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Stellus Capital Investment Corporation Reports Results for its third fiscal quarter ended September 30, 2016

November 4, 2016 at 6:00 AM EDT

HOUSTON, Nov. 4, 2016 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2016.

Stellus_Capital_Investment_Corp_Logo

 

HIGHLIGHTS 


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





As of



Portfolio results

September 30,
2016



Total assets

$369.2


Investment portfolio, at fair value

$352.7


Net assets

$169.4


Weighted average yield on debt investments on accrual

11.1%


Net asset value per share

$13.57







Quarter


Quarter


ended


ended


September 30,
2016


September 30,
2015

Portfolio activity







Total investments made, at par

$19.9


$25.5

Number of new investments

7


5

Repayments and sale of investments, including amortization

$24.4


$22.5

Number of portfolio companies at end of period

43


35

Operating results








Total investment income

$10.2

$8.6

Net investment income

$4.6

$3.8

Net investment income per share

$0.37

$0.31

Realized gain (loss) per share

($0.07)

$0.00

Regular dividends declared per share

$0.34

$0.34

Net increase in net assets from operations

$9.9

($0.6)

Net increase in net assets from operations per share

$0.80

($0.05)

"During the third quarter, our net investment income exceeded dividends paid by $.03 per share," said Robert T. Ladd, Chief Executive Officer of Stellus.  "Net asset value of the Company increased during the quarter from $13.12 to $13.57 per share.  We continue to experience loan repayments which have resulted in additional fee income.  Also, consistent with the first two quarters of 2016, we have been able to substantially replace loan repayments with new investments."

Portfolio and Investment Activity

We completed the third quarter of 2016 with a portfolio of $352.7 million, at fair value, invested in 43 companies.  As of September 30, 2016, our portfolio included approximately 32% of first lien debt, 43% of second lien debt, 20% of mezzanine debt and 5% of equity investments at fair value.  Our debt portfolio consisted of 76% floating rate investments (subject to interest rate floors) and 24% fixed rate investments.  The average size of our portfolio company investments was $8.2 million and our largest portfolio company investment was approximately $22.6 million, at fair value.  The weighted average yield on all of our debt investments that were on accrual status as of September 30, 2016 was approximately 11.1%. 

During the three months ended September 30, 2016, we made $19.9 million of investments in three new and four existing portfolio companies and received $19.9 million from amortization and repayments of certain other investments.  Additionally, we sold a $4.5 million investment for proceeds of $3.6 million, which is booked as a receivable at September 30, 2016.

This compares to the portfolio as of December 31, 2015, which had $349.0 million at fair value, invested in 39 companies comprised of 38% of first lien debt, 38% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value.  The weighted average yield on all of our debt investments that were on accrual status as of December 31, 2015 was approximately 11.1%.  The debt portfolio 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 September 30, 2016 and 2015 totaled $10.2 million and $8.6 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended September 30, 2016 and 2015, totaled $5.6 million and $4.8 million, respectively. For the same respective periods, base management fees totaled $1.6 million and $1.5 million, incentive fees totaled $1.1 million and $1.0 million, fees and expenses related to our borrowings totaled $2.0 million and $1.6 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.2 million for both periods and other expenses totaled $0.7 million and $0.5 million.

Net investment income was $4.6 million and $3.8 million, or $0.37 and $0.31 per common share based on weighted average common shares outstanding for the three months ended September 30, 2016 and 2015, respectively.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended September 30, 2016 and 2015, of $6.2 million and $(4.6) million, respectively.  For the three months ended September 30, 2016 and 2015, the Company had a realized loss of $0.9 million and a realized gain of $2.1 thousand, respectively.

Our net increase (decrease) in net assets resulting from operations totaled $9.9  million and $(0.6) million, or $0.80  and $(0.5) per common share based on weighted average common shares outstanding for the three months ended September 30, 2016 and 2015, respectively. 

Liquidity and Capital Resources

As of September 30, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis.  As of September 30, 2016, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of September 30, 2016 and December 31, 2015, we had $107.5 million and $109.5 million in outstanding borrowings under the credit facility, respectively.

For the nine months ended September 30, 2016, our operating activities provided cash of $12.5 million primarily in connection with cash interest received and repayments of our investments, which was slightly offset by the purchase and origination of portfolio investments.  For the same period, our financing activities used cash of $14.7 million, due to distributions to stockholders paid during the period.

For the nine months ended September 30, 2015 our operating activities provided cash of $3.3 million, primarily in connection with cash interest received and repayments of our investments, and our financing activities provided cash of $0.7 million, primarily related to the issuance of SBA debentures, which increased from $16 million to $26 million during the quarter.

