SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

March 09, 2015 18:50 ET

Stellus Capital Investment Corporation Reports Results for Its Fourth Fiscal Quarter Ended December 31, 2014

HOUSTON, TX--(Marketwired - March 09, 2015) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its fourth fiscal quarter ended December 31, 2014.

 
HIGHLIGHTS
($ in millions, except data relating to per share amounts and number of portfolio companies)
 
Portfolio results  As of
December 31, 2014
  
Total assets  $327.1   
Investment portfolio, at fair value  $316.0   
Net assets  $173.9   
Weighted average yield on debt investments  10.9%   
Net asset value per share  $13.94   
     
   Year
ended
December 31, 2014
 Quarter
ended
December 31, 2014
    
Portfolio activity   
   
Total investments made, at cost  $98.0  $39.5
Number of new investments  11  4
Repayments of investments, including amortization  $54.9  $5.3
Number of portfolio companies at end of period  32  32
     
Operating results      
     
Total investment income  $32.3  $8.6
Net investment income  $16.5  $3.8
Net investment income per share  $1.34  $0.30
Regular dividends declared per share  $1.36  $0.34
Net increase in net assets from operations  $10.2  $1.0
Net increase in net assets from operations per share  $0.83  $0.08
Weighted average shares outstanding during the period  12,281,178  12,477,925
       

"We are pleased to have completed our second full fiscal year of operations in which we covered our regular dividend through net investment income and realized gains, and paid a special dividend of $0.065 per share. Additionally, we increased our portfolio by 16% with $98.0 million of fundings across 11 investments and strengthened our capital base in four ways. In May, we closed a public offering of $25.0 million of notes. In June, the Small Business Administration approved our application to operate as a Small Business Investment Company. We also established an at-the-market equity issuance program through which we raised $5.1 million of gross proceeds. Finally, we amended our Credit Facility, which extended the maturity date by approximately two years and reduced the applicable margin rate for LIBOR-based loans," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the fourth quarter of 2014 with a portfolio of $316.0 million (at fair value) invested in 32 companies. As of December 31, 2014, our portfolio included approximately 24% of first lien debt, 32% of second lien debt, 41% of mezzanine debt and 3% of equity investments at fair value. Our debt portfolio consisted of 44% fixed rate investments and 56% floating rate investments (subject to interest rate floors). The average size of our portfolio company investments was $9.9 million and our largest portfolio company investment was approximately $22.9 million at fair value. The weighted average yield on all of our debt investments as of December 31, 2014 was approximately 10.9%. 

During the three months ended December 31, 2014, we made $39.5 million of investments in four new portfolio companies and two existing portfolio companies and received $5.3 million of proceeds principally from the partial sale of one investment, including $0.4 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% of first lien debt, 43% of second lien debt, 38% of mezzanine debt and 2% of equity investments at fair value. 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 investments (subject to interest rate floors).

Results of Operations

Investment income for the three months ended December 31, 2014 and 2013 totaled $8.6 million and $7.7 million, respectively, most of which was interest income from portfolio investments. For the years ended December 31, 2014 and 2013, investment income was $32.3 million and $29.4 million, respectively, most of which was interest income from portfolio investments.

Operating expenses, net of fee waivers for the three months ended December 31, 2014 and 2013 totaled $4.8 million and $3.5 million, respectively. For the same respective periods, base management fees totaled $1.4 million and $1.2 million, incentive fees totaled $0.9 million and $0.6 million (net of $0.3 million of fees waived by the manager), fees and expenses related to our borrowings totaled $1.5 million and $0.9 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million and $0.2 million and other expenses totaled $0.7 million and $0.6 million. 

