SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

August 07, 2015 06:00 ET

Stellus Capital Investment Corporation Reports Results for Its Second Fiscal Quarter Ended June 30, 2015

HOUSTON, TX--(Marketwired - August 07, 2015) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2015.

   
   
HIGHLIGHTS     
($ in millions, except data relating to per share amounts and number of portfolio companies)   
    
 
Portfolio results
 As of
June 30, 2015
  
Total assets  $338.5   
Investment portfolio, at fair value  $324.4   
Net assets  $174.9   
Weighted average yield on debt investments  10.7%   
Net asset value per share  $14.01   
   Quarter
ended
June 30, 2015
 Quarter
ended
June 30, 2014
Portfolio activity     
       
Total investments made, at par  $38.9  $11.0
Number of new investments  6  5
Repayments of investments, including amortization  $36.6  $25.9
Number of portfolio companies at      
end of period  35  27
Operating results      
       
Total investment income  $8.7  $8.0
Net investment income  $4.0  $3.7
Net investment income per share  $0.32  $0.31
Realized Gains per share  $0.02  $0.03
Regular dividends declared per share  $0.34  $0.34
Net increase in net assets from operations  $4.0  $2.7
Net increase in net assets from operations per share  $0.32  $0.22
     
     

"In the second quarter we covered our dividend through earnings of $0.34 per share. Our originations of $39 million exceeded the payoffs during the quarter, which were greater than normal," said Robert T. Ladd, Chief Executive Officer of the Company.

Portfolio and Investment Activity

We completed the second quarter of 2015 with a portfolio of $324.4 million (at fair value) invested in 35 companies. As of June 30, 2015, our portfolio included approximately 26% of first lien debt, 43% of second lien debt, 27% of mezzanine debt and 4% of equity investments at fair value. Our debt portfolio consisted of 68% floating rate investments (subject to interest rate floors) and 32% fixed rate investments. The average size of our portfolio company investments was $9.3 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 as of June 30, 2015 was approximately 10.7%.

During the three months ended June 30, 2015, we made $38.9 million of investments in four new portfolio companies and two existing portfolio companies and received $36.6 million of proceeds from the repayment or sale of investments, including $2.2 million from amortization of certain other investments.

This compares to the portfolio as of December 31, 2014, which had a fair value of $316.0 million invested in 32 companies comprising 24% of first lien debt, 32% of second lien debt, 41% of mezzanine debt and 3% of equity investments at fair value. As of December 31, 2014, our debt investments had a weighted average yield of 10.9% and consisted of 44% fixed rate investments and 56% floating rate investments (subject to interest rate floors).

Results of Operations

Investment income for the three months ended June 30, 2015 and 2014 totaled $8.7 million and $8.0 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended June 30, 2015 and 2014, totaled $4.7 million and $4.3 million, respectively. For the same respective periods, base management fees totaled $1.4 million and $1.3 million, incentive fees totaled $1.0 million and $0.9 million, fees and expenses related to our borrowings totaled $1.5 million and $1.4 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million and $0.3 million and other expenses totaled $0.5 million and $0.4 million.

Net investment income was $4.0 million and $3.7 million, or $0.32 and $0.31 per common share based on weighted average common shares outstanding for the three months ended June 30, 2015 and 2014, respectively.

The Company's investment portfolio had a net change in unrealized depreciation for the three months ended June 30, 2015 and 2014, of $0.2 million and $1.3 million, respectively. For the three months ended June 30, 2015 and 2014 the Company had realized gains of $0.3 million and $0.3 million, respectively.

Our net increase in net assets resulting from operations totaled $4.0 million and $2.7 million, or $0.32 and $0.22 per common share based on weighted average common shares outstanding for the three months ended June 30, 2015 and 2014, respectively.

Liquidity and Capital Resources

As of June 30, 2015 and 2014, our credit facility provided for borrowings in an aggregate amount up to $120 million and $150 million, respectively, on a committed basis. As of June 30, 2015, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of June 30, 2015 and December 31, 2014, we had $107.0 million and $106.5 million, respectively, in outstanding borrowings under the credit facility.

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. For the same period, our financing activities provided cash of $1.2 million, primarily related to the issuance of SBA debentures, which increased from $16 million to $26 million during the quarter.

