SOURCE: Stellus Capital Investment Corporation

Stellus Capital Investment Corporation

November 06, 2014 18:51 ET

Stellus Capital Investment Corporation Reports Results for Its Third Fiscal Quarter Ended September 30, 2014

HOUSTON, TX--(Marketwired - November 06, 2014) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2014.

 
HIGHLIGHTS
($ in millions, except data relating to per share amounts and number of portfolio companies)
 
Portfolio results  As of September 30, 2014    
Total assets  $296.4     
Investment portfolio, at fair value  $284.1     
Net assets  $177.1     
Weighted average yield on debt investments   11.0 %   
Net asset value per share  $14.20     
        
        
    Quarter ended
September 30, 2014
   Quarter ended
September 30, 2013
Portfolio activity     
Total investments made, at cost  $6.9   $16.8
Number of new investments   3    2
Repayments of investments, including amortization  $1.2   $35.4
Number of portfolio companies at end of period   28    23
Operating results         
Total investment income  $7.8   $7.9
Net investment income  $5.3 (1 ) $4.1
Net investment income per share  $0.42 (1 ) $0.34
Regular dividends declared per share  $0.34   $0.34
Net increase in net assets from operations  $2.1   $3.8
Net increase in net assets from operations per share  $0.17   $0.32
Weighted average shares outstanding during the period   12,404,485    12,066,548
        
        
  1. Includes waiver of $1.4 million of incentive fees for the period from January 1, 2014 through September 30, 2014.

"Although we had a modest level of originations during the third quarter, since quarter-end we have made investments totaling $30.7 million, $13 million of which we funded by issuing SBA-guaranteed debentures," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the third quarter of 2014 with a portfolio of $284.1 million (at fair value) invested in 28 companies. As of September 30, 2014, our portfolio included approximately 18% of first lien debt, 36% of second lien debt, 43% of mezzanine debt and 3% of equity investments at fair value. Our debt portfolio consisted of 47% fixed rate investments and 53% floating rate (subject to interest rate floors), such as LIBOR. The average size of our portfolio company investments was $10.3 million (at cost) and our largest portfolio company investment was approximately $23.1 million (at fair value). The weighted average yield on all of our debt investments as of September 30, 2014 was approximately 11.0%. 

During the three months ended September 30, 2014, we made $6.9 million of investments in one new portfolio company and two existing companies and received $1.2 million of proceeds from the repayment of investments, including $0.5 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% first lien debt, 43% second lien debt, 38% mezzanine debt and 2% equity. 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 (subject to interest rate floors), such as LIBOR.

Results of Operations

Investment income for the three months ended September 30, 2014 and 2013 totaled $7.8 million and $7.9 million, respectively, most of which was interest income from portfolio investments.

During the current quarter, while under no obligation to do so, we waived $1.4 million of incentive fees accrued during the nine months ended September 30, 2014. Such waiver in no way implies that we will waive incentive fees in any future period. Operating expenses, net of incentive fee waiver for the three months ended September 30, 2014 totaled $2.6 million. For the three months ended September 30, 2013, operating expenses, net of incentive fee waiver totaled $3.8 million. For the three months ended September 30, 2014 and 2013, base management fees totaled $1.3 million and $1.1 million, fees and expenses related to our borrowings totaled $1.4 million and $1.0 million (including commitment and other loan fees), administrative expenses totaled $0.3 million and $0.2 million and other expenses totaled $0.6 million and $0.8 million, all respectively. For the three months ended September 30, 2014 and 2013, incentive fees totaled ($1.0) million and $0.7 million (net of $1.4 million and $0.2 million of fees waived by the manager, respectively). The incentive fees waived during the quarter ended September 30, 2014 related to incentive fees accrued during the nine months ended September 30, 2014.

Net investment income was $5.3 million and $4.1 million, or $0.42 and $0.34 per common share based on weighted average common shares outstanding for the three months ended September 30, 2014 and 2013, respectively. 

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended September 30, 2014 and 2013, of ($3.0) million and $0.3 million, respectively. For the three months ended September 30, 2014 and 2013, the Company had realized gains of $4 thousand and $5 thousand, respectively.

Our net increase in net assets resulting from operations totaled $2.1 million and $3.8 million, or $0.17 and $0.32 per common share based on weighted average common shares outstanding for the three months ended September 30, 2014 and 2013, respectively. 