Operating expenses, net of fee waivers for the years ended December 31, 2014 and 2013 totaled $15.8 million and $13.4 million, respectively. For the same respective periods, base management fees totaled $5.2 million and $4.2 million, incentive fees totaled $1.7 million (net of $1.4 million of fees waived by the manager) and $2.9 million (net of $1.0 million of fees waived by the manager), fees and expenses related to our borrowings totaled $5.3 million and $3.1 million (including interest and amortization of deferred financing costs), administrative expenses totaled $1.2 million and $0.9 million and other expenses totaled $2.4 million and $2.3 million. 

Net investment income was $3.8 million and $4.2 million, or $0.30 and $0.35 per common share based on weighted average common shares outstanding for the three months ended December 31, 2014 and 2013, respectively. 

For the years ended December 31, 2014 and 2013, net investment income was $16.5 million and $16.0 million, or $1.34 and $1.33 per common share based on weighted average common shares outstanding, respectively. 

The Company's investment portfolio had unrealized depreciation for the three months ended December 31, 2014 and 2013, of $2.7 million and $0.5 million, respectively. The company had no material realized gains for either period.

The Company's investment portfolio had unrealized appreciation (depreciation) for the years ended December 31, 2014 and 2013, of $(6.5) million and $0.5 million, respectively. During the same periods, the Company's investment portfolio had realized gains of $0.4 million and $1.0 million, respectively.

Our net increase in net assets resulting from operations totaled $1.0 million and $3.7 million, or $0.08 and $0.30 per common share based on weighted average common shares outstanding, for the three months ended December 31, 2014 and 2013, respectively. For the years ended December 31, 2014 and 2013, our net increase in net assets resulting from operations totaled $10.2 million and $17.5 million, or $0.83 and $1.45 per common share based on weighted average common shares outstanding, for the years ended December 31, 2014 and 2013, respectively. 

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 December 31, 2014 and 2013, our credit facility provided for borrowings in an aggregate amount up to $120 million and $135 million, respectively, on a committed basis. As of December 31, 2014, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. On November 21, 2014, we entered into a First Amendment to extend the maturity date of the credit facility, reduce the margin rate, and reduce the initial aggregate commitments to $120 million with an accordion feature which allows for potential future expansion of the facility size to $195 million. As of December 31, 2014 and 2013, we had $106.5 million and $110.0 million, respectively, in outstanding borrowings under the credit facility. 

For the year ended December 31, 2014, our operating activities used cash of $27.2 million primarily in connection with the acquisition of new investments. For the same period, our financing activities provided net cash of $15.6 million, primarily from the draws under the SBA-guaranteed debenture program.

For the year ended December 31, 2013, our operating activities used cash of $68.4 million primarily in connection with the purchase of investments. Our financing activities provided cash of $19.9 million, which included $72 million of net borrowings under the credit facility. 

Distributions

During the three and twelve months ended December 31, 2014, we declared distributions of $0.34 and $1.36 per share, respectively. 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. In addition, we paid a special dividend of $0.065 per share during the year related to realized gains from 2013.

Recent Portfolio Activity

New investment transactions and repayments which occurred during the three months ended December 31, 2014 are summarized as follows:

  • On October 21, 2014, we made a $7.4 million investment in the first lien loan of Hollander Sleep Products, a bed product manufacturer. We also invested $0.25 million in the equity of the company.
  • On October 22, 2014, we made a $15.2 million investment in the first lien loan of Huf Distribution Corporation, a designer and distributer of apparel. We also committed to fund a $1.75 million revolver and invested $0.5 million in the equity of the company. 
  • On October 23, 2014, we made a $3.9 million investment in the second lien loan of Zemax, LLC, a provider of optical and illumination design software. We also invested $0.25 million in the equity of the company. 
  • On December 31, 2014, we made a $3.4 million investment in the first lien term loan of EOS Fitness Opco Holdings, LLC, a health club franchise operator in the United States. We also invested $0.1 million in the equity of the company.
  • On October 3 and November 4, respectively, we made follow on investments of $2.5 and $4.9 million in the debt of SKOPOS. We also invested an additional $0.1 million in the company's equity. 
  • On December 9, 2014, we made a follow on funding of $1.0 million in the delayed draw term loan of Colford Capital. The $3.0 million unfunded commitment to this delayed draw term loan expired on December 31, 2014.

