UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

 

FORM 8-K

 

Current Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): November 12, 2013

 

Stellus Capital Investment Corporation

(Exact name of registrant as specified in its charter)

 

Maryland 814-00971 46-0937320
(State or other jurisdiction of incorporation)  (Commission File Number) (I.R.S. Employer Identification No.)

 

 

 

4400 Post Oak Parkway, Suite 2200
Houston, Texas 77027

(Address of principal executive offices and zip code)

 

 

Registrant’s telephone number, including area code: (713) 292-5400

 

 

Not Applicable

______________________________________________
Former name or former address, if changed since last report

 

 

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

Item 2.02. Results of Operations and Financial Condition.

 

On November 12, 2013, Stellus Capital Investment Corporation issued a press release announcing its financial results for the quarter ended September 30, 2013. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

 

The information disclosed under this Item 2.02, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit Number Description
99.1 Press Release, dated November 12, 2013

 

2
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

 

Date: November 12, 2013 Stellus Capital Investment Corporation
   
   
   
  By:  /s/ W. Todd Huskinson
    Name: W. Todd Huskinson
Title: Chief Financial Officer

 

 

 

 

3

 

Exhibit 99.1 

 

 

November 12, 2013

 

Stellus Capital Investment Corporation Reports Results for its third fiscal quarter ended September 30, 2013

 

Houston, Texas, November 12, 2013 (BUSINESS WIRE) – Stellus Capital Investment Corporation (NYSE:SCM) (“Stellus” or “the Company”) today announced financial results for its third fiscal quarter ended September 30, 2013.

 

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

 

Portfolio results  As of September  
30, 2013
Total assets  $273.1
Investment portfolio, at fair value  $243.6
Net assets  $176.1
Weighted average yield on debt investments  11.4%
Net asset value per share  $14.57
    
   Quarter
ended September 30, 2013
Portfolio activity   
Total investments made, at cost  $16.8
Number of new investments  2
Repayments of investments, including amortization  $35.4

Number of portfolio companies at end of period

  23
Operating results   
Total investment income  $7.9
Net investment income  $4.1
Net investment income per share  $0.34
Dividends declared per share  $0.34
Net increase in net assets from operations  $3.8
Net increase in net assets from operations per share  $0.32
Weighted average shares outstanding during the quarter  12,066,548
    

 

We are pleased to report an increase in investment income for the third quarter and to have generated net investment income sufficient to cover our quarterly dividend,” said Robert T. Ladd, Chief Executive Officer of Stellus.  

 

 
 Page | 2

 

Portfolio and Investment Activity

 

We completed the third quarter of 2013 with a portfolio of $243.6 million (at fair value) invested in 23 companies. As of September 30, 2013, our portfolio included approximately 25% of first lien debt, 32% of second lien debt, 42% of mezzanine debt and 1% of equity investments at fair value. Our debt portfolio consisted of 46% fixed rate investments and 54% floating rate (subject to interest rate floors), such as LIBOR. The average size of our portfolio company investments was $10.6 million and our largest portfolio company investment was approximately $21 million. The weighted average yield on all of our debt investments as of September 30, 2013 was approximately 11.4%.

 

During the three months ended September 30, 2013, we made $16.8 million of investments in one new portfolio company and one existing portfolio company and received $35.4 million of proceeds principally from prepayments of three investments, including $0.5 million from amortization of certain other investments.

 

This compares to the portfolio as of December 31, 2012, which had a fair value of $195.5 million invested in 15 companies comprising 22% first lien debt, 20% second lien debt, 57% subordinated debt and 1% equity. As of December 31, 2012, our debt investments had a weighted average yield of 12.5% and consisted of 60% fixed rate investments and 40% floating rate (subject to interest rate floors), such as LIBOR.

 

Results of Operations

 

Investment income for the three and nine months ended September 30, 2013 totaled $7.9 million and $21.7 million, respectively, most of which was interest income from portfolio investments.

 

Operating expenses for the three and nine months ended September 30, 2013 totaled $3.8 million and $9.9 million, respectively. For the same respective periods, base management fees totaled $1.1 million and $3.1 million, incentive fees totaled $0.7 million and $2.3 million, fees and expenses related to our credit facility totaled $1.0 million and $2.3 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.2 million and $0.6 million and other expenses totaled $0.8 million and $1.7 million.