Distributions

During the three months ended September 30, 2016 and 2015, we declared aggregate 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 September 30, 2016 are summarized as follows:

  • 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 $0.1 million in the equity of the company.
  • On August 12, 2016, we received full repayment of the first lien term loan of PE II Apex Environmental, LLC at par plus a 3% prepayment premium for total proceeds of $10.8 million.  We also invested an additional $0.2 million in the equity of the company.
  • On September 15, 2016, we invested an additional $0.6 million in the first lien term loan of Momentum Telecom, Inc.
  • On September 16, 2016, we sold our first lien term loan and equity position in Blackhawk Mining, LLC, for total proceeds of $3.6 million, which is booked at a receivable at September 30, 2016, resulting in a loss of $0.9 million.
  • On September 28, 2016, we received full repayment of the first lien term loans in T2 Systems, Inc. and T2 Systems Canada, Inc. at par for total proceeds of $7.3 million.
  • On September 29, 2016, we made a $5.3 million investment in the first lien term loan of Energy Labs, Inc.  Additionally, we invested $0.5 million in the equity of the company.
  • On September 30, 2016, we made a $9.2 million investment in the second lien term loan of KidKraft, Inc.
  • On September 30, 2016, we invested an additional $0.9 million in the first lien term loan of Vision Media Management & Fulfillment, LLC.
  • Throughout the quarter, Huf Worldwide, LLC drew down $0.4 million on the first lien revolver loan.

Events Subsequent to September 30, 2016

Investment Portfolio

On October 11, 2016, we received full repayment on the second lien and unsecured term loans of NetMotion Wireless, Inc. at par plus a 1% prepayment premium for proceeds of $10.2 million. Additionally, we received proceeds of $1.0 million for the equity in Endpoint Security Holdings, LLC.

On October 21, 2016, we made a $5.9 million investment in the second lien term loan of T.F. Hudgins, Inc. Additionally, we invested $0.25 million in the equity of the company.

On October 24, 2016, the Company received $3.5 million from the sale of Blackhawk Mining, LLC, which was sold during the quarter ended September 30, 2016.

On November 1, 2016, we made a $9.0 million investment in the second lien term loan of Mobileum, Inc.  Additionally, we invested $0.75 million in the equity of the company.

Credit Facility

The outstanding balance under the Credit Facility as of November 2, 2016 was $100.3 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on November 4, 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 888-684-1282 (domestic).  Use passcode 8288965.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through November 12, 2016 by dialing (888) 203-1112 and entering passcode 8288965. The replay will also be available on the company's website.

Contact
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 (unaudited)












September 30,


December 31,



2016


2015

ASSETS







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








(amortized cost of $362,534,225 and $364,212,459, respectively)

$

352,701,256


$

349,017,697


Cash and cash equivalents


8,640,005



10,875,790


Receivable for sales and repayments of investments


3,561,582



10,000


Interest receivable


4,158,012



4,720,031


Deferred offering costs




261,761


Accounts receivable




7,684


Prepaid expenses


147,344



475,449



Total Assets

$

369,208,199


$

365,368,412

LIABILITIES







Notes Payable, net of deferred financing costs

$

24,518,185


$

24,381,108


Credit facility payable, net of prepaid loan structure fees


106,590,075



108,197,373


SBA Debentures, net of prepaid loan fees


63,260,043



63,015,846


Dividends payable


1,413,982



1,413,982


Base management fees payable


1,574,354



1,518,779


Incentive fees payable


1,437,030



607,956


Interest payable


408,237



570,189


Unearned revenue


21,773



36,877


Administrative services payable


239,576



397,799


Deferred tax liability


19,607



381,723


Other accrued expenses and liabilities


319,301



195,676



Total Liabilities

$

199,802,163


$

200,717,308

Commitments and contingencies (Note 5)






Net Assets

$

169,406,036


$

164,651,104

NET ASSETS







Common Stock, par value $0.001 per share (100,000,000 
shares authorized, 12,479,958 and 12,479,960 shares

issued and outstanding, respectively)

$

12,480


$

12,480


Paid-in capital


180,994,732



180,994,752


Accumulated undistributed net realized loss


(895,809)




Distributions in excess of net investment income


(852,791)



(779,643)


Net unrealized depreciation on investments and cash
equivalents, net of provision for taxes of $19,607 and $381,723, respectively.


(9,852,576)



(15,576,485)

Net Assets

$

169,406,036


$

164,651,104


Total Liabilities and Net Assets

$

369,208,199


$

365,368,412


Net Asset Value Per Share

$

13.57


$

13.19

 

STELLUS CAPITAL INVESTMENT CORPORATION














 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)














