Le Lézard
Classified in: Business
Subjects: ERN, CCA, DIV, FVT

Stellus Capital Investment Corporation Reports Results for its Third Fiscal Quarter Ended September 30, 2017


HOUSTON, Nov. 10, 2017 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2017.

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

As of

Portfolio results

September 30, 2017

Total assets

$371.3

Investment portfolio, at fair value

$355.3

Net assets

$219.5

Weighted average yield on debt investments

11.0%

Net asset value per share

$13.85




Quarter

Quarter

ended

ended

September 30,

September 30,

2017

2016

Portfolio activity

Total investments made

$71.4

$19.9

Number of new investments

4

7

Repayments of investments, including amortization

$53.4

$24.4

Number of portfolio companies at end of period

46

43

Operating results

Total investment income

$10.0

$10.2

Net investment income

$4.5

$4.6

Net investment income per share

$0.29

$0.37

Net Investment income per share excluding loss on extinguishment of debt

$0.31

$0.37

Realized Gain / (Loss) per share

$0.33

($0.07)

Regular distributions per share

$0.34

$0.34

Net increase in net assets from operations

$5.6

$9.9

Net increase in net assets from operations per share

$0.36

$0.80

"We have recently strengthened the Company's capital base by issuing $48.9 million of 5-year unsecured notes maturing in 2022, which replaced $25.0 million of unsecured notes maturing in 2019, and by entering into a new bank credit facility which replaces our prior facility and extends the maturity to 2021 from 2018 and increases the commitment amount to $140.0 million from $120.0 million. Also, during the quarter we realized a $5.2 million gain, or $0.33 per share from an equity co-investment," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the third quarter of 2017 with a portfolio of $355.3 million (at fair value) invested in 46 companies. As of September 30, 2017, our portfolio included approximately 35% of first lien debt, 43% of second lien debt, 16% of unsecured debt and 6% of equity investments at fair value. Our debt portfolio consisted of 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments. The average size of our portfolio company investments was $8.5 million at fair value, and our largest aggregate investment in a portfolio company was approximately $21.4 million at fair value. The weighted average yield on all of our debt investments as of September 30, 2017 was approximately 11.0%.

During the quarter ended  September  30,  2017,  we  made  $71.4  million  of  investments  in  four  new  portfolio  companies and one existing portfolio company, and received $53.4 million in proceeds from repayments and amortization.

This compares to the portfolio as of December 31, 2016, which had a fair value of $365.6 million invested in 45 companies, comprised 31% of first lien debt, 45% of second lien debt, 19% of unsecured debt and 5% of equity investments at fair value. The weighted average yield on all of our debt investments as of December 31, 2016 was approximately 11.0%. The debt portfolio consisted of 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments.

Results of Operations

Investment income for the quarter ended September 30, 2017 and 2016, totaled $10.0 million and $10.2 million, respectively, most of which was interest income from portfolio company investments.

Operating expenses for the quarter ended September 30, 2017 and 2016, totaled $5.2 million and $5.6 million, respectively. For the same respective periods, base management fees totaled $1.5 million and $1.6 million, incentive fees totaled $0.5 million and $1.1 million, fees and expenses related to our borrowings totaled $2.0 million for both periods (including interest and amortization of deferred financing costs), administrative services expenses totaled $0.3 million and $0.2 million and other expenses totaled $0.9 and $0.6 million, respectively.

Net investment income was $4.5 million, or $0.29 per common share, and $4.6 million, or $0.37 per common share, based on weighted average common shares outstanding for quarters ended September 30, 2017 and 2016.

For the quarter ended September 30, 2017 and 2016, the Company had a realized gain of $5.2 million and a realized loss of $0.9 million respectively. The Company's investment portfolio had a net change in unrealized depreciation for the quarter ended September 30, 2017 of $4.1 million and a net change in unrealized appreciation for the quarter ended September 30, 2016, of $6.2 million. Of the $4.1 million unrealized loss for the quarter, $2.1 million was related to the reclassification of an unrealized gain to a realized gain on the sale of an equity investment.

Our net increase in net assets resulting from operations totaled $5.6 million and $9.9 million, or $0.36 and $0.80 per common share, based on weighted average common shares outstanding, for the three months ended September 30, 2017 and 2016, respectively.

