Press Release

Stellus Capital Investment Corporation Reports Results for its Second Fiscal Quarter Ended June 30, 2017

August 4, 2017 at 6:00 AM EDT

Stellus Capital Investment Corporation Reports Results for its Second Fiscal Quarter Ended June 30, 2017 86.5 KB

HOUSTON, Aug. 4, 2017 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2017.

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

	As of
Portfolio results	June 30, 2017
Total assets	$348.6
Investment portfolio, at fair value	$337.4
Net assets	$216.5
Weighted average yield on debt investments	11.3%
Net asset value per share	$13.84

	Quarter	Quarter
	ended	ended
	June 30, 2017	June 30, 2016
Portfolio activity
Total investments made	$25.2	$12.8
Number of new investments	3	3
Repayments and sale of investments, including amortization	$40.7	$15.4
Number of portfolio companies at end of period	46	42

Operating results
Total investment income	$10.4	$9.6
Net investment income	$4.9	$3.9
Net investment income per share	$0.32	$0.32
Regular distributions per share	$0.34	$0.34
Net increase in net assets from operations	$6.0	$5.0
Net increase in net assets from operations per share	$0.39	$0.41

"We received approximately $37.4 million of repayments during the quarter which resulted in meaningful fee income. In July, we contributed additional equity of $20.5 million to our SBIC subsidiary, bringing total regulatory capital contributed to $58.5 million which, subject to SBA approval, will allow us to obtain additional debenture commitments of $52 million," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the second quarter of 2017 with a portfolio of $337.4 million (at fair value) invested in 46 companies. As of June 30, 2017, our portfolio included approximately 24% of first lien debt, 46% of second lien debt, 23% of unsecured debt and 7% of equity investments at fair value. Our debt portfolio consisted of 69% floating rate investments (subject to interest rate floors) and 31% fixed rate investments. The average size of our portfolio company investments was $7.3 million at fair value, and our largest aggregate investment in a portfolio company was approximately $22.8 million at fair value. The weighted average yield on all of our debt investments as of June 30, 2017 was approximately 11.3%.

During the quarter ended June 30, 2017, we made $25.2 million of investments in three new portfolio companies and one existing portfolio company, and received $40.7 million in proceeds from repayments and amortization.

This compares to the portfolio as of June 30, 2016, which had a fair value of $350.8 million invested in 42 companies, comprised 36% of first lien debt, 40% of second lien debt, 20% of unsecured debt and 4% of equity investments at fair value. The weighted average yield on all of our debt investments as of June 30, 2016 was approximately 10.7%. The debt portfolio consisted of 78% floating rate investments (subject to interest rate floors) and 22% fixed rate investments.

Results of Operations

Investment income for the quarter ended June 30, 2017 and 2016, totaled $10.4 million and $9.6 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the quarter ended June 30, 2017 and 2016, totaled $5.5 million and $5.7 million, respectively. For the same respective periods, base management fees totaled $1.5 million and $1.6 million, incentive fees totaled $1.2 million and $1.0 million, fees and expenses related to our borrowings totaled $1.9 million and $2.0 million (including interest and amortization of deferred financing costs), administrative services expenses totaled $0.3 million for both periods and other expenses totaled $0.7 and $0.8 million, respectively.

Net investment income was $4.9 million, or $0.32 and $3.9 million, or $0.32 per common share, based on weighted average common shares outstanding for quarters ended June 30, 2017 and 2016.

For the quarter ended June 30, 2017 and 2016, the Company had a de minimis amount of realized gain. The Company's investment portfolio had a net change in unrealized appreciation for the quarter ended June 30, 2017 and 2016, of $1.1 million and $0.9 million, respectively.

Our net increase in net assets resulting from operations totaled $6.0 million and $5.0 million, or $0.39 and $0.41 per common share, based on weighted average common shares outstanding, for the quarters ended June 30, 2017 and 2016, respectively.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our credit facility and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as proceeds from any future public and private offerings of securities to finance our investment activities.

As of June 30, 2017 and 2016, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of June 30, 2017 and 2016, we had $39 million and $110 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2017, our operating activities provided cash of $40.9 million primarily in connection with cash interest received and repayments of our investments.

