HOUSTON, TX -- (Marketwired) -- 08/05/16 -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2016.

HIGHLIGHTS
($ in millions, except data relating to per share amounts and number of portfolio companies)
		As of
Portfolio results		June 30, 2016
Total assets		$366.1
Investment portfolio, at fair value		$350.8
Net assets		$163.7
Weighted average yield on debt investments		10.7	%
Net asset value per share		$13.12
		Quarter			Quarter
		ended			ended
		June 30, 2016			June 30, 2015
Portfolio activity
Total investments made, at par		$12.8			$38.9
Number of new investments		3			6
Repayments of investments, including amortization		$15.6			$36.6
Number of portfolio companies at
end of period		42			35
Operating results
Total investment income		$9.6			$8.7
Net investment income		$3.9			$4.0
Net investment income per share		$0.32			$0.32
Realized Gains per share		$0.00			$0.02
Regular dividends declared per share		$0.34			$0.34
Net increase in net assets from operations		$5.0			$4.0
Net increase in net assets from operations per share		$0.41			$0.32

"During the second quarter, we were able to substantially replace repayments with new investments", said Robert T. Ladd, Chief Executive Officer of Stellus. "The Company's investment adviser has informed the Company that it will waive incentive fees for the fiscal year ending December 31, 2016 to the extent necessary for the earnings of the Company to support dividends paid for the year".

Portfolio and Investment Activity

We completed the second quarter of 2016 with a portfolio of $350.8 million (at fair value) invested in 42 companies. As of June 30, 2016, our portfolio included approximately 36% of first lien debt, 40% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. Our debt portfolio consisted of 78% floating rate investments (subject to interest rate floors) and 22% fixed rate investments. The average size of our portfolio company investments was $8.4 million and our largest portfolio company investment was approximately $21.8 million at fair value. The weighted average yield on all of our debt investments as of June 30, 2016 was approximately 10.7%.

During the three months ended June 30, 2016, we made $12.8 million of investments in three new portfolio companies and received $15.6 million from payoffs and amortization of certain other investments.

This compares to the portfolio as of December 31, 2015, which had a fair value of $349.0 million invested in 39 companies comprising 38% of first lien debt, 38% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. As of December 31, 2015, our debt investments had a weighted average yield of 10.6% and consisted of 75% floating rate investments (subject to interest rate floors) and 25% fixed rate investments.

Results of Operations

Investment income for the three months ended June 30, 2016 and 2015 totaled $9.6 million and $8.7 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended June 30, 2016 and 2015, totaled $5.7 million and $4.7 million, respectively. For the same respective periods, base management fees totaled $1.6 million and $1.4 million, incentive fees totaled $1.0 million for both periods, fees and expenses related to our borrowings totaled $2.0 million and $1.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million for both periods and other expenses totaled $0.5 million for both periods. Lastly, operating expenses for the three months ended June 30, 2016 included a one-time expense related to previously capitalized deferred offering costs of $0.3 million .

Net investment income was $3.9 million and $4.0 million, or $0.32 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.

The Company's investment portfolio had a net change in unrealized depreciation for the three months ended June 30, 2016 and 2015, of $0.9 million and ($0.2) million, respectively. For the three months ended June 30, 2016 and 2015 the Company had realized gains of $1.5 thousand and $289.5 thousand, respectively.

Our net increase in net assets resulting from operations totaled $5.0 million and $4.0 million, or $0.41 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.

Liquidity and Capital Resources

As of June 30, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of June 30, 2016, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of June 30, 2016 and December 31, 2015, we had $110.0 million and $109.5 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2016, our operating activities provided cash of $7.9 million primarily in connection with cash interest received and repayments of our investments, which was offset by the purchase and origination of portfolio investments. For the same period, our financing activities used cash of $8.0 million, due to distributions to stockholders paid during the period.

For the six months ended June 30, 2015 our operating activities provided cash of $2.6 million, primarily in connection with cash interest received and repayments of our investments, and our financing activities provided cash of $1.2 million, primarily related to the issuance of SBA debentures.