 

Net investment income was $4.1 million, or $0.34 per common share (based on weighted average common shares of 12,066,548 at September 30, 2013). For the nine months ended September 30, 2013, net investment income was $11.8 million, or $0.98 per share (based on weighted average common shares of 12,051,013 at September 30, 2013), and adjusted net investment income of $12.2 million, or $1.01 per share. There were no adjustments to net investment income for the three months ended September 30, 2013. Adjusted net investment income and adjusted net investment income per share are non-GAAP measures that are calculated by excluding $0.4 million, or $0.03 per common share, of incentive fee accrual related to both realized and unrealized gains during the nine months ended September 30, 2013, that are included in net investment income for GAAP purposes*.

 

The Company’s investment portfolio had unrealized appreciation (depreciation) for the three and nine months ended September 30, 2013, of ($0.3) million and $1.0 million, respectively.

 

Our net increase in net assets resulting from operations totaled $3.8 million for the three months ended September 30, 2013, or $0.32 per common share (based on weighted average common shares of 12,066,548 at September 30, 2013). For the nine months ended September 30, 2013, our net increase in net assets resulting from operations totaled $13.8 million, or $1.15 per common share (based on weighted average common shares of 12,051,013 at September 30, 2013).

 

* The realized and unrealized gains incentive fee is determined and paid annually with respect to realized gains (but not unrealized gains) to the extent such realized gains exceed realized and unrealized losses for such year. As a result, the realized and unrealized gains incentive fee that will be paid by the Company for its 2013 fiscal year cannot be determined until the end of the year and will only be paid with respect to excess, if any, of the Company’s realized gains through December 31, 2013, over all realized and unrealized losses through December 31, 2013. The Company believes that providing these non-GAAP measures is useful supplemental disclosure for analyzing its financial performance given that the accrued realized and unrealized gains incentive fees will not actually be paid by the Company to its investment adviser unless the circumstances set forth above are satisfied at December 31, 2013.

 

 
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Liquidity and Capital Resources

 

Our liquidity and capital resources are derived from our committed 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 September 30, 2013, our credit facility provided for borrowings in an aggregate amount up to $135 million on a committed basis and had an accordion feature which allowed for potential future expansion of the facility size to $150 million. On July 30, 2013, we exercised a portion of the accordion on the facility which increased the committed amount from $115 million to $135 million. As of September 30, 2013 and December 31, 2012, we had $85 million and $38 million, respectively, in outstanding borrowings under the credit facility.

 

Our operating activities used cash of $37.8 million for the nine months ended September 30, 2013, primarily in connection with the acquisition of new investments. Our financing activities used net cash of $0.8 million, which included $47 million of net borrowings under the credit facility.

 

Distributions

 

During the three and nine months ended September 30, 2013, we declared distributions of $0.34 and $1.02 per share, respectively, for total distributions of $4.1 million and $12.3 million, respectively. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year.

 

Recent Portfolio Activity

 

During the three months ended September 30, 2013, we made $16.8 million of investments in one new portfolio company and one existing portfolio company.  During the same period the Company received repayments of three investments totaling $35.4 million including $0.5 million amortization of existing loans.

 

New investment transactions which occurred during the period are summarized as follows:

 

On July 17, 2013, we made a $14.8 million investment in the second lien loan of Help/Systems, LLC, which is a leading provider of system and network management, business intelligence, and security and compliance software solutions.

 

On August 15, 2013, we made an additional $2.0 million investment in the unsecured loan of Snowman Holdings, LLC which is a marketer and distributor of aftermarket and replacement parts and accessories used for the repair and maintenance of over-the-road semi-trailers.

 

Our repayments were:

 

Full repayment on our second lien loan to Baja Broadband, L.L.C. at par resulting in total proceeds of $15 million.

 

Full repayment on our first lien loan to Sportsman’s Warehouse Holdings, Inc. at par plus 2% prepayment premium resulting in total proceeds of $10.1 million.

 

Full repayment on our first lien loan to ProPetro Services, Inc. at par resulting in total proceeds of $10 million.

