HOUSTON, TX -- (Marketwired) -- 11/06/14 -- Stellus Capital Investment Corporation(NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2014.

HIGHLIGHTS
($ in millions, except data relating to per share amounts and number of portfolio companies)
Portfolio results		As of September 30, 2014
Total assets		$	296.4
Investment portfolio, at fair value		$	284.1
Net assets		$	177.1
Weighted average yield on debt investments			11.0	%
Net asset value per share		$	14.20
		Quarter ended September 30, 2014				Quarter ended September 30, 2013
Portfolio activity
Total investments made, at cost		$	6.9			$	16.8
Number of new investments			3				2
Repayments of investments, including amortization		$	1.2			$	35.4
Number of portfolio companies at end of period			28				23
Operating results
Total investment income		$	7.8			$	7.9
Net investment income		$	5.3 (1	)		$	4.1
Net investment income per share		$	0.42 (1	)		$	0.34
Regular dividends declared per share		$	0.34			$	0.34
Net increase in net assets from operations		$	2.1			$	3.8
Net increase in net assets from operations per share		$	0.17			$	0.32
Weighted average shares outstanding during the period			12,404,485				12,066,548

1. Includes waiver of $1.4 million of incentive fees for the period from January 1, 2014 through September 30, 2014.

"Although we had a modest level of originations during the third quarter, since quarter-end we have made investments totaling $30.7 million, $13 million of which we funded by issuing SBA-guaranteed debentures," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the third quarter of 2014 with a portfolio of $284.1 million (at fair value) invested in 28 companies. As of September 30, 2014, our portfolio included approximately 18% of first lien debt, 36% of second lien debt, 43% of mezzanine debt and 3% of equity investments at fair value. Our debt portfolio consisted of 47% fixed rate investments and 53% floating rate (subject to interest rate floors), such as LIBOR. The average size of our portfolio company investments was $10.3 million (at cost) and our largest portfolio company investment was approximately $23.1 million (at fair value). The weighted average yield on all of our debt investments as of September 30, 2014 was approximately 11.0%. 

During the three months ended September 30, 2014, we made $6.9 million of investments in one new portfolio company and two existing companies and received $1.2 million of proceeds from the repayment of investments, including $0.5 million from amortization of certain other investments.

This compares to the portfolio as of December 31, 2013, which had a fair value of $277.5 million invested in 26 companies comprising 17% first lien debt, 43% second lien debt, 38% mezzanine debt and 2% equity. As of December 31, 2013, our debt investments had a weighted average yield of 11.4% and consisted of 42% fixed rate investments and 58% floating rate (subject to interest rate floors), such as LIBOR.

Results of Operations

Investment income for the three months ended September 30, 2014 and 2013 totaled $7.8 million and $7.9 million, respectively, most of which was interest income from portfolio investments.

During the current quarter, while under no obligation to do so, we waived $1.4 million of incentive fees accrued during the nine months ended September 30, 2014. Such waiver in no way implies that we will waive incentive fees in any future period. Operating expenses, net of incentive fee waiver for the three months ended September 30, 2014 totaled $2.6 million. For the three months ended September 30, 2013, operating expenses, net of incentive fee waiver totaled $3.8 million. For the three months ended September 30, 2014 and 2013, base management fees totaled $1.3 million and $1.1 million, fees and expenses related to our borrowings totaled $1.4 million and $1.0 million (including commitment and other loan fees), administrative expenses totaled $0.3 million and $0.2 million and other expenses totaled $0.6 million and $0.8 million, all respectively. For the three months ended September 30, 2014 and 2013, incentive fees totaled ($1.0) million and $0.7 million (net of $1.4 million and $0.2 million of fees waived by the manager, respectively). The incentive fees waived during the quarter ended September 30, 2014 related to incentive fees accrued during the nine months ended September 30, 2014.

Net investment income was $5.3 million and $4.1 million, or $0.42 and $0.34 per common share based on weighted average common shares outstanding for the three months ended September 30, 2014 and 2013, respectively. 

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended September 30, 2014 and 2013, of ($3.0) million and $0.3 million, respectively. For the three months ended September 30, 2014 and 2013, the Company had realized gains of $4 thousand and $5 thousand, respectively.

Our net increase in net assets resulting from operations totaled $2.1 million and $3.8 million, or $0.17 and $0.32 per common share based on weighted average common shares outstanding for the three months ended September 30, 2014 and 2013, respectively. 

