Press Release

Stellus Capital Investment Corporation Reports Results for its Fiscal First Quarter Ended March 31, 2021

May 6, 2021 at 4:15 PM EDT

Company to Host Quarterly Conference Call on Friday, May 7, 2021 at 10:00 AM CT

HOUSTON, May 6, 2021 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its fiscal first quarter ended March 31, 2021.

Management Commentary

Robert T. Ladd, Chief Executive Officer of Stellus, stated, "I am pleased to report that our first quarter net investment income of $0.26 per share covered our dividend of $0.25 per share. Core net investment income was $0.28 per share. Our portfolio at fair value grew to over $714 million, largely due to strong deployment of $93 million during the period. We are seeing a robust pipeline in early 2021 and have already closed $19 million of investments since the end of the first quarter. We also continue to have available capital at favorable terms in which to grow through our SBIC licenses and our issuance of $100 million of institutional bonds at a 4.875% coupon. These bonds are due in March 2026, and the proceeds were used to retire our bonds maturing in 2022 while providing approximately $50 million of new capital for investment."

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

	Quarter Ended		Quarter Ended
	Q1-21		Q1-20

	Amount	Per Share	Amount	Per Share

Net investment income	$5.06	$0.26	$6.24	$0.32

Core net investment income⁽¹⁾	5.38	0.28	5.56	0.29

Net realized gains on investments	0.46	0.02	1.30	0.07

Loss on debt extinguishment	(0.54)	(0.03)	-	-

Total realized income⁽²⁾	4.98	0.25	7.54	0.39

Distributions	(4.87)	(0.25)	(6.62)	(0.34)

Net unrealized appreciation
(depreciation) on investments	0.12	0.01	(51.50)	(2.65)

Provision for taxes on net unrealized gains
on investments in taxable subsidiaries	(0.17)	(0.01)	0.03	0.00

Net increase in net assets resulting
from operations	$4.94	0.25	(43.94)	(2.26)

Weighted average shares outstanding	19,486,003		19,429,480


(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 (losses) on investments, including debt extinguishment; 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
	March 31,	December 31,
	2021	2020
Investments at fair value	$714.5	$653.4
Total assets	$747.8	$674.9
Net assets	$273.4	$273.4
Shares outstanding	19,486,003	19,486,003
Net asset value per share	$14.03	$14.03


	Quarter Ended	Quarter Ended
	March 31,	March 31,
	2021	2020

New investments	$93.4	$61.5
Repayments of investments	(33.6)	(31.8)
Net activity	$59.8	$29.7

			As of	As of
			March 31,	December 31,
			2021	2020

Number of portfolio company investments			70	66
Number of debt investments			55	51

Weight average yield of debt and other income producing investments ⁽³⁾
Cash			7.7%	7.8%
Payment-in-kind ("PIK')			0.1%	0.0%
Fee amortization			0.5%	0.5%
Total			8.3%	8.3%

Weighted average yield on total investments ⁽⁴⁾
Cash			7.3%	7.4%
Payment-in-kind ("PIK')			0.1%	0.0%
Fee amortization			0.4%	0.5%
Total			7.8%	7.9%


(3)	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.
(4)	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 March 31, 2021 and 2020 totaled $14.0 million and $15.3 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended March 31, 2021 and 2020, totaled $8.9 million and $9.0 million, respectively. For the same respective periods, base management fees totaled $3.0 million and $2.7 million, income incentive fees totaled $0.0 million and $1.3 million, capital gains incentive fees (reversal) totaled $0.1 million and ($0.9) million, fees and expenses related to our borrowings totaled $4.3 million and $4.3 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.5 million and $0.5 million, income tax totaled $0.2 million and $0.2 million and other expenses totaled $0.8 million and $0.9 million, respectively.

Net investment income was $5.1 million and $6.2 million, or $0.26 and $0.32 per common share based on weighted average common shares outstanding for the three months ended March 31, 2021 and 2020 of 19,486,003 and 19,429,480, respectively.