For the six months ended June 30, 2017, the Company issued 3,162,500 additional shares of common stock during the in connection with a capital raise. Gross proceeds resulting from the issuance totaled $44,591,250, and underwriting and other expenses related to the offering totaled $1,530,632. For the same period, our financing activities used cash of $43.1 million, which included distributions to stockholders of $9.2 million paid and net repayments of $77.0 million under the credit facility.

For the six months ended June 30, 2016, our operating activities used cash of $7.9 million primarily due to the purchase of new investments offset by cash interest received. For the same period, our financing activities used cash of $8.0 million, due to distributions to stockholders paid during the period.

Distributions

During the three months ended June 30, 2017 and 2016, we declared aggregate distributions of $0.34 per share ($5.3 million and $4.2 million) for each quarter, respectively. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year. None of these distributions are expected to include a return of capital.

Recent Portfolio Activity

New investment transactions and repayments that occurred during the quarter ended June 30, 2017 are summarized as follows:

On May 1, 2017, we received full repayment on the first lien term loan of Telecommunications Management, LLC for proceeds of $5.0 million.
On May 22, 2017, we received full repayment on the second lien term loan of Doskocil Manufacturing Company for proceeds of $8.75 million. In addition we received a $0.2 million prepayment fee.
On May 31, 2017, we invested $9.0 million in the second lien term loan of Valued Relationships, Inc. a technology-enabled services business that offers medical alert monitoring / personal emergency response and telemonitoring services. Additionally, we invested $0.5 million in the equity of the company.
On June 9, 2017, we received full repayment on the first lien term loan of Hollander Sleep Products, LLC for proceeds of $7.0 million. In addition we received a $70 thousand prepayment fee.
On June 14, 2017, we received full repayment on the first lien term loan of Vision Media Management & Fulfillment, LLC for proceeds of $1.6 million. In addition we received a $16 thousand prepayment fee.
On June 22, 2017, we received full repayment on the first lien term loan of Stratose Intermediate Holdings II, LLC for proceeds of $15.0 million. In addition we received a $150 thousand prepayment fee.
On June 29, 2017, we invested $7.5 million in the first lien term loan of ASC Communications, LLC, a media platform and event organizer focused on the healthcare industry. Additionally, we invested $0.5 million in the equity of the company.
On June 30, 2017, we invested $7.2 million in the second lien term loan of Roberts-Gordon, LLC, a manufacturer of commercial and industrial HVAC equipment. Additionally, we invested $0.5 million in the equity of the company.

Subsequent Events

Portfolio Activity

On July 3, 2017, the Company invested an additional $0.06 million in the equity of Apex Environmental Resources Holdings, LLC.
On July 7, 2017, the Company received full repayment on the second lien term loan of Atkins Nutritionals Holdings II, Inc. for proceeds of $8.0 million.
On July 14, 2017, the Company received full repayment on the unsecured term loan of OG Systems, LLC, for proceeds of $4.0 million.
On July 26, 2017, the Company invested $22.5 million in the first lien term loan of Resolute Industrial, LLC, a provider of water and air-cooled services and manufacturer. We also committed to fund a $2.5 million revolver and a $5.75 million delayed draw term loan. Additionally, the Company invested $0.75 million in the equity of the company.

SBIC Subsidiary

On July 25, 2017, the Company contributed additional equity of $20.5 million to the SBIC subsidiary, bringing total regulatory capital contributed to $58.5 million.

Credit Facility

The outstanding balance under the Credit Facility as of August 3, 2017 was $51.5 million.

Dividends Declared

On July 7, 2017, the Company's board of directors declared a regular monthly dividend for each of July, August and September 2017 as follows:

Declared	Ex-Dividend Date	Record Date	Payment Date	Amount Per Share
7/7/2017	7/27/2017	7/31/2017	8/15/2017	$0.1133
7/7/2017	8/29/2017	8/31/2017	9/15/2017	$0.1133
7/7/2017	9/28/2017	9/29/2017	10/13/2017	$0.1133

On July 10, 2017, The New York Stock Exchange announced a change beginning with record date of September 7, 2017, going forward. Ex-dividend dates were changed from two to one business day prior to the record date. Based on this change, the correct ex-dividend date for 9/29/2017 record date is 9/28/2017, instead of 9/27/2017 as reported in the Company's July 10, 2017 press release.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, August 4, 2017, at 10:00 a.m. Central Daylight 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 866-548-4713 (domestic). Use passcode 5962099. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through August 12, 2017 by dialing (888) 203-1112 and entering passcode 5962099. The replay will also be available on the company's website.

