$

28,005,184

OPERATING EXPENSES













Management fees

$

2,743,195


$

2,304,362


$

5,462,249


$

4,527,007


Valuation fees


19,001



21,628



128,834



128,950


Administrative services expenses


436,594



415,506



903,529



820,905


Income incentive fees


168,749



1,382,814



1,508,386



2,756,668


Capital gains incentive (reversal) fees


-



115,856



(880,913)



1,277,613


Professional fees


150,514



329,541



537,228



673,881


Directors' fees


110,566



113,000



242,816



217,000


Insurance expense


93,071



86,649



186,142



172,346


Interest expense and other fees


4,092,594



3,359,270



8,384,798



7,034,057


Income tax expense


289,000



342,384



485,795



355,128


Other general and administrative expenses


302,379



283,845



468,382



292,570



Total Operating Expenses

$

8,405,663


$

8,754,855


$

17,427,246


$

18,256,125



Net Investment Income

$

5,435,615


$

5,415,400


$

11,675,077


$

9,749,059



Net realized (loss) gain on non-controlled, non-affiliated















investments

$

(3,893,249)


$

2,696,138


$

(2,596,456)


$

12,942,236



Net change in unrealized appreciation (depreciation)















on non-controlled, non-affiliated investments

$

38,329,217


$

(2,089,555)


$

(13,175,729)


$

(6,514,269)



Provision for taxes on net unrealized gain















on investments

$

(58,909)


$

(27,300)


$

(29,950)


$

(39,901)



Net Increase (Decrease) in Net Assets















Resulting from Operations

$

39,812,674


$

5,994,683


$

(4,127,058)


$

16,137,125



Net Investment Income Per Share

$

0.28


$

0.29


$

0.60


$

0.55



Net Increase (Decrease) in Net Assets Resulting















from Operations Per Share

$

2.04


$

0.32


$

(0.21)


$

0.92



Weighted Average Shares of Common Stock Outstanding


19,484,217



18,883,745



19,456,849



17,624,385



Distributions Per Share

$

0.25


$

0.34


$

0.59


$

0.68
















 

 

STELLUS CAPITAL INVESTMENT CORPORATION















 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
















For the


For the


For the


For the




three

three


six

six




months ended

months ended


months ended

months ended




June 30,

June 30,


June 30,

June 30,




2020

2019


2020

2019

Increase (Decrease) in Net Assets Resulting from













Operations













Net investment income

$

5,435,615


$

5,415,400


$

11,675,077


$

9,749,059


Net realized (loss) gain on non-controlled,














non-affiliated investments


(3,893,249)



2,696,138



(2,596,456)



12,942,236


Net change in unrealized appreciation (depreciation) on














non-controlled, non-affiliated investments


38,329,217



(2,089,556)



(13,175,729)



(6,514,269)


Provision for taxes on unrealized appreciation














on investments


(58,909)



(27,300)



(29,950)



(39,901)

Net Increase (Decrease) in Net Assets Resulting













from Operations

$

39,812,674


$

5,994,682


$

(4,127,058)


$

16,137,125

Stockholder Distributions From:













Net investment income

$

(4,871,501)


$

(6,426,108)


$

(11,490,798)


$

(12,160,358)


Total Distributions

$

(4,871,501)


$

(6,426,108)


$

(11,490,798)


$

(12,160,358)


Capital Share Transactions













Issuance of common stock

$

93,470


$

2,917,010


$

5,023,937


$

42,599,510


Sales load




(68,731)



(5,681)



(1,003,731)


Offering costs




(90,181)



(18,169)



(293,072)


Partial share transactions




(253)



(96)



1,182

Net Increase in Net Assets Resulting From













Capital Share Transactions

$

93,470


$

2,757,845


$

4,999,991


$

41,303,888

Total Increase (Decrease) in Net Assets

$

35,034,643


$

2,326,419


$

(10,617,865)


$

45,280,655

Net Assets at Beginning of Period

$

224,918,665


$

267,799,244


$

270,571,173


$

224,845,007

Net Assets at End of Period

$

259,953,308


$

270,125,663


$

259,953,308


$

270,125,663





























 

 

STELLUS CAPITAL INVESTMENT CORPORATION










 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)












For the


For the




six

six




months ended

months ended




June 30,

June 30,




2020

2019

Cash flows from operating activities






Net (decrease) increase in net assets resulting from operations

$

(4,127,058)


$

16,137,125


Adjustments to reconcile net (decrease) increase in net assets








from operations to net cash used in operating activities:








Purchases of investments


(68,247,468)



(78,149,872)



Proceeds from sales and repayments of investments


42,341,340



58,832,731



Net change in unrealized depreciation on investments


13,175,729



6,514,269



Increase in investments due to PIK


(552,245)



(65,356)



Amortization of premium and accretion of discount, net


(1,069,969)



(817,309)



Deferred tax provision


29,951



39,901



Amortization of loan structure fees


318,039



248,990



Amortization of deferred financing costs


165,748



164,837



Amortization of loan fees on SBA-guaranteed debentures


342,550



299,694



Net realized loss (gain) on investments


2,596,456



(12,942,236)


Changes in other assets and liabilities








Decrease in interest receivable


588,854



347,607



Decrease in other receivable




59,751



Decrease in prepaid expenses


101,378



122,506



Increase (decrease) in management fees payable


2,766,468



(379,613)



Increase (decrease) in incentive fees payable


42,353



(318,368)



(Decrease) increase in capital gains incentive fees payable


(880,913)



1,277,613



Increase in administrative services payable


383,490



71,943



(Decrease) increase in interest payable


(155,230)



292,638



Increase in director fees payable


9,000





Increase (decrease) in unearned revenue


86,232



(82,649)



(Decrease) increase in income tax payable


(461,000)



63,908



Increase in other accrued expenses and liabilities


163,207



342,876

Net Cash Used in Operating Activities

$

(12,383,088)


$

(7,939,014)

Cash flows from Financing Activities








Proceeds from the issuance of common stock

$

4,794,994


$

42,599,510



Sales load for common stock issued


(5,681)



(1,003,731)



Offering costs paid for common stock


(18,169)



(330,909)



Stockholder distributions paid


(8,557,981)



(11,825,880)



Borrowings under Credit Facility


86,450,000



78,750,000



Repayments of Credit Facility


(63,000,000)



(99,500,000)



Financing costs paid on Credit facility


(203,353)





Partial share transactions


(96)



1,181

Net Cash Provided by Financing Activities

$

19,459,714


$

8,690,171

Net Increase in Cash and Cash Equivalents

$

7,076,626


$

751,157



Cash and cash equivalents balance at beginning of period


16,133,315



17,467,146

Cash and Cash Equivalents Balance at End of Period

$

23,209,941


$

18,218,303

Supplemental and Non-Cash Activities








Cash paid for interest expense

$

7,713,693


$

6,027,898



Excise tax paid


940,000



280,000



Shares issued pursuant to Dividend Reinvestment Plan


228,943





Increase in dividends payable


2,703,874



334,478



Increase in deferred offering costs




37,837









 

 

Reconciliation of Core Net Investment Income

(Unaudited)





Quarter


Quarter



ended


ended



June 30, 2020


June 30, 2019

Net investment income

$5,435,615


$5,415,400


Capital gains incentive fee

$-


$115,856


Income tax expense

$289,000


$342,384

Core net investment income

$5,724,615


$5,873,640






Per share amounts:




Net investment income per share

$0.28


$0.29

Core net investment income per share

$0.29


$0.31






 

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SOURCE Stellus Capital Investment Corporation