Liquidity and Capital Resources

For the nine months ended September 30, 2017, the Company issued 3,374,456 additional shares of common stock in connection with an equity capital raise in April 2017 and an At-the-Market offering (the "ATM) program which began during the quarter. Gross proceeds resulting from the issuances totaled $47.5 million, and underwriting and other expenses related to the offering totaled $1.6 million.  For the same period, our financing activities used cash of $26.9 million, which included distributions to stockholders of $14.9 million and net repayments of $80.0 million under the credit facility.

On August 21, 2017, the Company issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due 2022 (the "2022 Notes"). On September 8, 2017, the Company issued an additional $6.38 million in aggregate principal amount of the 2022 Notes pursuant to a full exercise of the underwriters' overallotment option. The 2022 Notes will mature on September 15, 2022, and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after September 15, 2019 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest is payable quarterly beginning December 15, 2017. The Company used all of the net proceeds from this offering to fully repay the $25.0 million of 2019 Notes and repay a portion of the amount outstanding under the existing credit facility.

Our liquidity and capital resources are derived from our credit facility and cash flows from operations, including investment sales and repayments, and income earned and offering of our securities. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, including the payment of dividends to the holders of our common stock. We used, and expect to continue to use, these capital resources including proceeds from any future public and private offerings of securities to finance our investment activities.

As of September 30, 2017 and 2016, our credit facility provided for borrowings in an aggregate amount up to $120.0 million on a committed basis. As of September 30, 2017 and 2016, we had $36.0 million and $107.5 million in outstanding borrowings under the credit facility, respectively.

For the nine months ended September 30, 2017, our operating activities provided cash of $29.4 million primarily in connection with cash interest received and repayments of our investments. For the same period, our financing activities used cash of $26.9 million, due to repayment on the credit facility during the period.

For the nine months ended September 30, 2016, our operating activities provided cash of $12.5 million primarily in connection with cash interest received and repayments of our investments, which was slightly offset by the purchase and origination of portfolio investments. For the same period, our financing activities used cash of $14.7 million, due to distributions to stockholders paid during the period.

Distributions

During the three months ended September 30, 2017 and 2016, we declared aggregate distributions of $0.34 per share ($5.3 million and $4.2 million) for each quarter, 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 distributions are expected to include a return of capital.

Recent Portfolio Activity

For the quarter ended September 30, 2017, the Company funded $71.4 million in four new and one existing portfolio companies and received $53.4 million from five repayments, eight pay downs and one partial sale. The new investment transactions and repayments that occurred during the quarter are summarized as follows:

Subsequent Events

Portfolio Activity

Credit Facility

On October 11, 2017, the Company entered into a $140 million revolving credit facility with Amegy Bank, who replaced SunTrust Bank as agent, and admitted several new banks, with a maturity date of October 10, 2021. This facility is effective as of October 10, 2017 and is materially the same as the previous facility with the following exceptions: (a) the interest rate was reduced from LIBOR +2.625% to LIBOR +2.50%; (b) the asset coverage test was reduced from 220% to 200%; and (c) an interest coverage test of 2:1 was added. The Company incurred upfront costs of approximately $1.1 million which were deferred and will be amortized over the four year term of the facility. On October 11, 2017, in conjunction with securing and entering into the new credit facility with Amegy Bank, the Company terminated its senior secured revolving credit facility with SunTrust Bank, as administrative agent and a lender, and the other lenders party thereto.

On November 1, 2017, we entered into a custody agreement with our new custodian, ZB, A National Association, DBA, Amegy Bank. On November 2, 2017, the Company provided notice of termination of its custody agreement dated as of November 1, 2012, between the Company and State Street effective 60 days from the date of notice.

The outstanding balance under the credit facility as of November 8, 2017 was $38.5 million.

ATM Program

Since September 30, 2017, we issued 91,446 shares under the ATM program for net proceeds of $1.2 million (net of sales load) at an average price of $13.68 ($13.47 per share, net).

SBIC Subsidiary

On November 8, 2017, the SBA granted the Company's SBIC Subsidiary a commitment of $25.0 million of additional SBA-guaranteed debentures.

Dividends Declared

On October 12, 2017, the Company's board of directors declared a regular monthly dividend for each of October, November and December 2017 as follows:

Declared

Ex-Dividend Date

Record Date

Payment Date

Amount Per Share

10/12/2017

10/30/2017

10/31/2017

11/15/2017

$0.1133

10/12/2017

11/29/2017

11/30/2017

12/15/2017

$0.1133

10/12/2017

12/28/2017

12/29/2017

1/12/2018

$0.1133

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, November 10, 2017, 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 800-239-9838 (domestic). Use passcode 6188119. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through November 18, 2017 by dialing (888) 203-1112 and entering passcode 6188119. The replay will also be available on the company's website.

