SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

May 06, 2016 06:00 ET

Stellus Capital Investment Corporation Reports Results for Its First Fiscal Quarter Ended March 31, 2016

HOUSTON, TX--(Marketwired - May 06, 2016) -

Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its first fiscal quarter ended March 31, 2016.

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

   
  As of  
Portfolio results March 31, 2016  
Total assets $ 364.3  
Investment portfolio, at fair value $ 352.5  
Net assets $ 162.9  
Weighted average yield on debt investments   10.6 %
Net asset value per share $ 13.06  
       
    Quarter Quarter
    ended ended
    March 31, 2016 March 31, 2015
Portfolio activity      
       
Total investments made, at par   $ 5.6 $ 22.2
Number of new investments     3   4
Repayments of investments, including amortization   $ 0.5 $ 17.3
Number of portfolio companies at          
end of period     40   33
           
Operating results          
           
Total investment income   $ 9.5 $ 8.7
Net investment income   $ 4.1 $ 3.8
Net investment income per share   $ 0.33 $ 0.31
Regular dividends declared per share   $ 0.34 $ 0.34
Net increase in net assets from operations   $ 2.5 $ 5.4
Net increase in net assets from operations per share   $ 0.20 $ 0.43
           

"During the first quarter, our investment portfolio increased slightly with no pay-offs received," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the first quarter of 2016 with a portfolio of $352.5 million (at fair value) invested in 40 companies. As of March 31, 2016, our portfolio included approximately 37% of first lien debt, 39% of second lien debt, 20% of mezzanine debt and 4% 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 $8.8 million and our largest portfolio company investment was approximately $21.7 million at fair value. The weighted average yield on all of our debt investments as of March 31, 2016 was approximately 10.6%.

During the three months ended March 31, 2016, we made $5.6 million of investments (at par) in one new portfolio company and two existing portfolio companies and received $0.5 million from 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 March 31, 2016 and 2015 totaled $9.5 million and $8.7 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended March 31, 2016 and 2015, totaled $5.4 million and $4.9 million, respectively. For the same respective periods, base management fees totaled $1.5 million and $1.4 million, incentive fees totaled $1.0 million and $1.0 million, fees and expenses related to our borrowings totaled $1.9 million and $1.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million and $0.3 million and other expenses totaled $0.7 million and $0.7 million.

Net investment income was $4.1 million and $3.8 million, or $0.33 and $0.31 per common share based on weighted average common shares outstanding for the three months ended March 31, 2016 and 2015.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended March 31, 2016 and 2015, of ($1.7) million and $1.6 million, respectively. For the three months ended March 31, 2016 and 2015 the Company had realized gains of $0.9 thousand and $3.2 thousand, respectively.

Our net increase in net assets resulting from operations totaled $2.5 million and $5.4 million, or $0.20 and $0.43 per common share based on weighted average common shares outstanding for the three months ended March 31, 2016 and 2015, respectively.

Liquidity and Capital Resources

As of March 31, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of both March 31, 2016 and December 31, 2015, we had $109.5 million in outstanding borrowings under the credit facility.

For the three months ended March 31, 2016, our operating activities used cash of $0.1 million primarily due to the purchase of new investments offset by cash interest received. For the same period, our financing activities used cash of $4.2 million, due to distributions to stockholders during the period.

For the three months ended March 31, 2015 our operating activities used cash of $0.3 million, primarily in connection with the payment of operating expenses, and our financing activities used cash of $0.5 million, primarily related to distributions to stockholders and offset by net borrowings under the credit facility.

Distributions

During the three months ended March 31, 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 March 31, 2016 are summarized as follows:

  • On January 26, 2016, we made a $3.8 million follow-on investment in the second lien loan of Stratose Intermediate Holdings, II, LLC. We also made an additional $0.3 million equity investment.
  • On January 27, 2016, we made a $0.7 million investment in the first lien loan of Vision Media Management & Fulfillment, LLC, a leading provider of logistics, fulfillment, and storage services for the media and entertainment industry.
  • On March 23, 2016, we made a $0.8 million follow-on investment in the second lien loan of Abrasive Products & Equipment, LLC.