Events Subsequent to December 31, 2014

Since December 31, 2014, we made two new investments totaling $16.0 million, two follow on investments totaling $4.7 million, and received one repayment of $16.9 million which brings the investment portfolio to approximately $330 million (at par) and the average investment per company to $10.0 million at par as of March 4, 2015. 

The following changes to the portfolio have occurred since year end:

  • The $7.5 million unfunded commitment to Empirix, Inc. expired on February 1, 2015.
  • On February 6, 2015, we made a $5.0 million investment in the second lien term loan of GK Holdings, Inc.
  • On February 12, 2015, we received full repayment on the unsecured term loan of the Studer Group, LLC at par resulting in total proceeds of $16.9 million.
  • On February 19, 2015, we made a $10.0 million investment in the second lien term loan of NetMotion Wireless, Inc. We also invested $1.0 million in the company's equity.
  • On March 4, 2015, we made an additional $0.2 million equity investment in Skopos Financial Group, LLC.
  • On March 4, 2015, we invested $4.5 million in the debtor-in-possession financing of Binder & Binder.

Credit Facility

The outstanding balance under the Credit Facility as of March 4, 2015 was $108.0 million. 

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on March 10, 2015, 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) 364-3109 (domestic). Use passcode 5971730. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through March 18, 2015 by dialing (888) 203-1112 and entering passcode 5971730. The replay will also be available on the company's website.

  
STELLUS CAPITAL INVESTMENT CORPORATION  
       
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES  
  
   December 31, 2014   December 31, 2013  
ASSETS      
 Non-controlled, non-affiliated investments, at fair value (amortized cost of $321,955,480 and $277,004,466, respectively)  $315,965,434   $277,504,510  
 Cash and cash equivalents   2,046,563    13,663,542  
 Interest receivable   5,082,665    4,713,912  
 Deferred offering costs   261,761    205,165  
 Deferred financing costs   828,956    -  
 Accounts receivable   696    -  
 Receivable for affiliated transaction   -    43,450  
 Prepaid loan fees on SBA Debentures   681,947    -  
 Prepaid loan structure fees   1,774,630    1,586,405  
 Prepaid expenses   419,283    411,321  
  Total Assets  $327,061,935   $298,128,305  
LIABILITIES       
 Notes Payable   25,000,000    -  
 Credit facility payable   106,500,000    110,000,000  
 SBA Debentures   16,250,000    -  
 Short-term loan   -    9,000,000  
 Dividends payable   1,413,983    -  
 Base management fees payable   1,360,019    1,176,730  
 Incentive fees payable   1,121,556    1,056,942  
 Interest payable   346,204    234,051  
 Directors' fees payable   -    96,000  
 Unearned revenue   157,403    146,965  
 Deferred tax liability   288,122    -  
 Administrative services payable   591,744    263,225  
 Other accrued expenses and liabilities   83,452    262,878  
  Total Liabilities   153,112,483    122,236,791  
Commitments and contingencies (Note 7)            
Net Assets  $173,949,452   $175,891,514  
NET ASSETS       
 Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,962 and 12,099,022 shares issued and outstanding, as of December 31, 2014 and December 31, 2013 respectively)  $12,480   $12,099  
 Paid-in capital   180,994,783    175,614,738  
 Accumulated undistributed net realized gain   -    1,027,392  
 Distributions in excess of net investment income   (779,643 )  (1,262,659 )
 Net unrealized appreciation (depreciation) on investments and cash equivalents, net of provision for taxes of $288,122 and $0 as of December 31, 2014 and December 31, 2013, respectively   (6,278,168 )  499,944  
Net Assets  $173,949,452   $175,891,514  
  Total Liabilities and Net Assets  $327,061,935   $298,128,305  
  Net Asset Value Per Share  $13.94   $14.54  
        