 

 

 
 Page | 4

 

Events Subsequent to September 30, 2013

 

Since September 30, 2013, we made two new investments totaling $28.2 million and received one repayment of $12.3 million which brings the investment portfolio to approximately $259 million (at fair value) and the average investment per company to $10.8 million as of November 8, 2013.

 

On October 24, 2013, we received full repayment on our first lien loan of Holley Performance Products at par plus a 2% prepayment premium resulting in total proceeds of $12.3 million.
On October 31, 2013, we made a $5.0 million investment in the unsecured term loan of SQAD, LLC. We also invested $0.5 million in the company’s equity.
On November 1, 2013, we made a $21.4 million investment in the second lien term loan and a $1.3 million investment in Empirix, Inc. We also committed to fund a $7.5 million delayed draw note which remains unfunded at this time.

 

On October 23, 2013, the Company received an exemptive order from the Securities and Exchange Commission to permit it to co-invest with certain investment funds, accounts and investment vehicles managed by Stellus Capital Management (other than the D.E. Shaw group funds).

 

Conference Call Information

 

Stellus Capital Investment Corporation will host a conference call to discuss these results on Tuesday November 12, 2013, at 11:00 a.m. Eastern 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) 468-2440 (domestic).  Use passcode 1683538.  Starting approximately two hours after the conclusion of the call, a replay will be available through November 20, 2013 by dialing (888) 203-1112 and entering passcode 1683538. The replay will also be available on the company’s website.

 

 
 Page | 5

 

STELLUS CAPITAL INVESTMENT CORPORATION  

   

STATEMENT OF ASSETS AND LIABILITIES

 

 

 

 

 

   September 30, 2013
(Unaudited)
   December 31, 2012 
ASSETS          
Non-controlled, non-affiliated investments, at fair value (amortized cost of
$242,598,120 and $195,455,671, respectively)
  $243,625,309   $195,451,256 
Cash and cash equivalents   23,585,780    62,131,686 
Interest receivable   4,150,618    2,573,831 
Prepaid loan structure fees   1,684,565    1,947,820 
Prepaid expenses   52,480    438,384 
Total Assets   273,098,752    262,542,977 
LIABILITIES          
Payable for investments purchased       4,750,000 
Credit facility payable   85,000,000    38,000,000 
Short-term loan   8,999,933    45,000,943 
Base management fees payable   1,140,676    527,034 
Incentive fees payable   1,262,914     
Accrued offering costs       147,123 
Interest payable   292,159    66,477 
Directors' fees payable   76,000    29,452 
Other accrued expenses and liabilities   267,625    175,993 
Total Liabilities   97,039,307    88,697,022 
Net Assets  $176,059,445   $173,845,955 
NET ASSETS          
Common Stock, par value $0.001 per share (100,000,000 shares
authorized, 12,082,222 and 12,035,023 shares issued and
outstanding, respectively)
  $12,082   $12,035 
Paid-in capital   175,384,594    174,714,838 
Accumulated undistributed net realized gain   1,007,978     
Distributions in excess of net investment income   (1,372,398)   (874,986)
Unrealized appreciation (depreciation) on investments and cash equivalents   1,027,189    (5,932)
Net Assets  $176,059,445   $173,845,955 
Total Liabilities and Net Assets  $273,098,752   $262,542,977 
Net Asset Value Per Share  $14.57    14.45 
           

 

 

 
 Page | 6

 

 

STELLUS CAPITAL INVESTMENT CORPORATION

   

STATEMENTS OF OPERATIONS (unaudited)

 

 

   

 

   For the three
months ended
September 30, 2013
   For the three
months ended
September, 30 2012
   For the nine
months ended
September 30, 2013
   For the period from
Inception
(May 18, 2012)
through
September, 30 2012
 