Events Subsequent to March 31, 2016

During the month of April 2016, we received $2.5 million of principal repayments on our first lien debtor-in-possession loan of Binder & Binder National Social Security and Disability Advocates, LLC.

Credit Facility

The outstanding balance under our credit facility as of May 5, 2016 was $109.5 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on May 6, 2016, 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 888-364-3109 (domestic). Use passcode 5115564. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through May 14, 2016 by dialing (888) 203-1112 and entering passcode 5115564. 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)
 
       
  March 31, December 31,
  2016 2015
ASSETS        
  Non-controlled, non-affiliated investments, at fair value        
  (amortized cost of $369,410,970 and $364,212,459, respectively) $ 352,472,534 $ 349,017,697
  Cash and cash equivalents   6,524,058   10,875,790
  Receivable for sales and repayments of investments   11,187   10,000
  Interest receivable   4,612,009   4,720,031
  Deferred offering costs   261,761   261,761
  Accounts receivable   -   7,684
  Prepaid expenses   462,863   475,449
    Total Assets $ 364,344,412 $ 365,368,412
LIABILITIES        
  Notes Payable, net of deferred financing costs $ 24,428,292 $ 24,381,108
  Credit facility payable, net of prepaid loan structure fees   108,327,796   108,197,373
  SBA Debentures, net of prepaid loan fees   63,096,947   63,015,846
  Dividends payable   1,413,982   1,413,982
  Base management fees payable   1,548,373   1,518,779
  Incentive fees payable   1,231,235   607,956
  Interest payable   370,393   570,189
  Unearned revenue   33,259   36,877
  Administrative services payable   469,224   397,799
  Deferred tax liability   214,384   381,723
  Other accrued expenses and liabilities   278,017   195,676
    Total Liabilities $ 201,411,902 $ 200,717,308
Commitments and contingencies (Note 5)        
Net Assets $ 162,932,510 $ 164,651,104
NET ASSETS        
  Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,960 and 12,479,962 shares issued and outstanding, respectively) $ 12,480 $ 12,480
  Paid-in capital   180,994,752   180,994,752
  Accumulated undistributed net realized gain   894   -
  Distributions in excess of net investment income   (922,796)   (779,643)
  Net unrealized depreciation on investments and cash equivalents, net of provision for taxes of $214,385 and $381,723, respectively.  
(17,152,820)
 
(15,576,485)
Net Assets $ 162,932,510 $ 164,651,104
  Total Liabilities and Net Assets $ 364,344,412 $ 365,368,412
  Net Asset Value Per Share $ 13.06 $ 13.19
   
   
STELLUS CAPITAL INVESTMENT CORPORATION  
                 
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
             
    For the     For the  
    three months     three months  
    ended     ended  
    March 31,     March 31,  
    2016     2015  
INVESTMENT INCOME                
  Interest income   $ 9,374,737     $ 8,631,296  
  Other income     93,096       82,795  
    Total Investment Income     9,467,833       8,714,091  
OPERATING EXPENSES                
  Management fees   $ 1,548,373     $ 1,414,134  
  Valuation fees     132,466       147,475  
  Administrative services expenses     287,300       279,200  
  Incentive fees     1,024,822       960,854  
  Professional fees     192,111       294,561  
  Directors' fees     92,000       89,000  
  Insurance expense     118,026       116,944  
  Interest expense and other fees     1,879,843       1,450,492  
  Other general and administrative expenses     93,602       118,016  
    Total Operating Expenses   $ 5,368,543     $ 4,870,676  
    Net Investment Income   $ 4,099,290     $ 3,843,415  
    Net Realized Gain on Investments and Cash  Equivalents   $ 894     $ 3,169  
    Net Change in Unrealized Appreciation (Depreciation) on  Investments and Cash Equivalents  
$