Contacts
Stellus Capital Investment Corporation
W. Todd Huskinson, (713) 292-5414
Chief Financial Officer
[email protected]

STELLUS CAPITAL INVESTMENT CORPORATION


CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES



September 30,


2017

December 31,

(unaudited)

2016

ASSETS



Non-controlled, affiliated investments, at fair value (amortized cost of $1,052,185 and $0, respectively)

$

940,000

$

?

Non-controlled, non-affiliated investments, at fair value (amortized cost of $351,197,270 and $362,217,251, respectively)

354,357,607

365,625,891

Cash and cash equivalents

11,666,805

9,194,129

Interest receivable

4,143,998

4,601,742

Accounts receivable

3,806

748

Prepaid loan structure fees

47,453

?

Prepaid expenses

138,165

456,219

Total Assets

$

371,297,834

$

379,878,729

LIABILITIES





Notes Payable

$

47,220,425

$

24,565,891

Credit facility payable

35,544,028

115,171,208

SBA Debentures

63,585,342

63,342,036

Dividends payable

1,796,308

1,413,982

Base management fees payable

1,546,781

1,608,295

Incentive fees payable

619,617

1,353,271

Interest payable

694,917

973,812

Directors' fees payable

83,000

?

Unearned revenue

128,094

19,955

Administrative services payable

313,595

272,511

Deferred Tax Liability

?

8,593

Other accrued expenses and liabilities

229,685

267,390

Total Liabilities

$

151,761,792

$

208,996,944

Net Assets

$

219,536,042

$

170,881,785

NET ASSETS





Common Stock, par value $0.001 per share (200,000,000 shares authorized, 15,854,413 and 12,479,959 shares issued and outstanding, respectively)

$

15,854

$

12,480

Paid-in capital

226,842,884

180,994,723

Accumulated net realized loss

(8,589,708)

(13,089,671)

Distributions in excess of net investment income

(1,781,150)

(435,794)

Net unrealized appreciation on investments and cash equivalents, net of provision for taxes of $0 and $8,593, respectively

3,048,162

3,400,047

Net Assets

$

219,536,042

$

170,881,785

Total Liabilities and Net Assets

$

371,297,834

$

379,878,729

Net Asset Value Per Share

$

13.85

$

13.69

 

STELLUS CAPITAL INVESTMENT CORPORATION


 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)











For the

For the

For the

For the


three months

three months

nine months

nine months


ended

ended

ended

ended


September 30,

September 30,

September 30,

September 30,


2017

2016

2017

2016

INVESTMENT INCOME









Interest income

$

9,728,749

$

9,773,863

$

28,847,532

$

28,477,016

Other income

249,596

428,890

1,389,158

816,739

Total Investment Income

$

9,978,345

$

10,202,753

$

30,236,690

29,293,755

OPERATING EXPENSES









Management fees

$

1,546,780

$

1,574,354

$

4,634,318

$

4,673,568

Valuation fees

137,445

157,179

326,839

357,346

Administrative services expenses

313,256

244,303

933,214

782,230

Incentive fees

462,743

1,110,297

2,718,586

3,121,395

Professional fees

356,654

177,410

803,818

564,724

Directors' fees

83,000

73,000

254,000

251,000

Insurance expense

111,680

119,323

331,398

355,376

Interest expense and other fees

2,042,608

2,037,782

5,892,047

5,932,814

Deferred offering costs

-

-

-

261,761

Other general and administrative expenses

145,495

100,362

481,700

340,406

Total Operating Expenses

5,199,661

5,594,010

16,375,920

16,640,620

Loss on extinguishment of debt

302,732

-

302,732

-

Net Investment Income

$

4,475,952

$

4,608,743

$

13,558,038

$

12,653,135

Net Realized Gain (Loss) on Investments and Cash Equivalents

$

5,211,960

$

(898,189)

$

4,499,963

$

(895,809)

Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents

$

(4,051,314)

$

6,176,947

$

(360,478)

$

5,361,794

Benefit for taxes on investments at Taxable Subsidiaries

$

-

$

39,965

$

8,593

$

362,116

Net Increase in Net Assets Resulting from Operations

$

5,636,598

$

9,927,466

$

17,706,116

$

17,481,236

Net Investment Income Per Share

$

0.29

$

0.37

$

0.93

$

1.01

Net Increase in Net Assets Resulting from Operations Per Share

$

0.36

$

0.80

$

1.22

$

1.40

Weighted Average Shares of Common Stock Outstanding

15,668,415

12,479,958

14,510,408

12,479,959

Distributions Per Share

$

0.34

$

0.34

$

1.02

$

1.02

 