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

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

			June 30,
			2017		December 31,
			(unaudited)		2016
ASSETS
	Non-controlled, affiliated investments, at fair value (amortized cost of $1,052,185 and $0, respectively)		$	980,000	$	—
	Non-controlled, non-affiliated investments, at fair value (amortized cost of $329,218,652 and $362,217,251, respectively)			336,390,312		365,625,891
	Cash and cash equivalents			6,953,303		9,194,129
	Interest receivable			4,007,830		4,601,742
	Accounts receivable			8,343		748
	Prepaid expenses			302,716		456,219
	Total Assets		$	348,642,504	$	379,878,729
LIABILITIES
	Notes Payable		$	24,654,747	$	24,565,891
	Credit facility payable			38,418,389		115,171,208
	SBA Debentures			63,503,349		63,342,036
	Dividends payable			1,772,293		1,413,982
	Base management fees payable			1,023,011		1,608,295
	Incentive fees payable			1,423,614		1,353,271
	Interest payable			888,145		973,812
	Unearned revenue			22,288		19,955
	Administrative services payable			316,193		272,511
	Deferred Tax Liability			—		8,593
	Other accrued expenses and liabilities			167,302		267,390
		Total Liabilities	$	132,189,331	$	208,996,944
Net Assets			$	216,453,173	$	170,881,785
NET ASSETS
	Common Stock, par value $0.001 per share (200,000,000 shares authorized, 15,642,457 and 12,479,959 shares issued and outstanding, respectively)		$	15,642	$	12,480
	Paid-in capital			224,052,179		180,994,723
	Accumulated net realized loss			(13,801,668)		(13,089,671)
	Distributions in excess of net investment income			(912,456)		(435,794)
	Net unrealized appreciation on investments and cash equivalents, net of provision for taxes of $0 and $8,593, respectively			7,099,476		3,400,047
Net Assets			$	216,453,173	$	170,881,785
	Total Liabilities and Net Assets		$	348,642,504	$	379,878,729
	Net Asset Value Per Share		$	13.84	$	13.69

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

			For the		For the		For the		For the
			three months		three months		six months		six months
			ended		ended		ended		ended
			June 30,		June 30,		June 30,		June 30,
			2017		2016		2017		2016
INVESTMENT INCOME
	Interest income		$	9,642,531	$	9,328,416	$	19,118,783	$	18,703,153
	Other income			751,834		294,753		1,139,562		387,849
		Total Investment Income	$	10,394,365	$	9,623,169	$	20,258,345		19,091,002
OPERATING EXPENSES
	Management fees		$	1,523,010	$	1,550,841	$	3,087,538	$	3,099,214
	Valuation fees			23,305		67,701		189,394		200,167
	Administrative services expenses			310,860		250,627		619,958		537,927
	Incentive fees			1,234,616		986,276		2,255,843		2,011,098
	Professional fees			219,487		195,203		447,164		387,314
	Directors' fees			79,000		86,000		171,000		178,000
	Insurance expense			110,466		118,027		219,718		236,053
	Interest expense and other fees			1,780,809		2,015,189		3,849,439		3,895,032
	Deferred offering costs			-		261,761		-		261,761
	Other general and administrative expenses			174,353		146,442		336,205		240,044
		Total Operating Expenses		5,455,906		5,678,067		11,176,259		11,046,610
		Net Investment Income	$	4,938,459	$	3,945,102	$	9,082,086	$	8,044,392
		Net Realized Gain (Loss) on Investments and Cash Equivalents	$	54	$	1,486	$	(711,997)	$	2,380
		Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents	$	1,106,253	$	928,520	$	3,690,836	$	(815,154)
		Benefit for taxes on net realized loss or net unrealized gain on investments at Taxable Subsidiaries	$	-	$	154,812	$	8,593	$	322,151
		Net Increase in Net Assets Resulting from Operations	$	6,044,766	$	5,029,920	$	12,069,518	$	7,553,769
		Net Investment Income Per Share	$	0.32	$	0.32	$	0.65	$	0.64
		Net Increase in Net Assets Resulting from Operations Per Share	$	0.39	$	0.41	$	0.87	$	0.61
		Weighted Average Shares of Common Stock Outstanding		15,347,814		12,479,959		13,921,808		12,479,959
		Distributions Per Share	$	0.34	$	0.34	$	0.68	$	0.68