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our committed credit facility, bonds, SBA guaranteed debentures, 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, 2014, our credit facility provided for borrowings in an aggregate amount up to $150 million on a committed basis. As of September 30, 2014 and December 31, 2013, we had $90 million and $110 million, respectively, in outstanding borrowings under the credit facility.

On May 5, 2014, the Company closed a public offering of $25.0 million in aggregate principal amount of 6.50% bonds. The net proceeds to the Company from the sales of the bonds, after underwriting discounts and offering expenses, were approximately $24.1 million. The Company used all of the net proceeds from this offering to pay down the credit facility. As of September 30, 2014, the carrying amount of the notes was $25.0 million. 

On June 5, 2014, we established an at-the-market program through which we may sell, from time to time, and at our sole discretion up to $50 million of our common stock. During the quarter ended September 30, 2014, we issued approximately $1.7 million in common stock, net of 1.5% commission to the broker-dealer on shares sold and offering costs.

For the nine months ended September 30, 2014, our operating activities provided cash of $2.1 million primarily in connection with cash interest received and our financing activities used cash of $11.6 million, primarily from repayments under the credit facility. For the nine months ended September 30, 2013, our operating activities used cash of $37.6 million primarily from the purchases of investments and our financing activities used cash of $0.9 million, primarily from the repayment of short-term loans. 

Distributions

During the three months ended September 30, 2014 and 2013, we declared distributions of $0.34 per share ($4.2 million) and $0.34 per share ($4.1 million), respectively. Tax characteristics of all distributions made in the current year 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

During the three months ended September 30, 2014, we made $6.9 million (at cost) of investments in one new portfolio company and two existing portfolio companies. During the same period the Company received $1.2 million from repayments and sales of investments, of which $0.5 million represents amortization on existing loans. New investment transactions and repayments that occurred during the three months ended September 30, 2014 are summarized as follows:

  • On July 31, 2014, we invested an additional $2.0 million in the unsecured term loan of SQAD, LLC. In addition, we invested $12,485 in the company's common equity and $112,368 in Series A Preferred equity.
  • On September 5, 2014, we made a $4.4 million investment in the second lien term loan of Abrasive Products & Equipment. We also invested $0.4 million in the company's equity.
  • On September 5, 2014, we received repayment of $0.7 million of the revolving term loan of Refac Optical Group at par.
  • On September 8, 2014, we invested $33,333 in the equity of Skopos Financial, LLC.

Events Subsequent to September 30, 2014

Since September 30, 2014, we made three new investments totaling $28.1 million (at par) and one follow-on investment of $2.6 million (at par) which brings the investment portfolio to approximately $314.8 million (at estimated fair value) and the average investment per company to $10.2 million as of October 31, 2014.

  • On October 3, 2014, we invested $2.5 million in the unsecured debt of Skopos Financial, LLC. We invested an additional $66,667 in the equity of the Company on October 30, 2014.
  • On October 21, 2014, we invested $7.5 million in the first lien debt of Hollander Sleep Products, LLC and $250,000 in the common stock of Dream II Holdings, LLC.
  • On October 22, 2014, we invested $15.6 million in the first lien debt and committed $1.75 million in the unfunded revolver of Huf Worldwide, LLC and invested $500,000 in the preferred stock of Huf Holdings LLC.
  • On October 23, 2014, we invested $4.0 million in the second lien debt of and $250,000 in the common and preferred stock of Zemax Software Holdings, LLC.

Dividends

On October 14, 2014, the Company's board of directors declared a regular monthly dividend of $0.1133 per share for each of the months of October 2014, November 2014 and December 2014.

Credit Facility

The outstanding balance under the Credit Facility as of November 3, 2014 was $102 million. 

SBA Debentures

On each of October 14, 2014, and October 17, 2014, the SBIC Subsidiary issued $6.5 million of SBA-guaranteed debentures for a total of $13.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on November 7, 2014, 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) 455-2260 (domestic). Use passcode 8257325. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through November 20, 2014 by dialing (888) 203-1112 and entering passcode 8257325. The replay will also be available on the company's website.