STELLUS CAPITAL INVESTMENT CORPORATION


 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)



For the

For the

nine months

nine months

ended

ended

September 30,

September 30,

2017

2016

Increase in Net Assets Resulting from Operations




Net investment income

$

13,558,038

$

12,653,135

Net realized gain (loss) on investments and cash equivalents

4,499,963

(895,809)

Net change in unrealized appreciation (depreciation) on investments and cash equivalents

(360,478)

5,361,794

Benefit for taxes on investments at Taxable Subsidiaries

8,593

362,116

Net Increase in Net Assets Resulting from Operations

17,706,116

17,481,236

Stockholder distributions




Net investment income

(14,903,394)

(12,726,304)

Total Distributions

(14,903,394)

(12,726,304)

Capital share transactions




Issuance of common stock


47,491,626

?

Sales load

(1,340,131)

?

Offering costs

(299,961)

?

Net increase in net assets resulting from capital share transactions

45,851,535

?

Total increase in net assets

48,654,257

4,754,932

Net assets at beginning of period

170,881,785

164,651,104

Net assets at end of period (includes $1,781,150 and $852,791 of distributions in excess of net investment income, respectively)




$

219,536,042

$

169,406,036

 

STELLUS CAPITAL INVESTMENT CORPORATION


 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



For the

For the

nine months

nine months

ended

ended

September 30, 2017

September 30, 2016

Cash flows from operating activities




Net increase in net assets resulting from operations

$

17,706,116

$

17,481,236

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:






Purchases of investments

(117,683,094)

(37,392,617)

Proceeds from sales and repayments of investments

133,380,057

35,618,611

Net change in unrealized (appreciation) depreciation on investments

360,478

(5,361,794)

Deferred tax benefit

(8,593)

(362,116)

Increase in investments due to PIK

(347,482)

(165,110)

Amortization of premium and accretion of discount, net

(881,710)

(830,040)

Amortization of loan structure fees

372,820

392,702

Amortization of deferred financing costs

165,763

244,197

Loss on extinguishment of debt

302,732

?

Amortization of loan fees on SBIC debentures

243,306

137,077

Net realized loss (gain) on investments

(4,499,963)

895,809

Deferred offering cost

?

261,761

Changes in other assets and liabilities






Decrease in interest receivable

457,744

562,019

Decrease (increase) in accounts receivable

(3,058)

7,684

Decrease in prepaid expenses and fees

318,054

328,105

Increase (decrease) in management fees payable

(61,514)

55,575

Increase in directors' fees payable

83,000

?

Increase (decrease) in incentive fees payable

(733,654)

829,074

Increase (decrease) in administrative services payable

41,084

(158,223)

Increase (decrease) in interest payable

(278,895)

(161,952)

Increase (decrease) in unearned revenue

108,139

(15,104)

Increase in dividend payable

382,326

?

Increase (decrease) in other accrued expenses and liabilities

(37,706)

123,625

Net cash provided by operating activities

$

29,385,950

$

12,490,519

Cash flows from financing activities






Proceeds from notes issued

48,875,000




Financing costs paid on Credit Facility

(47,453)




Proceeds from the issuance of common stock

47,491,626

?

Sales load for common stock issued

(1,340,131)

?

Offering costs paid for common stock issued

(299,961)

?

Stockholder distributions paid

(14,903,394)

(12,726,304)

Financing costs paid for notes issued

(1,688,961)

?

Repayments on notes issued

(25,000,000)

?

Borrowings under credit facility

116,000,000

28,250,000

Repayments of credit facility

(196,000,000)

(30,250,000)

Net cash used in financing activities

$

(26,913,274)

$

(14,726,304)

Net increase (decrease) in cash and cash equivalents

2,472,676

(2,235,785)

Cash and cash equivalents balance at beginning of period

9,194,129

10,875,790

Cash and cash equivalents balance at end of period

$

11,666,805

$

8,640,005

Supplemental and non-cash financing activities






Interest expense paid

$

5,384,053

$

5,315,790

Excise tax paid

$

37,648

$

-

Conversion from debt to equity

$

864,101

$

-

 

SOURCE Stellus Capital Investment Corporation


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