            
         
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF OPERATIONS  
   
   For the year ended December 31, 2014   For the year ended December 31, 2013   For the period from Inception (May 18, 2012) through December 31, 2012  
INVESTMENT INCOME  
 Interest income  $31,637,094   $27,995,486   $3,696,432  
 Other income   687,753    1,405,250    -  
  Total Investment Income   32,324,847    29,400,736    3,696,432  
OPERATING EXPENSES  
 Management fees  $5,202,990   $4,242,608   $527,034  
 Valuation fees   384,957    497,228    184,500  
 Administrative services expenses   1,195,566    883,050    103,482  
 Incentive fees   3,122,890    3,816,840    -  
 Professional fees   744,547    649,863    734,365  
 Directors' fees   374,509    350,000    109,439  
 Insurance expense   482,963    468,046    79,279  
 Interest expense and other fees   5,315,325    3,123,701    282,629  
 Credit facility fees   -    -    317,594  
 Other general and administrative expenses   388,229    314,196    53,754  
  Total Operating Expenses   17,211,976    14,345,532    2,392,076  
Waiver of Incentive Fees   (1,399,226 )  (956,525 )  -  
  Total expenses, net of fee waivers   15,812,750    13,389,007    1,304,356  
  Net Investment Income   16,512,097    16,011,729    1,304,356  
  Net Realized Gain on Investments and Cash Equivalents   445,157    1,027,392    -  
  Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents   (6,489,990 )  505,876    (5,932 )
  Benefit/(Provision) for taxes on unrealized gain on investments   (288,122 )  -    -  
  Net Increase in Net Assets Resulting from Operations  $10,179,142   $17,544,997   $1,298,424  
  Net Investment Income Per Share  $1.34   $1.33   $0.11  
  Net Increase in Net Assets Resulting from Operations Per Share  $0.83   $1.45   $0.11  
  Weighted Average Shares of Common Stock Outstanding   12,281,178    12,059,293    12,035,023  
   
                 
             
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS  
   
   For the year ended December 31, 2014     For the year ended December 31, 2013     For the period from Inception (May 18, 2012) through December 31, 2012  
   
Increase in Net Assets Resulting from Operations            
Net investment income  $ 16,512,097   $ 16,011,729   $ 1,304,356  
Net realized gain on investments and cash equivalents    445,157     1,027,392     -  
Net change in unrealized appreciation (depreciation) on investments and cash equivalents    (6,489,990 )   505,876     (5,932 )
Benefits/(Provision) for taxes on unrealized gain on investments    (288,122 )   -     -  
Net Increase in Net Assets Resulting from Operations    10,179,142     17,544,997     1,298,424  
   
Stockholder distributions from:  
Net Investment Income  $ (16,029,081 ) $ (16,399,402 ) $ (2,179,342 )
Net realized capital gains  $ (1,472,549 ) $ -   $ -  
Net decrease in net assets resulting from stockholder distributions    (17,501,630 )   (16,399,402 )   (2,179,342 )
   
Capital share transactions  
Issuance of common stock    5,087,335     -     180,409,145  
Reinvestments of stockholder distributions    398,505     899,964     112,948  
Sales load    (75,510 )   -     (4,959,720 )
Offering costs    (29,904 )   -     (835,500 )
Net increase in net assets resulting from capital share transactions    5,380,426     899,964     174,726,873  
Total increase (decrease) in net assets    (1,942,062 )   2,045,559     173,845,955  
Net assets at beginning of year/period    175,891,514     173,845,955     -  
Net assets at end of year/period (includes $799,643, $1,262,659 and $874,986 of distributions in excess of net investment income)  $ 173,949,452   $ 175,891,514   $ 173,845,955  
   
Distributions per share  $ 1.43   $ 1.36   $ 0.18  
   
                    
             
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
  For the year ended December 31, 2014     For the year ended December 31, 2013     For the period from Inception (May 18, 2012) through December 31, 2012  
   