For the six months ended June 30, 2014 our operating activities provided cash of $4.8 million primarily in connection with cash interest received and repayments of our investments, and our financing activities used cash of $8.3 million, primarily due to repayments on the credit facility.

Distributions

During the three months ended June 30, 2015 and 2014, we declared distributions of $0.34 per share ($4.2 million and $4.1 million, respectively) 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, 2015 are summarized as follows:

  • On May 22, 2015, we received a paydown of $2.5 million from Huf Worldwide, LLC and reduced our unfunded revolver commitment from $1.75 million to $1.25 million. We made an additional $56 thousand equity investment in Huf Holdings, LLC.
  • On May 29, 2015, we received full repayment on the unsecured senior subordinated note of Woodstream Corporation at par, resulting in total proceeds of $9.1 million. We also received full repayment on the unsecured senior subordinated note of Woodstream Group at par, resulting in total proceeds of $0.9 million.
  • On June 8, 2015, we made a $4.5 million investment in the second lien term loan of U.S. Auto Sales, Inc., a leading integrated used car retailer and subprime auto finance company. We also invested $0.5 million in the equity of the company.
  • On June 12, 2015, we received full repayment on the unsecured term loan of ATX Networks Holding Intermediate Corp at par, resulting in total proceeds of $21.9 million.
  • On June 23, 2015, we made a $7.1 million investment in the first lien loan of Software Paradigms International, Inc., a leading provider of outsourced IT and merchandise planning software and services, with a $2.8 million unfunded revolver commitment.
  • On June 23, 2015, we funded $0.5 million of the Huf Worldwide, LLC revolver.
  • On June 25, 2015, we made an additional $5.0 million term loan in an existing portfolio company, Colford Capital Holdings, LLC.
  • On June 30, 2015, we made a $9.0 million investment in the second lien term loan of Douglas Products and Packaging Company, LLC, a leading manufacturer of specialty chemicals. We also invested $0.25 million in the equity of the company.
  • On June 30, 2015, we made an $11.25 million investment in the second lien loan of Stratose Intermediate Holdings II, LLC, a leading provider of out-of-network claims cost management solutions. We also invested $0.75 million in the equity of the company.

Events Subsequent to June 30, 2015

On July 8, 2015, we received full repayment on our second lien term loan of Telular Corp. at par plus a 1% prepayment premium resulting in total proceeds of $7.6 million.

On August 6, 2015, we made a $12.5 million investment in the first lien term loan of Catapult Learning, LLC.

Credit Facility

The outstanding balance under the Credit Facility as of August 6, 2015 was $108.3 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on August 7, 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) 427-9411 (domestic). Use passcode 6337121. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through August 15, 2015 by dialing (888) 203-1112 and entering passcode 6337121. 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  
              
   June 30,        
   2015   December 31,  
   (Unaudited)   2014  
ASSETS             
 Non-controlled, non-affiliated investments, at fair value (amortized cost of $329,007,464 and $321,955,480, respectively)  
 
 
$
 
324,394,424
 
 
 
 
 
$
 
315,965,434
 
 
 
 Cash and cash equivalents    5,829,698     2,046,563  
 Receivable for sales and repayments of investments    75,358     -  
 Interest receivable    4,093,194     5,082,665  
 Deferred offering costs    261,761     261,761  
 Deferred financing costs    711,783     828,956  
 Accounts receivable    186,032     696  
 Prepaid loan fees on SBA debentures    1,165,534     681,947  
 Prepaid loan structure fees    1,514,536     1,774,630  
 Prepaid expenses    283,114     419,283  
  Total Assets  $ 338,515,434   $ 327,061,935  
LIABILITIES             
 Notes Payable  $ 25,000,000   $ 25,000,000  
 Credit facility payable    107,000,000     106,500,000  
 SBA Debentures    26,000,000     16,250,000  
 Dividends payable    1,413,983     1,413,983  
 Base management fees payable    1,446,330     1,360,019  
 Incentive fees payable    1,228,851     1,121,556  
 Interest payable    389,431     346,204  
 Directors' fees payable    184,000     -  
 Unearned revenue    44,190     157,403  
 Administrative services payable    371,327     591,744  
 Deferred Tax Liability    402,379     288,122  
 Other accrued expenses and liabilities    175,637     83,452  
  Total Liabilities  $ 163,656,128   $ 153,112,483  
Commitments and contingencies             
Net Assets  $ 174,859,306   $ 173,949,452  
NET ASSETS             
 