Distributions

During the three months ended June 30, 2016 and 2015, we declared distributions of $0.34 per share ($4.2 million) 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

New investment transactions and repayments which occurred during the three months ended June 30, 2016 are summarized as follows:

• Throughout the quarter, we received a total of $4.5 million in full repayment of the debtor-in-possession loan of Binder & Binder National Security and Disability Advocates, LLC.
• On May 23, 2016, we received full repayment of both the first lien and delayed draw term loans of Software Paradigms International Group, LLC at par plus a 2% prepayment premium for total proceeds of $9.8 million.
• On June 10, 2016, we made a $10.0 million investment in the first lien term loan of Furniture Factory Outlet, LLC. We invested an additional $0.1 million in the unsecured term loan and $0.1 million in the equity of the company as well.
• On June 30, 2016, we made a $1.25 million investment in the second lien term loan of Keais Records Service, LLC.
• On June 30, 2016, we made a $1.25 million investment in the unsecured term loan of Wise Holding Corporation. In addition, we invested $0.1 million in the equity of the company.

Events Subsequent to June 30, 2016

Investment Portfolio

On July 5, 2016 and July 19, 2016, we funded $0.3 million and $0.1 million, respectively, of the revolver of HUF Worldwide, LLC.

On July 15, 2016, we made a $2.6 million investment in the first lien term loan of Good Source Solutions, Inc. Additionally, we invested $0.2 million in the company's equity.

Credit Facility

The outstanding balance under the Credit Facility as of August 3, 2016 was $103.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on August 5, 2016, 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 888-359-3624 (domestic). Use passcode 3493477. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through August 13, 2016 by dialing (888) 203-1112 and entering passcode 3493477. The replay will also be available on the company's website.

PART I - FINANCIAL INFORMATION
STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
				June 30, 2016				December 31, 2015
ASSETS
	Non-controlled, non-affiliated investments, at fair value (amortized cost of $366,819,533 and $364,212,459, respectively)			$	350,809,617			$	349,017,697
	Cash and cash equivalents				10,834,194				10,875,790
	Receivable for sales and repayments of investments				-				10,000
	Interest receivable				4,197,307				4,720,031
	Deferred offering costs				-				261,761
	Accounts receivable				-				7,684
	Prepaid expenses				297,699				475,449
		Total Assets		$	366,138,817			$	365,368,412
LIABILITIES
	Notes Payable, net of deferred financing costs			$	24,469,817			$	24,381,108
	Credit facility payable, net of prepaid loan structure fees				108,958,219				108,197,373
	SBA Debentures, net of prepaid loan fees				63,178,049				63,015,846
	Dividends payable				1,413,982				1,413,982
	Base management fees payable				1,550,841				1,518,779
	Incentive fees payable				1,319,029				607,956
	Interest payable				842,369				570,189
	Directors' fees payable				86,000				-
	Unearned revenue				23,593				36,877
	Administrative services payable				234,248				397,799
	Deferred tax liability				59,572				381,723
	Other accrued expenses and liabilities				282,597				195,676
		Total Liabilities		$	202,418,316			$	200,717,308
Commitments and contingencies (Note 5)
Net Assets				$	163,720,501			$	164,651,104
NET ASSETS
	Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,959 and 12,479,960 shares issued and outstanding, respectively)			$	12,480			$	12,480
	Paid-in capital				180,994,749				180,994,752
	Accumulated undistributed net realized gain				2,380				-
	Distributions in excess of net investment income				(1,219,620	)			(779,643	)
	Net unrealized depreciation on investments and cash equivalents, net of provision for taxes of $59,572 and $381,723, respectively.				(16,069,488	)			(15,576,485	)
Net Assets				$	163,720,501			$	164,651,104
	Total Liabilities and Net Assets			$	366,138,817			$	365,368,412
	Net Asset Value Per Share			$	13.12			$	13.19