For the

For the


For the

For the





three months

three months

nine months

nine months





ended

ended

ended

ended





September 30,

September 30,

September 30,

September 30,





2016

2015

2016

2015

INVESTMENT INCOME











Interest income

$

9,773,863

$

8,509,804


$

28,477,016

$

25,776,147


Other income


428,890


93,009



816,739


231,219



Total Investment Income

$

10,202,753

$

8,602,813


$

29,293,755

$

26,007,366

OPERATING EXPENSES











Management fees

$

1,574,354

$

1,462,024


$

4,673,568

$

4,322,488


Valuation fees


157,179


139,266



357,346


328,065


Administrative services expenses


244,303


224,836



782,230


800,863


Incentive fees


1,110,297


954,908



3,121,395


2,914,633


Professional fees


177,410


92,320



564,724


454,675


Directors' fees


73,000


76,000



251,000


260,000


Insurance expense


119,323


119,417



355,376


354,603


Interest expense and other fees


2,037,782


1,557,629



5,932,814


4,522,176


Deferred offering costs





261,761



Other general and administrative expenses


100,362


156,782



340,406


391,330



Total Operating Expenses

$

5,594,010

$

4,783,182


$

16,640,620

$

14,348,833



Net Investment Income

$

4,608,743

$

3,819,631


$

12,653,135

$

11,658,533



Net Realized Gain (Loss) on Investments and Cash Equivalents

$

(898,189)

$

2,146


$

(895,809)

$

294,863



Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents

$

6,176,947

$

(4,593,553)


$

5,361,794

$

(3,216,547)



Net Tax Benefit for Unrealized Appreciation/ Depreciation on investments

$

39,965

$

147,439


$

362,116

$

33,181



Net Increase (Decrease) in Net Assets Resulting from Operations

$

9,927,466

$

(624,337)


$

17,481,236

$

8,770,030



Net Investment Income Per Share

$

0.37

$

0.31


$

1.01

$

0.93



Net Increase (Decrease) in Net Assets Resulting from Operations Per Share

$

0.80

$

(0.05)


$

1.40

$

0.70



Weighted Average Shares of Common Stock Outstanding


12,479,958


12,479,962



12,479,959


12,479,962



Distributions Per Share

$

0.34

$

0.34


$

1.02

$

1.02

 

STELLUS CAPITAL INVESTMENT CORPORATION








 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)








For the


For the



nine months

nine months



ended

ended



September 30,

September 30,



2016

2015

Increase in Net Assets Resulting from Operations






Net investment income

$

12,653,135


$

11,658,533

Net realized gain (loss) on investments and cash equivalents


(895,809)



294,863

Net change in unrealized appreciation (depreciation) on investments and cash equivalents


5,361,794



(3,216,547)

Net tax benefit for unrealized appreciation/depreciation on investments


362,116



33,181

Net Increase in Net Assets Resulting from Operations

$

17,481,236


$

8,770,030

Stockholder distributions from:







Net investment income


(12,726,304)



(12,726,816)

Total Distributions

$

(12,726,304)


$

(12,726,816)

Total increase (decrease) in net assets

$

4,754,932


$

(3,956,786)

Net assets at beginning of period

$

164,651,104


$

173,949,452

Net assets at end of period (includes $852,791 and $1,847,907 of distributions in excess of net investment income, respectively)

$

169,406,036


$

169,992,666

 

STELLUS CAPITAL INVESTMENT CORPORATION










 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)












For the


For the




nine months

nine months




ended

ended




September 30, 2016

September 30, 2015

Cash flows from operating activities






Net increase in net assets resulting from operations

$

17,481,236


$

8,770,030


Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:








Purchases of investments


(37,392,617)



(85,108,716)



Proceeds from sales and repayments of investments


35,618,611



76,333,638



Net change in unrealized depreciation (appreciation) on investments


(5,361,794)



3,216,547



Deferred tax benefit


(362,116)



(33,181)



Increase in investments due to PIK


(165,110)



(387,975)



Amortization of premium and accretion of discount, net


(830,040)



(759,387)



Amortization of loan structure fees


392,702



392,297



Amortization of deferred financing costs


244,197



163,619



Amortization of loan fees on SBIC debentures


137,077



136,646



Net realized (gain) loss on investments


895,809



(294,863)



Deferred offering cost


261,761




Changes in other assets and liabilities









Decrease in interest receivable


562,019



736,112




Decrease (increase) in accounts receivable


7,684



(6,988)




Decrease in prepaid expenses and fees


328,105



278,779




Increase in management fees payable


55,575



102,005




Increase in incentive fees payable


829,074



7,762




Decrease in administrative services payable


(158,223)



(211,504)




Decrease in interest payable


(161,952)



(20,273)




Decrease in unearned revenue


(15,104)



(116,869)




Increase in other accrued expenses and liabilities


123,625



123,073

Net cash provided by operating activities

$

12,490,519


$

3,320,752

Cash flows from financing activities








Proceeds from SBA Debentures




9,750,000



Financing costs paid on SBA Debentures




(561,437)



Stockholder distributions paid


(12,726,304)



(12,726,816)



Borrowings under credit facility


28,250,000



86,500,000



Repayments of credit facility


(30,250,000)



(82,250,000)

Net cash provided (used) by financing activities

$

(14,726,304)


$

711,747

Net increase (decrease) in cash and cash equivalents


(2,235,785)



4,032,499

Cash and cash equivalents balance at beginning of period


10,875,790



2,046,563

Cash and cash equivalents balance at end of period

$

8,640,005


$

6,079,062

Supplemental and non-cash financing activities








Interest expense paid

$

5,315,790


$

3,844,890

 

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