(1,743,674
)  
$

1,613,068
 
    Benefit (provision) for taxes on unrealized gain on investments   $ 167,339     $ (66,278 )
    Net Increase in Net Assets Resulting from Operations   $ 2,523,849     $ 5,393,374  
    Net Investment Income Per Share   $ 0.33     $ 0.31  
    Net Increase in Net Assets Resulting from Operations  Per Share   $ 0.20     $ 0.43  
    Weighted Average Shares of Common Stock  Outstanding     12,479,960       12,479,962  
    Distributions Per Share   $ 0.34     $ 0.34  
   
   
STELLUS CAPITAL INVESTMENT CORPORATION  
           
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)  
           
    For the   For the  
    three months   three months  
    ended   ended  
    March 31,   March 31,  
    2016   2015  
Increase in Net Assets Resulting from Operations          
Net investment income $ 4,099,290 $ 3,843,415  
Net realized gain on investments and cash equivalents   894   3,169  
Net change in unrealized appreciation (depreciation) on investments and cash equivalents   (1,743,674)
  1,613,068
 
Benefit (provision) for taxes on unrealized appreciation (depreciation) on investments  
167,339
 
(66,278
)
Net Increase in Net Assets Resulting from Operations $ 2,523,849 $ 5,393,374  
Stockholder distributions          
Net investment income   (4,242,443)   (4,242,264 )
Total Distributions $ (4,242,443) $ (4,242,264 )
Total increase (decrease) in net assets $ (1,718,594) $ 1,151,110  
Net assets at beginning of period $ 164,651,104 $ 173,949,452  
Net assets at end of period (includes $922,796 and  $1,178,472 of distributions in excess of net investment income, respectively)
$

162,932,510

$

175,100,562
 
   
   
STELLUS CAPITAL INVESTMENT CORPORATION  
                 
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  
                 
      For the       For the  
      three months       three months  
      ended       ended  
      March 31, 2016       March 31, 2015  
Cash flows from operating activities                
Net increase in net assets resulting from operations   $ 2,523,849     $ 5,393,374  
  Adjustments to reconcile net increase in net assets resultingfrom operations to net cash used in operating activities:                
    Purchases of investments     (5,367,633 )     (21,712,544 )
    Proceeds from sales and repayments of investments     513,365       17,342,354  
    Net change in unrealized depreciation (appreciation) on investments     1,743,674       (1,613,068 )
    Deferred tax provision (benefit)     (167,339 )     66,278  
    Increase in investments due to PIK     (54,729 )     (178,581 )
    Amortization of premium and accretion of discount, net     (289,807 )     (211,463 )
    Amortization of loan structure fees     130,423       129,329  
    Amortization of deferred financing costs     81,101       76,232  
    Amortization of loan fees on SBIC debentures     47,184       28,690  
    Net realized gain on investments     (894 )     (3,169 )
  Changes in other assets and liabilities                
      Decrease in interest receivable     108,022       54,545  
      Increase in receivable for affiliated transaction     -       (40,000 )
      Decrease in accounts receivable     7,684       -  
      Decrease in prepaid expenses and fees     12,586       -  
      Increase in payable for investments purchased     -       76,074  
      Increase in management fees payable     29,594       54,115  
      Increase in directors' fees payable     -       89,000  
      Increase in incentive fees payable     623,279       45,277  
      Increase in administrative services payable     71,425       50,290  
      Decrease in interest payable     (199,796 )     (27,347 )
      Decrease in unearned revenue     (3,618 )     (125,380 )
      Increase in holdback liability     -       110,000  
      Increase in other accrued expenses and liabilities     82,341       52,050  
Net cash used by operating activities   $ (109,289 )   $ (343,944 )
Cash flows from financing activities                
    Stockholder distributions paid     (4,242,443 )     (4,242,264 )
    Borrowings under credit facility     -       22,750,000  
    Repayments of credit facility     -       (19,000,000 )
Net cash used in financing activities   $ (4,242,443 )   $ (492,264 )
Net decrease in cash and cash equivalents     (4,351,732 )     (836,208 )
Cash and cash equivalents balance at beginning of period     10,875,790       2,046,563  
Cash and cash equivalents balance at end of period   $ 6,524,058     $ 1,210,355  
Supplemental and non-cash financing activities                
  Interest expense paid   $ 1,820,930     $ 1,243,588  
                 

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