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our committed credit facility, bonds, SBA guaranteed debentures, 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 September 30, 2014, our credit facility provided for borrowings in an aggregate amount up to $150 million on a committed basis. As of September 30, 2014 and December 31, 2013, we had $90 million and $110 million, respectively, in outstanding borrowings under the credit facility.

On May 5, 2014, the Company closed a public offering of $25.0 million in aggregate principal amount of 6.50% bonds. The net proceeds to the Company from the sales of the bonds, after underwriting discounts and offering expenses, were approximately $24.1 million. The Company used all of the net proceeds from this offering to pay down the credit facility. As of September 30, 2014, the carrying amount of the notes was $25.0 million. 

On June 5, 2014, we established an at-the-market program through which we may sell, from time to time, and at our sole discretion up to $50 million of our common stock. During the quarter ended September 30, 2014, we issued approximately $1.7 million in common stock, net of 1.5% commission to the broker-dealer on shares sold and offering costs.

For the nine months ended September 30, 2014, our operating activities provided cash of $2.1 million primarily in connection with cash interest received and our financing activities used cash of $11.6 million, primarily from repayments under the credit facility. For the nine months ended September 30, 2013, our operating activities used cash of $37.6 million primarily from the purchases of investments and our financing activities used cash of $0.9 million, primarily from the repayment of short-term loans. 

Distributions

During the three months ended September 30, 2014 and 2013, we declared distributions of $0.34 per share ($4.2 million) and $0.34 per share ($4.1 million), respectively. Tax characteristics of all distributions made in the current year 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

During the three months ended September 30, 2014, we made $6.9 million (at cost) of investments in one new portfolio company and two existing portfolio companies. During the same period the Company received $1.2 million from repayments and sales of investments, of which $0.5 million represents amortization on existing loans. New investment transactions and repayments that occurred during the three months ended September 30, 2014 are summarized as follows:

• On July 31, 2014, we invested an additional $2.0 million in the unsecured term loan of SQAD, LLC. In addition, we invested $12,485 in the company's common equity and $112,368 in Series A Preferred equity.
• On September 5, 2014, we made a $4.4 million investment in the second lien term loan of Abrasive Products & Equipment. We also invested $0.4 million in the company's equity.
• On September 5, 2014, we received repayment of $0.7 million of the revolving term loan of Refac Optical Group at par.
• On September 8, 2014, we invested $33,333 in the equity of Skopos Financial, LLC.

Events Subsequent to September 30, 2014

Since September 30, 2014, we made three new investments totaling $28.1 million (at par) and one follow-on investment of $2.6 million (at par) which brings the investment portfolio to approximately $314.8 million (at estimated fair value) and the average investment per company to $10.2 million as of October 31, 2014.

• On October 3, 2014, we invested $2.5 million in the unsecured debt of Skopos Financial, LLC. We invested an additional $66,667 in the equity of the Company on October 30, 2014.
• On October 21, 2014, we invested $7.5 million in the first lien debt of Hollander Sleep Products, LLC and $250,000 in the common stock of Dream II Holdings, LLC.
• On October 22, 2014, we invested $15.6 million in the first lien debt and committed $1.75 million in the unfunded revolver of Huf Worldwide, LLC and invested $500,000 in the preferred stock of Huf Holdings LLC.
• On October 23, 2014, we invested $4.0 million in the second lien debt of and $250,000 in the common and preferred stock of Zemax Software Holdings, LLC.

Dividends

On October 14, 2014, the Company's board of directors declared a regular monthly dividend of $0.1133 per share for each of the months of October 2014, November 2014 and December 2014.

Credit Facility

The outstanding balance under the Credit Facility as of November 3, 2014 was $102 million. 

SBA Debentures

On each of October 14, 2014, and October 17, 2014, the SBIC Subsidiary issued $6.5 million of SBA-guaranteed debentures for a total of $13.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on November 7, 2014, at 10:00 a.m. 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 (888) 455-2260 (domestic). Use passcode 8257325. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through November 20, 2014 by dialing (888) 203-1112 and entering passcode 8257325. The replay will also be available on the company's website.

