SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

August 05, 2016 06:00 ET

Stellus Capital Investment Corporation Reports Results for Its Second Fiscal Quarter Ended June 30, 2016

HOUSTON, TX--(Marketwired - August 05, 2016) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2016.

    
HIGHLIGHTS    
($ in millions, except data relating to per share amounts and number of portfolio companies)    
     
   As of    
Portfolio results  June 30, 2016    
Total assets  $366.1    
Investment portfolio, at fair value  $350.8    
Net assets  $163.7    
Weighted average yield on debt investments  10.7 %  
Net asset value per share  $13.12    
        
   Quarter   Quarter
   ended   ended
   June 30, 2016   June 30, 2015
Portfolio activity      
        
Total investments made, at par  $12.8   $38.9
Number of new investments  3   6
Repayments of investments, including amortization  $15.6   $36.6
Number of portfolio companies at       
end of period  42   35
Operating results       
        
Total investment income  $9.6   $8.7
Net investment income  $3.9   $4.0
Net investment income per share  $0.32   $0.32
Realized Gains per share  $0.00   $0.02
Regular dividends declared per share  $0.34   $0.34
Net increase in net assets from operations  $5.0   $4.0
Net increase in net assets from operations per share  $0.41   $0.32
      

"During the second quarter, we were able to substantially replace repayments with new investments", said Robert T. Ladd, Chief Executive Officer of Stellus. "The Company's investment adviser has informed the Company that it will waive incentive fees for the fiscal year ending December 31, 2016 to the extent necessary for the earnings of the Company to support dividends paid for the year".

Portfolio and Investment Activity

We completed the second quarter of 2016 with a portfolio of $350.8 million (at fair value) invested in 42 companies. As of June 30, 2016, our portfolio included approximately 36% of first lien debt, 40% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. Our debt portfolio consisted of 78% floating rate investments (subject to interest rate floors) and 22% fixed rate investments. The average size of our portfolio company investments was $8.4 million and our largest portfolio company investment was approximately $21.8 million at fair value. The weighted average yield on all of our debt investments as of June 30, 2016 was approximately 10.7%.

During the three months ended June 30, 2016, we made $12.8 million of investments in three new portfolio companies and received $15.6 million from payoffs and 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 June 30, 2016 and 2015 totaled $9.6 million and $8.7 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended June 30, 2016 and 2015, totaled $5.7 million and $4.7 million, respectively. For the same respective periods, base management fees totaled $1.6 million and $1.4 million, incentive fees totaled $1.0 million for both periods, fees and expenses related to our borrowings totaled $2.0 million and $1.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million for both periods and other expenses totaled $0.5 million for both periods. Lastly, operating expenses for the three months ended June 30, 2016 included a one-time expense related to previously capitalized deferred offering costs of $0.3 million.

Net investment income was $3.9 million and $4.0 million, or $0.32 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.

The Company's investment portfolio had a net change in unrealized depreciation for the three months ended June 30, 2016 and 2015, of $0.9 million and ($0.2) million, respectively. For the three months ended June 30, 2016 and 2015 the Company had realized gains of $1.5 thousand and $289.5 thousand, respectively.

Our net increase in net assets resulting from operations totaled $5.0 million and $4.0 million, or $0.41 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.

Liquidity and Capital Resources

As of June 30, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of June 30, 2016, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of June 30, 2016 and December 31, 2015, we had $110.0 million and $109.5 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2016, our operating activities provided cash of $7.9 million primarily in connection with cash interest received and repayments of our investments, which was offset by the purchase and origination of portfolio investments. For the same period, our financing activities used cash of $8.0 million, due to distributions to stockholders paid during the period.

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, and our financing activities provided cash of $1.2 million, primarily related to the issuance of SBA debentures.

Distributions

During the three months ended June 30, 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 June 30, 2016 are summarized as follows:

  • Throughout the quarter, we received a total of $4.5 million in full repayment of the debtor-in-possession loan of Binder & Binder National Security and Disability Advocates, LLC.
  • On May 23, 2016, we received full repayment of both the first lien and delayed draw term loans of Software Paradigms International Group, LLC at par plus a 2% prepayment premium for total proceeds of $9.8 million.
  • On June 10, 2016, we made a $10.0 million investment in the first lien term loan of Furniture Factory Outlet, LLC. We invested an additional $0.1 million in the unsecured term loan and $0.1 million in the equity of the company as well.
  • On June 30, 2016, we made a $1.25 million investment in the second lien term loan of Keais Records Service, LLC.
  • On June 30, 2016, we made a $1.25 million investment in the unsecured term loan of Wise Holding Corporation. In addition, we invested $0.1 million in the equity of the company.