The capital gains incentive fee of $0.1 million for the three months ended March 31, 2021 was accrued for GAAP purposes due to the increase in realized and unrealized gains over the quarter. Such fees, as calculated and accrued, would not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of incentive fees in subsequent periods. The income tax expense accrual of $0.2 million for the three months ended March 31, 2020 was accrued based on estimates of undistributed taxable income, which was generated largely from capital gains. Core net investment income, which is a non-U.S GAAP measure that excludes these accruals, for the three months ended March 31, 2021 was $5.4 million, or $0.28 per share; and for the three months ended March 31, 2020, was $5.6 million, or $0.29 per share.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended March 31, 2021 and 2020, of $0.1 million and ($51.5) million, respectively. For the three months ended March 31, 2021 and 2020, the Company had realized gains of $0.5 million and $1.3 million, respectively.

Net increase (decrease) in net assets resulting from operations totaled $4.9 million and ($43.9) million, or $0.25 and ($2.26) per common share based on weighted average common shares outstanding for the three months ended March 31, 2021 and 2020 of 19,486,003 and 19,429,480, respectively.

Liquidity and Capital Resources

As of March 31, 2021 and 2020, our amended and restated senior secured revolving credit agreement with certain bank lenders and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the "Credit Facility") provided for borrowings in an aggregate amount of up to $230.0 and $220.0 million, respectively, on a committed basis. As of March 31, 2021, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $280.0 million. As of March 31, 2021 and December 31, 2020, we had $165.5 million and $174.0 million in outstanding borrowings under the credit facility, respectively.

On January 14, 2021, we issued $100.0 million in aggregate principal amount of 4.875% fixed-rate notes due 2026 (the "2026 Notes"). The 2026 Notes will mature on March 30, 2026, and may be redeemed in whole or in part at any time or from time to time at our option on or after December 31, 2025 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest is payable semi-annually beginning September 30, 2021. We used the net proceeds from this offering to fully redeem our $48.9 million in aggregate principal amount of 5.75% fixed-rate notes due 2022 and repay a portion of the amount outstanding under the Credit Facility.

For the three months ended March 31, 2021, our operating activities used cash of $57.1 million primarily in connection with purchases and origination of portfolio investments, which was slightly offset by repayments of our investments. For the same period, our financing activities provided cash of $69.0 million, due to the issuance of our 2026 Notes offset by the repayment of our 2022 Notes and net repayments on our Credit Facility.

For the three months ended March 31, 2020, our operating activities used cash of $27.9 million, primarily in connection with the purchase and origination of new portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $46.8 million, due to borrowings under our Credit Facility.

Distributions

During the three months ended March 31, 2021 and 2020, we declared aggregate distributions of $0.25 per share and $0.34 per share ($4.9 million and $6.6 million, respectively) for each quarter. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year. None of these dividends are expected to include a return of capital.

Recent Portfolio Activity

On January 14, 2021, we received full repayment on the first lien term loan and revolver of BFC Solmetex, LLC for total proceeds of $13.6 million. We also received full repayment on the first lien term loan of Bonded Filter Co. LLC, a subsidiary of BFC Solmetex, LLC, for total proceeds of $1.2 million.

On January 29, 2021, we invested $11.3 million in the first lien term loan of NuSource Financial, LLC, a provider of technology integration and installation of Automated Teller Machines / Integrated Teller Machines ("ATM" / "ITM"), maintenance services, and security solutions. Additionally, we invested $4.8 million in the structured equity of the company.

On February 1, 2021, we invested $0.1 million in the equity of Tailwind Core Investor, LLC, an existing portfolio company.

On February 11, 2021, we invested $7.2 million in the first lien term loan of Time Manufacturing Acquisition, LLC, an existing portfolio company. Additionally, we invested $0.1 million in the equity of the company.

On February 19, 2021, we invested $13.5 million in the first lien term loan and committed $0.1 million in the unfunded revolver of CEATI International, Inc., a provider of intellectual content, technical trade programs, research groups, and conferences for utility companies. Additionally, we invested $0.3 million in the equity of the company.

On March 1, 2021, we invested $10.8 million in the first lien term loan and committed $0.1 million in the unfunded revolver of a provider of aerospace products for the U.S. military / government, air medical, and high-end VIP aircraft end markets. Additionally, we invested $0.5 million in the equity of the company.