Stellus Capital Investment Corporation
Consolidated Statements of Assets and Liabilities
				September 30,				December 31,
				2014				2013
				(Unaudited)
ASSETS
	Non-controlled, non-affiliated investments, at fair value (amortized cost of $287,408,278 and $277,004,466, respectively)			$	284,105,102			$	277,504,510
	Cash and cash equivalents				4,164,063				13,663,542
	Receivable for sales and repayments of investments				38,021				-
	Interest receivable				5,357,554				4,713,912
	Deferred offering costs				261,760				205,165
	Deferred financing costs				844,606				-
	Accounts receivable				31,013				-
	Receivable for affiliated transaction				-				43,450
	Prepaid loan structure fees				1,212,098				1,586,405
	Prepaid expenses				381,799				411,321
	Total Assets			$	296,396,016			$	298,128,305
LIABILITIES
	Notes Payable				25,000,000				-
	Credit facility payable				90,000,000				110,000,000
	Short-term loan				-				9,000,000
	Dividends payable				1,413,224				-
	Base management fees payable				1,281,231				1,176,730
	Incentive fees payable				215,887				1,056,942
	Accrued offering costs				4,752				-
	Interest payable				336,275				234,051
	Directors' fees payable				86,000				96,000
	Unearned revenue				129,548				146,965
	Administrative services payable				551,383				263,226
	Deferred Tax Liability				185,888				-
	Other accrued expenses and liabilities				96,567				262,877
		Total Liabilities			119,300,755				122,236,791
Net Assets				$	177,095,261			$	175,891,514
NET ASSETS
	Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,473,293 and 12,099,022 shares issued and outstanding, as of September 30, 2014 and December 31, 2013, respectively)			$	12,473			$	12,099
	Paid-in capital				180,909,398				175,614,738
	Accumulated undistributed net realized gain				682,320				1,027,392
	Distributions in excess of net investment income				(1,019,866	)			(1,262,659	)
	Net Unrealized appreciation (depreciation) on investments and cash equivalents, net of provision for taxes of $185,888 and $0, as of September 30, 2014 and December 31, 2013, respectively				(3,489,064	)			499,944
Net Assets					177,095,261				175,891,514
		Total Liabilities and Net Assets		$	296,396,016			$	298,128,305
		Net Asset Value Per Share		$	14.20			$	14.54

Stellus Capital Investment Corporation
Consolidated Statement of Operations (unaudited)
			Three Months Ended								Nine Months Ended
			September 30,								September 30,
			2014				2013				2014				2013
INVESTMENT INCOME
	Interest income		$	7,766,986			$	7,604,636			$	23,126,699			$	20,640,265
	Other income			55,511				312,995				557,753				1,065,033
	Total Investment Income			7,822,497				7,917,631				23,684,452				21,705,298
	OPERATING EXPENSES
	Management fees			1,281,231				1,140,675				3,842,971				3,065,877
	Valuation fees			128,815				154,785				344,952				358,495
	Administrative services expenses			312,870				220,249				856,804				619,825
	Incentive fees			410,134				914,412				2,173,966				2,969,855
	Professional fees			115,463				254,533				399,490				477,995
	Directors' fees			86,000				76,000				290,000				254,000
	Insurance expense			121,730				119,695				361,220				354,933
	Interest expense and other fees			1,409,565				968,674				3,841,487				2,253,433
	Other general and administrative expenses			105,418				102,388				256,385				229,832
	Total Operating Expenses			3,971,226				3,951,411				12,367,275				10,584,245
	Waiver of Incentive Fees			(1,399,226	)			(167,775	)			(1,399,226	)			(672,982	)
	Total operating expenses, net of fees waivers			2,572,000				3,783,636				10,968,049				9,911,263
	Net Investment Income			5,250,497				4,133,995				12,716,403				11,794,035
	Net Realized Gain on Investments and Cash Equivalents			3,907				5,061				441,364				1,007,978
	Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents			(2,955,085	)			(313,635	)			(3,803,120	)			1,033,121
	Benefit/(Provision) for taxes on unrealized gain on investments			(185,888	)			0				(185,888	)			0
	Net Increase in Net Assets Resulting from Operations		$	2,113,431			$	3,825,421			$	9,168,759			$	13,853,134
	Net Investment Income Per Share		$	0.42			$	0.34			$	1.04			$	0.98
	Net Increase in Net Assets Resulting from Operations Per Share		$	0.17			$	0.32			$	0.75			$	1.15
	Weighted Average Shares of Common Stock Outstanding			12,404,485				12,066,548				12,214,875				12,051,013
	Distributions Per Share		$	0.34			$	0.34			$	1.09			$	1.02