   
Stellus Capital Investment Corporation  
Consolidated Statements of Assets and Liabilities  
   September 30,   December 31,  
   2014   2013  
   (Unaudited)      
ASSETS             
 Non-controlled, non-affiliated investments, at fair value (amortized cost of $287,408,278 and $277,004,466, respectively)  $ 284,105,102   $ 277,504,510  
 Cash and cash equivalents    4,164,063     13,663,542  
 Receivable for sales and repayments of investments    38,021     -  
 Interest receivable    5,357,554     4,713,912  
 Deferred offering costs    261,760     205,165  
 Deferred financing costs    844,606     -  
 Accounts receivable    31,013     -  
 Receivable for affiliated transaction    -     43,450  
 Prepaid loan structure fees    1,212,098     1,586,405  
 Prepaid expenses    381,799     411,321  
 Total Assets  $ 296,396,016   $ 298,128,305  
LIABILITIES             
 Notes Payable    25,000,000     -  
 Credit facility payable    90,000,000     110,000,000  
 Short-term loan    -     9,000,000  
 Dividends payable    1,413,224     -  
 Base management fees payable    1,281,231     1,176,730  
 Incentive fees payable    215,887     1,056,942  
 Accrued offering costs    4,752     -  
 Interest payable    336,275     234,051  
 Directors' fees payable    86,000     96,000  
 Unearned revenue    129,548     146,965  
 Administrative services payable    551,383     263,226  
 Deferred Tax Liability    185,888     -  
 Other accrued expenses and liabilities    96,567     262,877  
  Total Liabilities    119,300,755     122,236,791  
              
Net Assets  $ 177,095,261   $ 175,891,514  
NET ASSETS             
 Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,473,293 and 12,099,022 shares issued and outstanding, as of September 30, 2014 and December 31, 2013, respectively)  $ 12,473   $ 12,099  
 Paid-in capital    180,909,398     175,614,738  
 Accumulated undistributed net realized gain    682,320     1,027,392  
 Distributions in excess of net investment income    (1,019,866 )   (1,262,659 )
 Net Unrealized appreciation (depreciation) on investments and cash equivalents, net of provision for taxes of $185,888 and $0, as of September 30, 2014 and December 31, 2013, respectively    (3,489,064 )   499,944  
Net Assets    177,095,261     175,891,514  
  Total Liabilities and Net Assets  $ 296,396,016   $ 298,128,305  
  Net Asset Value Per Share  $ 14.20   $ 14.54  
              
         
  
Stellus Capital Investment Corporation  
Consolidated Statement of Operations (unaudited)  
   Three Months Ended   Nine Months Ended  
September 30,   September 30,  
   2014   2013   2014   2013  
INVESTMENT INCOME                     
 Interest income  $7,766,986   $7,604,636   $23,126,699   $20,640,265  
 Other income   55,511    312,995    557,753    1,065,033  
 Total Investment Income   7,822,497    7,917,631    23,684,452    21,705,298  
 OPERATING EXPENSES                     
 Management fees   1,281,231    1,140,675    3,842,971    3,065,877  
 Valuation fees   128,815    154,785    344,952    358,495  
 Administrative services expenses   312,870    220,249    856,804    619,825  
 Incentive fees   410,134    914,412    2,173,966    2,969,855  
 Professional fees   115,463    254,533    399,490    477,995  
 Directors' fees   86,000    76,000    290,000    254,000  
 Insurance expense   121,730    119,695    361,220    354,933  
 Interest expense and other fees   1,409,565    968,674    3,841,487    2,253,433  
 Other general and administrative expenses   105,418    102,388    256,385    229,832  
 Total Operating Expenses   3,971,226    3,951,411    12,367,275    10,584,245  
 Waiver of Incentive Fees   (1,399,226 )  (167,775 )  (1,399,226 )  (672,982 )
 Total operating expenses, net of fees waivers   2,572,000    3,783,636    10,968,049    9,911,263  
 Net Investment Income   5,250,497    4,133,995    12,716,403    11,794,035  
 Net Realized Gain on Investments and Cash Equivalents   3,907    5,061    441,364    1,007,978  
 Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents   (2,955,085 )  (313,635 )  (3,803,120 )  1,033,121  
 Benefit/(Provision) for taxes on unrealized gain on investments   (185,888 )  0    (185,888 )  0  
 Net Increase in Net Assets Resulting from Operations  $2,113,431   $3,825,421   $9,168,759   $13,853,134  
 Net Investment Income Per Share  $0.42   $0.34   $1.04   $0.98  
 Net Increase in Net Assets Resulting from Operations Per Share  $0.17   $0.32   $0.75   $1.15  
 Weighted Average Shares of Common Stock Outstanding   12,404,485    12,066,548    12,214,875    12,051,013  
 Distributions Per Share  $0.34   $0.34   $1.09   $1.02  
                      