On March 2, 2021, we invested $10.0 million in the first lien term loan and committed $0.1 million in the unfunded revolver of TradePending, LLC, a provider of vehicle trade-in and merchandising intelligence solutions for auto dealerships. Additionally, we invested $0.8 million in the equity of the company.

On March 5, 2021, we invested $11.5 million in the first lien term loan and committed $0.1 million in the unfunded revolver of Anne Lewis Strategies, LLC, a provider of tech-enabled donor targeting and strategic digital fundraising services for non-profit and political organizations. Additionally, we invested $1 million in the equity of the company.

On March 15, 2021, we invested $10.5 million in the first lien term loan of Onpoint Industrial Services, LLC, a provider of safety, logistics, planning, and project management services to refineries and petrochemical plants. Additionally, we invested $0.5 million in the equity of the company.

On March 18, 2021, we converted $0.1 million of common equity into preferred equity and invested an additional $0.1 million of preferred equity in Bromford Holdings, L.P., an existing portfolio company. Additionally, on March 29, 2021 we invested $1.0 million in the second lien term loan of the company.

On March 29, 2021, we received full repayment on the second lien term loan of National Trench Safety, LLC for total proceeds of $10.0 million. In addition, we received $0.9 million in full realization of the investment NTS Investors, LP, resulting in a $0.4 million gain.

On March 31, 2021, we invested $4.0 million in the first lien term loan of Munch's Supply LLC, an existing portfolio company.

Events/Financial Information Subsequent to March 31, 2021

On April 22, 2021, we received full repayment on the unsecured term loan of Skopos Financial, LLC for total proceeds of $14.0 million.

On April 26, 2021, we invested $10.8 million in the first lien term loan and committed $0.1 million in both the unfunded revolver and delayed draw term loan of an HVAC and plumbing designer, installer, and service provider for new/existing DCs, fulfilment sortation facilities, and warehouses.

On April 28, 2021, we invested $7.5 million in the first lien term loan and committed $2.0 million in the unfunded revolver of Unicat Catalyst, LLC, a global formulator and distributor of heterogeneous, consumable catalyst products primarily serving the refinery, petrochemical, and other end markets. Additionally, we invested $0.8 million in the equity of the company.

Credit Facility

The outstanding balance under the credit facility as of May 6, 2021 was $186.0 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of May 6, 2021 was $220.0 million.

SBIC II Subsidiary

On April 13, 2021, we contributed $15.0 million to the SBIC II subsidiary, bringing total contributed capital to $50.0 million.

Distributions Declared

On April 19, 2021, our board of directors declared a regular monthly distribution for each of April 2021, May 2021 and June 2021 as follows:

Declared	Ex-Dividend Date	Record Date	Payment Date	Amount per Share
4/19/2021	4/29/2021	4/30/2021	5/14/2021	$	0.0833
4/19/2021	5/27/2021	5/28/2021	6/15/2021	$	0.0833
4/19/2021	6/29/2021	6/30/2021	7/15/2021	$	0.0833

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, May 7, 2021 at 10:00 AM, Central Standard 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 800-367-2403 (domestic). Use passcode 9320687. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Saturday, May 15, 2021 by dialing (888) 203-1112 and entering passcode 9320687. The replay will also be available on the company's website.

For those wishing to participate via Live Webcast, connect via the Public Company (SCIC) section of our website at www.stelluscapital.com, under the Events tab. A replay of the conference will be available on our website for approximately 90 days.