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
		For the nine months ended September 30, 2014				For the nine months ended September 30, 2013
Increase in Net Assets Resulting from Operations
Net investment income		$	12,716,403			$	11,794,035
Net realized gain on investments and cash equivalents			441,364				1,007,978
Net change in unrealized appreciation (depreciation) on investments and cash equivalents			(3,803,120	)			1,033,121
Benefits/(Provision) for taxes on unrealized gain on investments			(185,888	)			-
Net Increase in Net Assets Resulting from Operations			9,168,759				13,835,134
Stockholder distributions			(13,260,046	)			(12,291,447	)
Capital share transactions
Issuance of common stock			5,087,335				-
Reinvestments of stockholder distributions			313,113				669,803
Sales load			(75,510	)			-
Offering costs			(29,904	)			-
Net increase in net assets resulting from capital share transactions			5,295,034				669,803
Total increase in net assets			1,203,747				2,213,490
Net assets at beginning of period			175,891,514				173,845,955
Net assets at end of period (includes $1,019,866 and $1,372,398 of distributions in excess of net investment income)		$	177,095,261			$	176,059,445
STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
		For the nine months ended September 30, 2014				For the nine months ended September 30, 2013
Cash flows from operating activities
Net increase in net assets resulting from operations		$	9,168,759			$	13,835,134
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments			(58,454,022	)			(129,073,679	)
Proceeds from sales and repayments of investments			49,485,710				84,105,057
Net change in unrealized (appreciation) depreciation on investments			3,803,220				(1,031,604	)
Increase in investments due to PIK			(538,457	)			(854,644	)
Amortization of premium and accretion of discount, net			(488,829	)			(308,299	)
Amortization of loan structure fees			452,054				419,927
Amortization of deferred financing costs			74,964				-
Net realized gain on investments			(446,239	)			(1,010,884	)
Changes in other assets and liabilities
Increase in interest receivable			(643,642	)			(1,576,787	)
Decrease in receivable for affiliated transaction			43,450				-
Increase in accounts receivable			(31,013	)			-
Decrease in prepaid expenses and fees			29,522				384,904
Increase (decrease) in payable for investments purchased			-				(4,750,000	)
Increase in management fees payable			104,501				613,642
Increase (decrease) in directors' fees payable			(10,000	)			46,548
Increase (decrease) in incentive fees payable			(841,055	)			1,262,914
Increase in administrative services payable			288,157				-
Increase in interest payable			102,224				225,682
Decrease in unearned revenue			(17,417	)			-
Increase in deferred tax liability			185,888				-
Increase (decrease) in other accrued expenses and liabilities			(161,558	)			91,632
Net cash provided by (used in) operating activities			2,106,217				(37,620,457	)
Cash flows from financing activities
Proceeds from notes issued			25,000,000				-
Financing costs paid for credit facility and notes issued			(997,317	)			(156,672	)
Proceeds from the issuance of common stock			5,116,989				-
Sales load for common stock issued			(75,510	)			-
Offering costs paid for common stock issued			(116,149	)			(147,123	)
Stockholder distributions paid			(11,533,709	)			(11,621,644	)
Borrowings under credit facility			78,000,000				105,000,000
Repayments of credit facility			(98,000,000	)			(58,000,000	)
Repayments of short-term loan			(9,000,000	)			(76,000,643	)
Borrowings on short-term loan			-				39,999,633
Net cash used in financing activities			(11,605,696	)			(926,449	)
Net decrease in cash and cash equivalents			(9,499,479	)			(38,545,906	)
Cash and cash equivalents balance at beginning of period			13,663,542				62,131,686
Cash and cash equivalents balance at end of period		$	4,164,063			$	23,585,780
Supplemental and non-cash financing activities
Accrued deferred offering costs		$	4,752			$	-
Value of shares issued pursuant to Dividend Reinvestment Plan		$	313,113			$	669,803
Interest expense paid		$	3,206,081			$	1,559,812

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. 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, second lien, unitranche and mezzanine debt financing, and corresponding equity 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 Stellus Capital Investment Corporation link.

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 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. 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.

Available Information

Stellus' filings with the Securities and Exchange Commission, press releases, earnings release, and other financial information are available on its website at www.stelluscapital.com under the Stellus Capital Investment Corporation link.

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

Source: Stellus Capital Investment Corporation

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