                 
   
STELLUS CAPITAL INVESTMENT CORPORATION  
   
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)  
   
   For the nine months ended
September 30, 2014
  For the nine months ended
September 30, 2013
 
Increase in Net Assets Resulting from Operations        
Net investment income  $12,716,403   $11,794,035  
Net realized gain on investments and cash equivalents   441,364    1,007,978  
Net change in unrealized appreciation (depreciation) on investments and cash equivalents   (3,803,120 )  1,033,121  
Benefits/(Provision) for taxes on unrealized gain on investments   (185,888 )  -  
Net Increase in Net Assets Resulting from Operations   9,168,759    13,835,134  
         
Stockholder distributions   (13,260,046 )  (12,291,447 )
         
Capital share transactions        
Issuance of common stock   5,087,335    -  
Reinvestments of stockholder distributions   313,113    669,803  
Sales load   (75,510 )  -  
Offering costs   (29,904 )  -  
Net increase in net assets resulting from capital share transactions   5,295,034    669,803  
Total increase in net assets   1,203,747    2,213,490  
Net assets at beginning of period   175,891,514    173,845,955  
Net assets at end of period (includes $1,019,866 and $1,372,398 of distributions in excess of net investment income)  $177,095,261   $176,059,445  
   
  
  
STELLUS CAPITAL INVESTMENT CORPORATION  
       
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)  
       
   For the nine months ended
September 30, 2014
  For the nine months ended
September 30, 2013
 
Cash flows from operating activities         
Net increase in net assets resulting from operations  $9,168,759   $13,835,134  
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:      
Purchases of investments   (58,454,022 )  (129,073,679 )
Proceeds from sales and repayments of investments   49,485,710    84,105,057  
Net change in unrealized (appreciation) depreciation on investments   3,803,220    (1,031,604 )
Increase in investments due to PIK   (538,457 )  (854,644 )
Amortization of premium and accretion of discount, net   (488,829 )  (308,299 )
Amortization of loan structure fees   452,054    419,927  
Amortization of deferred financing costs   74,964    -  
Net realized gain on investments   (446,239 )  (1,010,884 )
Changes in other assets and liabilities      
Increase in interest receivable   (643,642 )  (1,576,787 )
Decrease in receivable for affiliated transaction   43,450    -  
Increase in accounts receivable   (31,013 )  -  
Decrease in prepaid expenses and fees   29,522    384,904  
Increase (decrease) in payable for investments purchased   -    (4,750,000 )
Increase in management fees payable   104,501    613,642  
Increase (decrease) in directors' fees payable   (10,000 )  46,548  
Increase (decrease) in incentive fees payable   (841,055 )  1,262,914  
Increase in administrative services payable   288,157    -  
Increase in interest payable   102,224    225,682  
Decrease in unearned revenue   (17,417 )  -  
Increase in deferred tax liability   185,888    -  
Increase (decrease) in other accrued expenses and liabilities   (161,558 )  91,632  
Net cash provided by (used in) operating activities   2,106,217    (37,620,457 )
Cash flows from financing activities        
Proceeds from notes issued   25,000,000    -  
Financing costs paid for credit facility and notes issued   (997,317 )  (156,672 )
Proceeds from the issuance of common stock   5,116,989    -  
Sales load for common stock issued   (75,510 )  -  
Offering costs paid for common stock issued   (116,149 )  (147,123 )
Stockholder distributions paid   (11,533,709 )  (11,621,644 )
Borrowings under credit facility   78,000,000    105,000,000  
Repayments of credit facility   (98,000,000 )  (58,000,000 )
Repayments of short-term loan   (9,000,000 )  (76,000,643 )
Borrowings on short-term loan   -    39,999,633  
Net cash used in financing activities   (11,605,696 )  (926,449 )
Net decrease in cash and cash equivalents   (9,499,479 )  (38,545,906 )
Cash and cash equivalents balance at beginning of period   13,663,542    62,131,686  
Cash and cash equivalents balance at end of period  $4,164,063   $23,585,780  
Supplemental and non-cash financing activities        
Accrued deferred offering costs  $4,752   $-  
Value of shares issued pursuant to Dividend Reinvestment Plan  $313,113   $669,803  
Interest expense paid  $3,206,081   $1,559,812  
        
            

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