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

			March 31,
			2021		December 31,
			(Unaudited)		2020
ASSETS
	Non-controlled, non-affiliated investments, at fair value
		(amortized cost of $719,546,960 and $658,628,966,
		respectively)	$	714,464,472	$	653,424,495
	Cash and cash equivalents			30,449,635		18,477,602
	Receivable for sales and repayments of investments			210,442		215,929
	Interest receivable			2,152,217		2,189,448
	Other receivables			25,495		25,495
	Deferred offering costs			—		90,000
	Prepaid expenses			456,315		487,188
		Total Assets	$	747,758,576	$	674,910,157
LIABILITIES
	Notes payable		$	97,765,674	$	48,307,518
	Credit facility payable			163,342,988		171,728,405
	SBA-guaranteed debentures			205,285,585		173,167,496
	Dividends payable			1,623,187		—
	Management fees payable			1,963,861		2,825,322
	Income incentive fees payable			122,499		681,660
	Capital gains incentive fees payable			604,302		521,021
	Interest payable			1,825,427		2,144,085
	Unearned revenue			475,222		523,424
	Administrative services payable			389,005		391,491
	Deferred tax liability			527,394		359,590
	Income tax payable			92,726		724,765
	Other accrued expenses and liabilities			311,821		174,731
		Total Liabilities	$	474,329,691	$	401,549,508
	Commitments and contingencies (Note 7)
		Net Assets	$	273,428,885	$	273,360,649
NET ASSETS
	Common stock, par value $0.001 per share (100,000,000 shares
		authorized; 19,486,003 issued and outstanding
		for both periods)	$	19,486	$	19,486
	Paid-in capital			276,026,667		276,026,667
	Accumulated undistributed deficit			(2,617,268)		(2,685,504)
		Net Assets	$	273,428,885	$	273,360,649
		Total Liabilities and Net Assets	$	747,758,576	$	674,910,157
		Net Asset Value Per Share	$	14.03	$	14.03

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

				For the		For the
				three		three
				months ended		months ended
				March 31,		March 31,
				2021		2020

INVESTMENT INCOME
	Interest income			$	13,512,777	$	14,849,588
	Other income				475,087		411,457
		Total Investment Income		$	13,987,864	$	15,261,045
OPERATING EXPENSES
	Management fees			$	2,963,861	$	2,719,054
	Valuation fees				128,353		109,833
	Administrative services expenses				453,389		466,935
	Income incentive fees				—		1,339,637
	Capital gains incentive fees (reversal)				83,281		(880,913)
	Professional fees				268,965		386,714
	Directors' fees				91,500		132,250
	Insurance expense				117,507		93,071
	Interest expense and other fees				4,323,478		4,292,204
	Income tax expense				239,981		196,795
	Other general and administrative expenses				256,918		166,003
		Total Operating Expenses		$	8,927,233	$	9,021,583
		Net Investment Income		$	5,060,631	$	6,239,462
		Net realized gain on non-controlled, non-affiliated
			investments	$	462,228	$	1,296,793
		Loss on debt extinguishment		$	(539,250)	$	—
		Net change in unrealized appreciation (depreciation)
			on non-controlled, non-affiliated investments	$	121,983	$	(51,504,946)
		(Provision) benefit for taxes on net unrealized gain
			on investments	$	(167,804)	$	28,959
		Net Increase (Decrease) in Net Assets
			Resulting from Operations	$	4,937,788	$	(43,939,732)
		Net Investment Income Per Share		$	0.26	$	0.32
		Net Increase (Decrease) in Net Assets Resulting
			from Operations Per Share	$	0.25	$	(2.26)
		Weighted Average Shares of Common Stock Outstanding			19,486,003		19,429,480
		Distributions Per Share		$	0.25	$	0.34

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

			For the		For the
			three		three
			months ended		months ended
			March 31,		March 31,
			2021		2020
Increase (Decrease) in Net Assets Resulting from Operations
	Net investment income		$	5,060,631	$	6,239,462
	Net realized gain on non-controlled,
		non-affiliated investments		462,228		1,296,793
	Loss on debt extinguishment			(539,250)		—
	Net change in unrealized appreciation (depreciation) on
		non-controlled, non-affiliated investments		121,983		(51,504,946)
	(Provision) benefit for taxes on unrealized appreciation
		on investments		(167,804)		28,959
	Net Increase (Decrease) in Net Assets Resulting
		from Operations	$	4,937,788	$	(43,939,732)
Stockholder Distributions From:
	Net investment income		$	(4,869,552)	$	(6,619,297)
Total Distributions			$	(4,869,552)	$	(6,619,297)
	Capital Share Transactions
	Issuance of common stock		$	—	$	4,930,467
	Sales load			—		(5,681)
	Offering costs			—		(18,169)
	Partial share transactions			—		(96)
Net Increase in Net Assets Resulting From
	Capital Share Transactions		$	—	$	4,906,521
Total Increase (Decrease) in Net Assets			$	68,236	$	(45,652,508)
Net Assets at Beginning of Period			$	273,360,649	$	270,571,173
Net Assets at End of Period			$	273,428,885	$	224,918,665