Cash flows from operating activities            
Net increase in net assets resulting from operations $ 10,179,142   $ 17,544,997   $ 1,298,424  
 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:           
  Purchases of investments   (97,954,324 )   (176,445,413 )   (232,708,419 )
  Proceeds from sales and repayments of investments   54,870,360     97,437,434     66,458,112  
  Net change in unrealized (appreciation) depreciation on investments   6,490,090     (504,459 )   4,415  
  Increase in investments due to PIK   (730,036 )   (1,073,588 )   (18,044 )
  Net amortization of premium and accretion of discount   (686,985 )   (436,582 )   (28,175 )
  Amortization of loan structure fees   607,404     568,086     67,595  
  Amortization of deferred financing costs   90,614     -     -  
  Amortization of loan fees on SBIC debentures   37,117     -     -  
  Net realized gain on investments   (450,031 )   (1,030,646 )   -  
 Changes in other assets and liabilities      
  Increase in interest receivable   (368,753 )   (2,140,081 )   (2,573,831 )
  Decrease (increase) in receivable for affiliated transaction   43,450     (43,450 )   -  
  Increase in accounts receivable   (696 )   -     -  
  Increase (decrease) in prepaid expenses and fees   (7,962 )   27,063     (438,384 )
  Increase (decrease) in payable for investments purchased   -     (4,750,000 )   4,750,000  
  Increase in management fees payable   183,289     649,696     527,034  
  Increase (decrease) in directors' fees payable   (96,000 )   66,548     29,452  
  Increase in incentive fees payable   64,614     1,056,942     -  
  Increase in administrative services payable   328,519     -     -  
  Increase in interest payable   112,153     167,574     66,477  
  Increase in unearned revenue   10,438     146,965     -  
  Increase in deferred tax liability   288,122     -     -  
  Increase (decrease) in other accrued expenses and liabilities   (179,426 )   350,110     175,993  
Net cash used in operating activities   (27,168,901 )   (68,408,804 )   (162,389,351 )
Cash flows from financing activities  
  Borrowings on bridge note   -     -     156,000,000  
  Payments on bridge note   -     -     (156,000,000 )
  Proceeds from notes issued   25,000,000     -     -  
  Proceeds from SBA Debentures   16,250,000     -     -  
  Financing costs paid on Notes issued   (919,570 )   -     -  
  Financing costs paid on Credit Facility   (795,628 )   (206,671 )   (2,015,415 )
  Financing costs paid on SBA Debentures   (719,063 )   -     -  
  Proceeds from the issuance of common stock   5,116,985     -     151,250,000  
  Sales load for common stock issued   (75,510 )   -     (4,959,720 )
  Offering costs   (116,150 )   (352,288 )   (688,377 )
  Stockholder distributions paid   (15,689,142 )   (15,499,438 )   (2,066,394 )
  Borrowings under credit facility   105,250,000     159,000,000     71,000,000  
  Repayments of credit facility   (108,750,000 )   (87,000,000 )   (33,000,000 )
  Repayments of short-term loan   (9,000,000 )   (85,000,576 )   45,000,943  
  Borrowings on short-term loan   -     48,999,633        
Net cash provided by financing activities   15,551,922     19,940,660     224,521,037  
Net increase (decrease) in cash and cash equivalents   (11,616,979 )   (48,468,144 )   62,131,686  
Cash and cash equivalents balance at beginning of year/period   13,663,542     62,131,686     -  
Cash and cash equivalents balance at end of year/period $ 2,046,563   $ 13,663,542   $ 62,131,686  
Supplemental and non-cash financing activities  
  Purchase of portfolio companies through the issuance of common stock   -     -     29,159,145  
  Accrued deferred offering costs   -     -     147,123  
  Shares issued pursuant to Dividend Reinvestment Plan   398,505     899,964     112,948  
  Interest expense paid   4,465,618     2,377,282     141,205  
   
                   

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.

Contact Information