 
Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,962 and 12,479,962 shares issued and outstanding, respectively)  
 
 
 
$
 
 
12,480
 
 
 
 
 
 
 
 
$
 
 
12,480
 
 
 
 Paid-in capital    180,994,764     180,994,783  
 Accumulated undistributed net realized gain    292,717     -  
 Distributions in excess of net investment income    (1,425,235 )   (779,643 )
 Net Unrealized depreciation on investments and cash equivalents, net of provision for taxes of $402,379 and $288,122, respectively.   
 
 
 
 
(5,015,420
 
 
)
 
 
 
 
 
 
 
(6,278,168
 
 
)
Net Assets  $ 174,859,306   $ 173,949,452  
 Total Liabilities and Net Assets  $ 338,515,434   $ 327,061,935  
 Net Asset Value Per Share  $ 14.01   $ 13.94  
         
         
  
STELLUS CAPITAL INVESTMENT CORPORATION  
                          
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
                  
   For the   For the   For the   For the  
   three months   three months   six months   six months  
   ended   ended   ended   ended  
   June 30,   June 30,   June 30,   June 30,  
   2015   2014   2015   2014  
INVESTMENT INCOME                         
 Interest income  $ 8,635,047   $ 7,672,379   $ 17,266,343   $ 15,359,713  
 Other income    55,415     340,330     138,210     502,242  
  Total Investment Income    8,690,462     8,012,709     17,404,553     15,861,955  
OPERATING EXPENSES                         
 Management fees  $ 1,446,330   $ 1,293,336   $ 2,860,464   $ 2,561,740  
 Valuation fees    41,324     64,498     188,799     216,137  
 Administrative services expenses    296,827     275,167     576,027     543,934  
 Incentive fees    998,871     934,740     1,959,725     1,763,832  
 Professional fees    67,794     66,038     362,355     284,027  
 Directors' fees    95,000     118,000     184,000     204,000  
 Insurance expense    118,242     120,407     235,186     239,490  
 Interest expense and other fees    1,514,055     1,352,967     2,964,547     2,431,922  
 Other general and administrative expenses    116,532     82,694     234,548     150,967  
  Total Operating Expenses  $ 4,694,975   $ 4,307,847   $ 9,565,651   $ 8,396,049  
  Net Investment Income  $ 3,995,487   $ 3,704,862   $ 7,838,902   $ 7,465,906  
  Net Realized Gain on Investments                         
  and Cash Equivalents  $ 289,548   $ 325,385   $ 292,717   $ 437,457  
  Net Change in Unrealized Appreciation (Depreciation)                         
  on Investments and Cash Equivalents  $ (236,062 ) $ (1,318,680 ) $ 1,377,006   $ (848,035 )
  Provision for taxes on unrealized gain on investments  $ (47,980 ) $ -   $ (114,258 ) $ -  
  Net Increase in Net Assets Resulting from Operations  $ 4,000,993   $ 2,711,567   $ 9,394,367   $ 7,055,328  
  Net Investment Income Per Share  $ 0.32   $ 0.31   $ 0.63   $ 0.62  
  Net Increase in Net Assets Resulting from Operations                         
  Per Share  $ 0.32   $ 0.22   $ 0.75   $ 0.58  
  Weighted Average Shares of Common                         
  Stock Outstanding    12,479,962     12,132,851     12,479,962     12,118,498  
  Distributions Per Share  $ 0.34   $ 0.34   $ 0.68   $ 0.74  
                   
                   
  
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,  
  2015   2014  
Increase in Net Assets Resulting from Operations            
Net investment income $ 7,838,902   $ 7,465,906  
Net realized gain on investments and cash equivalents   292,717     437,457  
Net change in unrealized appreciation on investments and cash equivalents  
 
 
1,377,006
 
 
 
 
 
 
 