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
				For the three months ended June 30, 2016			For the three months ended June 30, 2015				For the six months ended June 30, 2016				For the six months ended June 30, 2015
INVESTMENT INCOME
	Interest income			$	9,328,416		$	8,635,047			$	18,703,153			$	17,266,343
	Other income				294,753			55,415				387,849				138,210
		Total Investment Income		$	9,623,169		$	8,690,462			$	19,091,002			$	17,404,553
OPERATING EXPENSES
	Management fees			$	1,550,841		$	1,446,330			$	3,099,214			$	2,860,464
	Valuation fees				67,701			41,324				200,167				188,799
	Administrative services expenses				250,627			296,827				537,927				576,027
	Incentive fees				986,276			998,871				2,011,098				1,959,725
	Professional fees				195,203			67,794				387,314				362,355
	Directors' fees				86,000			95,000				178,000				184,000
	Insurance expense				118,027			118,242				236,053				235,186
	Interest expense and other fees				2,015,189			1,514,055				3,895,032				2,964,547
	Deferred offering costs				261,761			-				261,761				-
	Other general and administrative expenses				146,442			116,532				240,044				234,548
		Total Operating Expenses		$	5,678,067		$	4,694,975			$	11,046,610			$	9,565,651
		Net Investment Income		$	3,945,102		$	3,995,487			$	8,044,392			$	7,838,902
		Net Realized Gain on Investments  and Cash Equivalents		$	1,486		$	289,548			$	2,380			$	292,717
		Net Change in Unrealized Appreciation (Depreciation)  on Investments and Cash Equivalents		$	928,520		$	(236,062	)		$	(815,154	)		$	1,377,006
		Benefit (provision) for taxes on unrealized gain  on investments		$	154,812		$	(47,980	)		$	322,151			$	(114,258	)
		Net Increase in Net Assets Resulting from Operations		$	5,029,920		$	4,000,993			$	7,553,769			$	9,394,367
		Net Investment Income Per Share		$	0.32		$	0.32			$	0.64			$	0.63
		Net Increase (Decrease) in Net Assets Resulting  from Operations Per Share		$	0.41		$	0.32			$	0.61			$	0.75
		Weighted Average Shares of Common  Stock Outstanding			12,479,959			12,479,962				12,479,959				12,479,962
		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,
			2016				2015
Increase in Net Assets Resulting from Operations
Net investment income			$	8,044,392			$	7,838,902
Net realized gain on investments and cash equivalents				2,380				292,717
Net change in unrealized appreciation (depreciation) on investments and cash equivalents				(815,154	)			1,377,006
Benefit (provision) for taxes on unrealized appreciation on investments				322,151				(114,258	)
Net Increase in Net Assets Resulting from Operations			$	7,553,769			$	9,394,367
Stockholder distributions from:
	Net investment income			(8,484,372	)			(8,484,513	)
Total Distributions			$	(8,484,372	)		$	(8,484,513	)
Total increase (decrease) in net assets			$	(930,603	)		$	909,854
Net assets at beginning of period			$	164,651,104			$	173,949,452
Net assets at end of period (includes $1,219,620 and  $1,425,235 of distributions in excess of net investment income, respectively)			$	163,720,501			$	174,859,306

STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
					For the				For the
					six months				six months
					ended				ended
					June 30, 2016				June 30, 2015
Cash flows from operating activities
Net increase in net assets resulting from operations					$	7,553,769			$	9,394,367
	Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
		Purchases of investments				(17,899,868	)			(59,970,381	)
		Proceeds from sales and repayments of investments				15,972,633				53,942,696
		Net change in unrealized depreciation (appreciation) on investments				815,154				(1,377,006	)
		Deferred tax provision (benefit)				(322,151	)			114,258
		Increase in investments due to PIK				(109,619	)			(337,295	)
		Amortization of premium and accretion of discount, net				(557,840	)			(469,646	)
		Amortization of loan structure fees				260,846				260,094
		Amortization of deferred financing costs				162,203				117,173
		Amortization of loan fees on SBIC debentures				88,709				77,851
		Net realized gain on investments				(2,380	)			(292,717	)
		Deferred offering costs				261,761				-
	Changes in other assets and liabilities
			Increase (decrease) in interest receivable			522,724				989,471
			Increase in accounts receivable			7,684				(185,336	)
			Decrease in prepaid expenses and fees			177,750				136,169
			Increase in management fees payable			32,062				86,311
			Increase in directors' fees payable			86,000				184,000
			Increase (decrease) in incentive fees payable			711,073				107,295
			Increase (decrease) in administrative services payable			(163,551	)			(220,417	)
			Increase in interest payable			272,180				43,227
			Decrease in unearned revenue			(13,284	)			(113,213	)
			Increase (decrease) in other accrued expenses and liabilities			86,921				92,185
Net cash provided by operating activities					$	7,942,776			$	2,579,086
Cash flows from financing activities
		Proceeds from SBA Debentures				-				9,750,000
		Financing costs paid on SBA Debentures				-				(561,438	)
		Stockholder distributions paid				(8,484,372	)			(8,484,513	)
		Borrowings under credit facility				18,500,000				53,750,000
		Repayments of credit facility				(18,000,000	)			(53,250,000	)
Net cash provided (used) by financing activities					$	(7,984,372	)		$	1,204,049
Net increase (decrease) in cash and cash equivalents						(41,596	)			3,783,135
Cash and cash equivalents balance at beginning of period						10,875,790				2,046,563
Cash and cash equivalents balance at end of period					$	10,834,194			$	5,829,698
Supplemental and non-cash financing activities
		Interest expense paid			$	3,106,094			$	2,461,204

Contact
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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