Events Subsequent to June 30, 2016

Investment Portfolio

On July 5, 2016 and July 19, 2016, we funded $0.3 million and $0.1 million, respectively, of the revolver of HUF Worldwide, LLC.

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 $0.2 million in the company's equity.

Credit Facility

The outstanding balance under the Credit Facility as of August 3, 2016 was $103.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on August 5, 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 888-359-3624 (domestic). Use passcode 3493477. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through August 13, 2016 by dialing (888) 203-1112 and entering passcode 3493477. 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) 
  
  June 30,
2016
  December 31,
2015
 
ASSETS        
 Non-controlled, non-affiliated investments, at fair value (amortized cost of $366,819,533 and $364,212,459, respectively) $
350,809,617
  $
349,017,697
 
 Cash and cash equivalents  10,834,194   10,875,790 
 Receivable for sales and repayments of investments  -   10,000 
 Interest receivable  4,197,307   4,720,031 
 Deferred offering costs  -   261,761 
 Accounts receivable  -   7,684 
 Prepaid expenses  297,699   475,449 
  Total Assets $366,138,817  $365,368,412 
LIABILITIES        
 Notes Payable, net of deferred financing costs $24,469,817  $24,381,108 
 Credit facility payable, net of prepaid loan structure fees  108,958,219   108,197,373 
 SBA Debentures, net of prepaid loan fees  63,178,049   63,015,846 
 Dividends payable  1,413,982   1,413,982 
 Base management fees payable  1,550,841   1,518,779 
 Incentive fees payable  1,319,029   607,956 
 Interest payable  842,369   570,189 
 Directors' fees payable  86,000   - 
 Unearned revenue  23,593   36,877 
 Administrative services payable  234,248   397,799 
 Deferred tax liability  59,572   381,723 
 Other accrued expenses and liabilities  282,597   195,676 
  Total Liabilities $202,418,316  $200,717,308 
Commitments and contingencies (Note 5)        
Net Assets $163,720,501  $164,651,104 
NET ASSETS        
 Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,959 and 12,479,960 shares issued and outstanding, respectively) $
12,480
  $
12,480
 
 Paid-in capital  180,994,749   180,994,752 
 Accumulated undistributed net realized gain  2,380   - 
 Distributions in excess of net investment income  (1,219,620)  (779,643)
 Net unrealized depreciation on investments and cash equivalents, net of provision for taxes of $59,572 and $381,723, respectively.  (16,069,488)  (15,576,485)
Net Assets $163,720,501  $164,651,104 
 Total Liabilities and Net Assets $366,138,817  $365,368,412 
 Net Asset Value Per Share $13.12  $13.19 
         
  
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)  
   
 
 
 
 
 
 
 
 
 
 
For the
three months
ended
June 30,
2016
 
 
 
 
 
For the
three months
ended
June 30,
2015
 
 
 
 
 
 
 
 
 
 
For the
six months
ended
June 30,
2016
 
 
 
 
 
 
 
 
 
 
For the
six months
ended
June 30,
2015
 
 
 
 
 
INVESTMENT INCOME                    
 Interest income  $9,328,416  $8,635,047   $18,703,153   $17,266,343  
 Other income   294,753   55,415    387,849    138,210  
  Total Investment Income  $9,623,169  $8,690,462   $19,091,002   $17,404,553  
OPERATING EXPENSES                    
 Management fees  $1,550,841  $1,446,330   $3,099,214   $2,860,464  
 Valuation fees   67,701   41,324    200,167    188,799  
 Administrative services expenses   250,627   296,827    537,927    576,027  
 Incentive fees   986,276   998,871    2,011,098    1,959,725  
 Professional fees   195,203   67,794    387,314    362,355  
 Directors' fees   86,000   95,000    178,000    184,000  
 Insurance expense   118,027   118,242    236,053    235,186  
 Interest expense and other fees   2,015,189   1,514,055    3,895,032    2,964,547  
 Deferred offering costs   261,761   -    261,761    -  
 Other general and administrative expenses   146,442   116,532    240,044    234,548  
  Total Operating Expenses  $5,678,067  $4,694,975   $11,046,610   $9,565,651  
  Net Investment Income  $3,945,102  $3,995,487   $8,044,392   $7,838,902  
  Net Realized Gain on Investments and Cash Equivalents  $
1,486
 $
289,548
  $
2,380
  $
292,717
 
  Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents  $
928,520
 $
(236,062
) $
(815,154
) $
1,377,006
 
  Benefit (provision) for taxes on unrealized gain on investments  $
154,812
 $
(47,980
) $
322,151
  $
(114,258
)
  Net Increase in Net Assets Resulting from Operations  $5,029,920  $4,000,993   $7,553,769   $9,394,367  
  Net Investment Income Per Share  $0.32  $0.32   $0.64   $0.63  
  Net Increase (Decrease) in Net Assets Resulting from Operations Per Share  $
0.41
 $
0.32
  $
0.61
  $
0.75
 
  Weighted Average Shares of Common Stock Outstanding   
12,479,959
  
12,479,962
   
12,479,959
   
12,479,962
 
  Distributions Per Share  $0.34  $0.34   $0.68   $0.68  
                
                
       
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, 
  2016  2015 
Increase in Net Assets Resulting from Operations        
Net investment income $8,044,392  $7,838,902 
Net realized gain on investments and cash equivalents  2,380   292,717 
Net change in unrealized appreciation (depreciation) on investments and cash equivalents  (815,154)  1,377,006 
Benefit (provision) for taxes on unrealized appreciation on investments  322,151   (114,258)
Net Increase in Net Assets Resulting from Operations $7,553,769  $9,394,367 
Stockholder distributions from:        
 Net investment income  (8,484,372)  (8,484,513)
Total Distributions $(8,484,372) $(8,484,513)
Total increase (decrease) in net assets $(930,603) $909,854 
Net assets at beginning of period $164,651,104  $173,949,452 
Net assets at end of period (includes $1,219,620 and $1,425,235 of distributions in excess of net investment income, respectively) $163,720,501  $174,859,306 
         
  
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  
          
   For the   For the  
   six months   six months  
   ended   ended  
   June 30, 2016   June 30, 2015  
Cash flows from operating activities           
Net increase in net assets resulting from operations  $7,553,769   $9,394,367  
 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:           
  Purchases of investments   (17,899,868 )  (59,970,381 )
  Proceeds from sales and repayments of investments   15,972,633    53,942,696  
  Net change in unrealized depreciation (appreciation) on investments   815,154    (1,377,006 )
  Deferred tax provision (benefit)   (322,151 )  114,258  
  Increase in investments due to PIK   (109,619 )  (337,295 )
  Amortization of premium and accretion of discount, net   (557,840 )  (469,646 )
  Amortization of loan structure fees   260,846    260,094  
  Amortization of deferred financing costs   162,203    117,173  
  Amortization of loan fees on SBIC debentures   88,709    77,851  
  Net realized gain on investments   (2,380 )  (292,717 )
  Deferred offering costs   261,761    -  
 Changes in other assets and liabilities           
   Increase (decrease) in interest receivable   522,724    989,471  
   Increase in accounts receivable   7,684    (185,336 )
   Decrease in prepaid expenses and fees   177,750    136,169  
   Increase in management fees payable   32,062    86,311  
   Increase in directors' fees payable   86,000    184,000  
   Increase (decrease) in incentive fees payable   711,073    107,295  
   Increase (decrease) in administrative services payable   (163,551 )  (220,417 )
   Increase in interest payable   272,180    43,227  
   Decrease in unearned revenue   (13,284 )  (113,213 )
   Increase (decrease) in other accrued expenses and liabilities   86,921    92,185  
Net cash provided by operating activities  $7,942,776   $2,579,086  
Cash flows from financing activities           
  Proceeds from SBA Debentures   -    9,750,000  
  Financing costs paid on SBA Debentures   -    (561,438 )
  Stockholder distributions paid   (8,484,372 )  (8,484,513 )
  Borrowings under credit facility   18,500,000    53,750,000  
  Repayments of credit facility   (18,000,000 )  (53,250,000 )
Net cash provided (used) by financing activities  $(7,984,372 ) $1,204,049  
Net increase (decrease) in cash and cash equivalents   (41,596 )  3,783,135  
Cash and cash equivalents balance at beginning of period   10,875,790    2,046,563  
Cash and cash equivalents balance at end of period  $10,834,194   $5,829,698  
Supplemental and non-cash financing activities           
  Interest expense paid  $3,106,094   $2,461,204  
            
         

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