(848,035
 
)
Provision for taxes on unrealized appreciation on investments  
 
 
(114,258
 
)
 
 
 
 
 
-
 
 
Net Increase in Net Assets Resulting from Operations   9,394,367     7,055,328  
Stockholder distributions            
Net investment income   (8,484,513 )   (8,255,460 )
Net realized capital gains   -     (786,436 )
Total Distributions   (8,484,513 )   (9,041,896 )
Capital share transactions            
Issuance of common stock   -     3,334,474  
Reinvestments of stockholder distributions   -     187,492  
Sales load   -     (50,017 )
Offering costs   -     (17,467 )
Net increase in net assets resulting from capital share transactions   -     3,454,482  
Total increase in net assets   909,854     1,467,914  
Net assets at beginning of period   173,949,452     175,891,514  
Net assets at end of period (includes $1,425,235 and $2,052,213 of distributions in excess of net investment income)  
$
 
174,859,306
   
$
 
177,359,428
 
        
        
  
STELLUS CAPITAL INVESTMENT CORPORATION  
             
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  
         
  For the   For the  
  six months   six months  
  ended   ended  
  June 30, 2015   June 30, 2014  
Cash flows from operating activities            
Net increase in net assets resulting from operations $ 9,394,367   $ 7,055,328  
 Adjustments to reconcile net increase in net assets resulting            
 from operations to net cash used in operating activities:            
  Purchases of investments   (59,970,381 )   (51,538,484 )
  Proceeds from sales and repayments of investments   53,942,696     48,302,237  
  Net change in unrealized (appreciation) depreciation on investments   (1,377,006 )   848,135  
  Deferred tax provision   114,258     -  
  Increase in investments due to PIK   (337,295 )   (363,565 )
  Amortization of premium and accretion of discount, net   (469,646 )   (318,341 )
  Amortization of loan structure fees   260,094     296,169  
  Amortization of deferred financing costs   117,173     28,558  
  Amortization of loan fees on SBIC debentures   77,851     -  
  Net realized gain on investments   (292,717 )   (442,332 )
 Changes in other assets and liabilities            
   Decrease (increase) in interest receivable   989,471     (462,314 )
   Decrease in receivable for affiliated transaction   -     43,450  
   Increase in accounts receivable   (185,336 )   (31,013 )
   Decrease in prepaid expenses and fees   136,169     218,317  
   Increase in management fees payable   86,311     116,606  
   Increase (decrease) in directors' fees payable   184,000     (96,000 )
   Increase in incentive fees payable   107,295     1,122,316  
   Increase (decrease) in administrative services payable   (220,417 )   11,793  
   Increase in interest payable   43,227     163,457  
   Decrease in unearned revenue   (113,213 )   (11,569 )
   Increase (decrease) in other accrued expenses and liabilities   92,185     (97,025 )
Net cash provided by operating activities   2,579,086     4,845,723  
Cash flows from financing activities            
  Proceeds from notes issued   -     25,000,000  
  Proceeds from SBA Debentures   9,750,000     -  
  Financing costs paid on notes issued   -     (889,742 )
  Financing costs paid on SBA Debentures   (561,438 )   -  
  Proceeds from the issuance of common stock   -     3,125,288  
  Sales load for common stock issued   -     (50,017 )
  Offering costs paid for common stock issued   -     (71,184 )
  Stockholder distributions paid   (8,484,513 )   (7,457,727 )
  Borrowings under credit facility   53,750,000     72,000,000  
  Repayments of credit facility   (53,250,000 )   (91,000,000 )
  Repayments of short-term loan   -     (9,000,000 )
Net cash provided by (used in) financing activities   1,204,049     (8,343,382 )
Net decrease in cash and cash equivalents   3,783,135     (3,497,659 )
Cash and cash equivalents balance at beginning of period   2,046,563     13,663,542  
Cash and cash equivalents balance at end of period $ 5,829,698   $ 10,165,883  
Supplemental and non-cash financing activities            
 Accrued deferred offering costs   -     172,289  
 Shares issued pursuant to Dividend Reinvestment Plan   -     187,492  
 Interest expense paid   2,461,204     1,941,863  
             
        

About Stellus Capital Investment Corporation

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