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	For the		For the
	three		three
	months ended		months ended
	March 31,		March 31,
	2021		2020
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	4,937,788	$	(43,939,732)
Adjustments to reconcile net increase (decrease) in net assets
from operations to net cash used in operating activities:
Purchases of investments		(93,290,837)		(61,533,313)
Proceeds from sales and repayments of investments		33,473,269		31,763,595
Net change in unrealized (appreciation) depreciation on investments		(121,983)		51,504,946
Increase in investments due to PIK		(118,329)		(537,284)
Amortization of premium and accretion of discount, net		(521,051)		(538,019)
Deferred tax provision (benefit)		167,804		(28,959)
Amortization of loan structure fees		114,583		149,978
Amortization of deferred financing costs		122,460		82,874
Amortization of loan fees on SBA-guaranteed debentures		233,814		171,275
Net realized gain on investments		(455,560)		(1,296,793)
Loss on debt extinguishment		539,250		—
Changes in other assets and liabilities
(Decrease) increase in interest receivable		37,231		(1,058,214)
Decrease in prepaid expenses		30,873		43,923
(Decrease) increase in management fees payable		(861,461)		23,274
Decrease in incentive fees payable		(559,161)		(126,396)
Increase (decrease) in capital gains incentive fees payable		83,281		(880,913)
(Decrease) increase in administrative services payable		(2,486)		18,949
Decrease in interest payable		(318,658)		(1,405,298)
(Decrease) increase in unearned revenue		(48,202)		154,391
Decrease in income tax payable		(632,039)		(747,600)
Increase in other accrued expenses and liabilities		137,090		295,218
Net Cash Used in Operating Activities	$	(57,052,324)	$	(27,884,098)
Cash flows from Financing Activities
Proceeds from the issuance of common stock	$	—	$	4,794,995
Sales load for commons stock issued		—		(5,681)
Offering costs paid for common stock issued		—		(18,169)
Stockholder distributions paid		(3,246,365)		(6,445,020)
Repayment of Notes Payable		(48,875,000)		—
Proceeds from issuance of Notes		100,000,000		—
Financing costs from bond issuance		(2,238,553)		—
Proceeds from SBA Debentures		33,500,000		—
Financing costs paid on SBA Debentures		(1,615,725)		—
Borrowings under Credit Facility		113,300,000		74,450,000
Repayments of Credit Facility		(121,800,000)		(26,000,000)
Partial Share Redemption		—		(96)
Net Cash Provided by Financing Activities	$	69,024,357	$	46,776,029
Net Increase in Cash and Cash Equivalents	$	11,972,033	$	18,891,931
Cash and cash equivalents balance at beginning of period		18,477,602		16,133,315
Cash and Cash Equivalents Balance at End of Period	$	30,449,635	$	35,025,246
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	4,166,438	$	5,291,684
Excise tax paid		870,000		940,000
Shares issued pursuant to Dividend Reinvestment Plan		—		135,472
Increase in distribution payable		1,623,187		38,805
Decrease in deferred offering costs for Notes Payable offering		(90,000)		—
Gain on conversion of equity investment		6,668		—

Reconciliation of Core Net Investment Income ⁽¹⁾
(Unaudited)

		Quarter	Quarter
		ended	ended
		March 31, 2021	March 31, 2020
Net investment income		$5,060,631	$6,239,462
	Capital gains incentive fee	$83,281	$(880,913)
	Income tax expense	$239,981	$196,795
Core net investment income		$5,383,893	$5,555,344

Per share amounts:
Net investment income per share		$0.26	$0.32
Core net investment income per share		$0.28	$0.29



Reconciliation of Realized Net Investment Income ⁽²⁾
(Unaudited)

		Quarter	Quarter
		ended	ended
		March 31, 2021	March 31, 2020
Net investment income		$5,060,631	$6,239,462
	Net Realized Gain	$462,228	$1,296,793
	Loss on debt extinguishment	$(539,250)	$-
Total Realized Net Investment Income		$4,983,609	$7,536,255

Per share amounts:
Net investment income per share		$0.26	$0.32
Realized net investment income per share		$0.25	$0.39

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

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