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	For the		For the
	six months		six months
	ended		ended
	June 30,		June 30,
	2017		2016
Increase in Net Assets Resulting from Operations
Net investment income	$	9,082,086	$	8,044,392
Net realized gain (loss) on investments and cash equivalents		(711,997)		2,380
Net change in unrealized appreciation (depreciation) on investments and cash equivalents		3,690,836		(815,154)
Benefit for taxes on net realized loss or net unrealized gain on investments at Taxable Subsidiaries		8,593		322,151
Net Increase in Net Assets Resulting from Operations		12,069,518		7,553,769
Stockholder distributions
Net investment income		(9,558,748)		(8,484,372)
Total Distributions		(9,558,748)		(8,484,372)
Capital share transactions
Issuance of common stock		44,591,250		—
Sales load		(1,296,625)		—
Offering costs		(234,007)		—
Net increase in net assets resulting from capital share transactions		43,060,618		—
Total increase (decrease) in net assets		45,571,388		(930,603)
Net assets at beginning of period		170,881,785		164,651,104
Net assets at end of period (includes $912,456 and $1,219,620 of distributions in excess of net investment income, respectively)	$	216,453,173	$	163,720,501

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

			For the		For the
			six months		six months
			ended		ended
			June 30, 2017		June 30, 2016
Cash flows from operating activities
Net increase in net assets resulting from operations			$	12,069,518	$	7,553,769
	Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
		Purchases of investments		(47,994,614)		(17,899,868)
		Proceeds from sales and repayments of investments		79,950,227		15,972,633
		Net change in unrealized (appreciation) depreciation on investments		(3,690,836)		815,154
		Deferred tax benefit		(8,593)		(322,151)
		Increase in investments due to PIK		(145,445)		(109,619)
		Amortization of premium and accretion of discount, net		(575,750)		(557,840)
		Amortization of loan structure fees		247,181		260,846
		Amortization of deferred financing costs		88,856		162,203
		Amortization of loan fees on SBIC debentures		161,313		88,709
		Net realized loss (gain) on investments		711,997		(2,380)
		Deferred offering cost		—		261,761
	Changes in other assets and liabilities
		Decrease in interest receivable		593,912		522,724
		Decrease (increase) in accounts receivable		(7,595)		7,684
		Decrease in prepaid expenses and fees		153,503		177,750
		Increase (decrease) in management fees payable		(585,284)		32,062
		Increase in directors' fees payable		—		86,000
		Increase in incentive fees payable		70,343		711,073
		Increase (decrease) in administrative services payable		43,682		(163,551)
		Increase (decrease) in interest payable		(85,667)		272,180
		Increase (decrease) in unearned revenue		2,333		(13,284)
		Increase (decrease) in other accrued expenses and liabilities		(100,088)		86,921
Net cash provided by operating activities			$	40,898,993	$	7,942,776
Cash flows from financing activities
		Proceeds from the issuance of common stock		44,591,250		—
		Sales load for common stock issued		(1,296,625)		—
		Offering costs paid for common stock issued		(234,007)		—
		Stockholder distributions paid		(9,200,437)		(8,484,372)
		Borrowings under credit facility		18,000,000		18,500,000
		Repayments of credit facility		(95,000,000)		(18,000,000)
Net cash used in financing activities			$	(43,139,819)	$	(7,984,372)
Net decrease in cash and cash equivalents				(2,240,826)		(41,596)
Cash and cash equivalents balance at beginning of period				9,194,129		10,875,790
Cash and cash equivalents balance at end of period			$	6,953,303	$	10,834,194
Supplemental and non-cash financing activities
		Interest expense paid	$	3,432,756	$	3,106,094
		Excise tax paid	$	37,648	$	-
		Conversion from debt to equity	$	864,101	$	-
		Increase in Dividend Payable	$	358,311	$	-

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