INVESTMENT INCOME     
Interest income  $7,604,636   $   $20,640,265   $ 
Other income   312,995        1,065,033     
Total Investment Income   7,917,631        21,705,298     
OPERATING EXPENSES     
Management fees  $1,140,675   $   $3,065,877   $ 
Valuation fees   154,785        358,495     
Administrative services expenses   220,249        619,825     
Incentive fees   746,637        2,296,873     
Professional fees   254,533    138,365    477,995    264,993 
Directors' fees   76,000        254,000     
Insurance expense   119,695        354,933     
Interest expense and other fees   968,674        2,253,433     
Other general and administrative expenses   102,388        229,832     
Total Operating Expenses  $3,783,636   $138,365   $9,911,263   $264,993 
Net Investment Income (Loss)  $4,133,995   $(138,365)  $11,794,035   $(264,993)
Net Realized Gain on Investments and Cash Equivalents  $5,061   $   $1,007,978   $ 
Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents  $(313,635)  $   $1,033,121   $ 
Net Increase (Decrease) in Net Assets Resulting from Operations  $3,825,421   $(138,365)  $13,835,134   $(264,993)
Net Investment Income Per Share  $0.34   $   $0.98   $ 
Net Increase in Net Assets Resulting from Operations Per Share  $0.32   $   $1.15   $ 
Weighted Average Shares of Common Stock Outstanding   12,066,548        12,051,013     
                     

 

 

 
 Page | 7

 

STELLUS CAPITAL INVESTMENT CORPORATION

   

STATEMENT OF CHANGES IN NET ASSETS

 

 

 

 

   For the nine
months ended
September 30, 2013
(Unaudited)
   For the Period
from Inception
(May 18, 2012)
through
September 30, 2012
(Unaudited)
 
Increase in Net Assets Resulting from Operations          
Net investment income (loss)  $11,794,035   $(264,993)
Net realized gain on investments and cash equivalents   1,007,978     
Net change in unrealized appreciation on investments and cash equivalents   1,033,121     
Net Increase (Decrease) in Net Assets Resulting from Operations   13,835,134    (264,993)
Stockholder distributions          
Distributions   (12,291,447)    
Capital share transactions          
Issuance of common stock   669,803     
Net increase in net assets resulting from capital share transactions   669,803     
Total increase (decrease) in net assets   2,213,490    (264,993)
Net assets at beginning of period   173,845,955     
Net assets at end of period  $176,059,445   $(264,993)

 

 

 
 Page | 8

 

 

STELLUS CAPITAL INVESTMENT CORPORATION  

   

STATEMENTS OF CASH FLOWS  

 

 

   

  

 

   For the nine
months ended
September 30, 2013
(Unaudited)
   For the Period
from Inception
(May 18, 2012)
through
September 30, 2012
(Unaudited)
 
Cash flows from operating activities          
Net increase (decrease) in net assets resulting from operations  $13,835,134   $(264,993)
Adjustments to reconcile net increase in net assets resulting from operations
to net cash used in operating activities:
          
Purchases of investments   (129,073,679)    
Proceeds from sales and repayments of investments   84,105,057     
Net change in unrealized appreciation on investments   (1,031,604)    
Increase in investments due to PIK   (854,644)    
Accretion of discount   (308,299)    
Net realized gain on investments   (1,010,884)    
Changes in other assets and liabilities          
Increase in interest receivable   (1,576,787)    
Decrease in prepaid expenses and fees   649,159     
Decrease in payable for investments purchased   (4,750,000)    
Increase in management fees payable   613,642     
Increase in directors' fees payable   46,548     
Increase in incentive fees payable   1,262,914     
Increase in interest payable   225,682     
Increase in other accrued expenses and liabilities   91,632    264,993 
Net cash used in operating activities   (37,776,129)    
Cash flows from financing activities          
Offering costs paid   (147,123)    
Stockholder distributions paid   (11,621,644)    
Borrowings under credit facility   47,000,000     
Paydowns of short-term loan   (36,001,010)    
Net cash used in financing activities   (769,777)    
Net decrease in cash and cash equivalents   (38,545,906)    
Cash and cash equivalents balance at beginning of period   62,131,686     
Cash and cash equivalents balance at end of period  $23,585,780   $ 
Non-cash items          
Net proceeds from common stock issued  $669,803   $ 

 

 
 Page | 9

 

 

 

 

About Stellus Capital Investment Corporation

 

The Company is an externally-managed, closed-end, non-diversified management investment 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

 

or

 

BackBay Communications

Kelly Holman, 212-209-3844

Kelly.holman@backbaycommunications.com