Stellus Capital Investment Corporation Reports Results for its First Fiscal Quarter Ended March 31, 2017.

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Stellus Capital Investment Corporation

May 05, 2017, 06:00 ET

HOUSTON, May 5, 2017 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its first fiscal quarter ended March 31, 2017.

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

	As of

Portfolio results	March 31, 2017

Total assets	$368.0
Investment portfolio, at fair value	$351.7
Net assets	$172.7
Weighted average yield on debt investments	11.3%
Net asset value per share	$13.84

	Quarter	Quarter
	ended	ended
	March 31, 2017	March 31, 2016
Portfolio activity
Total investments made	$23.2	$5.4
Number of new investments	5	3
Repayments and sale of investments, including amortization	$39.3	$0.5
Number of portfolio companies at
end of period	46	40

Operating results
Total investment income	$9.9	$9.5
Net investment income	$4.1	$4.1
Net investment income per share	$0.33	$0.33
Realized Loss per share*	$(0.06)	-
Regular distributions per share	$0.34	$0.34
Net increase in net assets from operations	$6.0	$2.5
Net increase in net assets from operations per share	$0.48	$0.20


*	On February 1, 2017, our first lien term loan in Glori Energy Production, Inc. was converted to an equity position, resulting in a realized loss of $0.8 million, or $0.06 per share. This realized loss was previously recorded as an unrealized loss at December 31, 2016; therefore there is no impact on earnings or NAV during the quarter ended March 31, 2017.

"Our equity raise in April generated approximately $43 million of net proceeds, which will enable us to fully capitalize our SBIC subsidiary and continue to grow our asset base," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the first quarter of 2017 with a portfolio of $351.7 million (at fair value) invested in 46 companies. As of March 31, 2017, our portfolio included approximately 27% of first lien debt, 45% of second lien debt, 22% of unsecured debt and 6% of equity investments at fair value. Our debt portfolio consisted of 71% floating rate investments (subject to interest rate floors) and 29% fixed rate investments. The average size of our portfolio company investments was $7.8 million 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 March 31, 2017 was approximately 11.3%.

During the quarter ended March 31, 2017, we made $23.2 million of investments in three new portfolio companies and two existing portfolio companies, and received $39.3 million in proceeds from amortization, repayments and sales of certain other investments

This compares to the portfolio as of March 31, 2016, which had a fair value of $352.5 million invested in 40 companies, comprised 37% of first lien debt, 39% of second lien debt, 20% of unsecured debt and 4% of equity investments at fair value. The weighted average yield on all of our debt investments as of March 31, 2016 was approximately 10.6%. The debt portfolio consisted of 76% floating rate investments (subject to interest rate floors) and 24% fixed rate investments.

Results of Operations

Investment income for the quarter ended March 31, 2017 and 2016, totaled $9.9 million and $9.5 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the quarter ended March 31, 2017 and 2016, totaled $5.7 million and $5.4 million, respectively. For the same respective periods, base management fees totaled $1.6 million and $1.5 million, incentive fees totaled $1.0 million and $1.0 million, fees and expenses related to our borrowings totaled $2.1 million and $1.9 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million for both periods and other expenses totaled $0.7 million for both periods.

Net investment income was $4.1 million, or $0.33 per common share, based on weighted average common shares outstanding for both quarters ended March 31, 2017 and 2016.

For the quarter ended March 31, 2017 and 2016, the Company had a realized loss of $0.7 million and a realized gain of $894, respectively. The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the quarter ended March 31, 2017 and 2016, of $2.6 million and ($1.7) million, respectively.

Our net increase in net assets resulting from operations totaled $6.0 million and $2.5 million, or $0.48 and $0.20 per common share, based on weighted average common shares outstanding, for the quarter ended March 31, 2017 and 2016, respectively.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our 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 March 31, 2017 and 2016, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of March 31, 2017 and 2016, we had $102.5 million and $109.5 million in outstanding borrowings under the credit facility, respectively.

For the three months ended March 31, 2017, our operating activities provided cash of $20.1 million primarily in connection with cash interest received and repayments of our investments. For the same period, our financing activities used cash of $17.8 million, which included distributions to stockholders of $4.2 million paid during the period, and net repayments of $13.5 million under the credit facility.

For the three months ended March 31, 2016, our operating activities used cash of $0.1 million primarily due to the purchase of new investments offset by cash interest received. For the same period, our financing activities used cash of $4.2 million, due to distributions to stockholders during the period.

Distributions

During the three months ended March 31, 2017 and 2016, we declared aggregate 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 that occurred during the quarter ended March 31, 2017 are summarized as follows:

On January 5, 2017, we sold our position in Securus Technologies Holdings, Inc. for proceeds of $8.4 million. We realized a loss of $42 thousand related to the sale.
On January 25, 2017, we received full repayment on the first lien term loan of Momentum Telecom, Inc. for proceeds of $15.3 million, including a $0.2 million premium.
On February 1, 2017, our first lien term loan in Glori Energy Production, Inc. was converted to an equity position, resulting in a realized loss of $0.8 million. This realized loss was previously recorded as an unrealized loss at December 31, 2016; therefore there is no impact on earnings or NAV during the quarter ended March 31, 2017.
On February 3, 2017, we invested $6.3 million in the unsecured term loan of Time Manufacturing, Inc., a global manufacturer of vehicle-mounted aerial lift equipment. Additionally, we invested $0.5 million in the equity of the company.
On February 8, 2017, we received full repayment on the second lien term loan of MTC Intermediate Holdco for proceeds of $10.4 million, including a $0.1 million premium. Additionally, we received $0.7 million in dividends for the equity in MTC Parent, LP., which under GAAP are recorded as a return of capital rather than dividend income.
On March 1, 2017, we received full repayment on the first lien term loan of 360 Holdings III Corp for proceeds of $4.0 million, including a $0.04 million premium.
On March 27, 2017, we invested $5.0 million in the second lien term loan of Beneplace, Inc., an employee voluntary benefit program management company. Additionally, we invested $0.5 million in the equity of the company.
On March 31, 2017, we invested $10 million in the second lein term loan of National Trench Safety, LLC, a rental and seller of underground equipment and trench safety products. Additionally, we invested $0.5 million in the equity of the company.

Events Subsequent to March 31, 2017

Equity Offering

On April 5, 2017, the Company priced a public offering of 2,750,000 shares of common stock in an underwritten public offering. The public offering price was set at $14.10 per share and net proceeds from the offering, after deducting underwriting discounts and estimated offering expenses payable by the Company, proceeds to the company was approximately $37.5 million. The Company also granted the underwriters an option, exercisable for 30 days, to purchase up to 412,500 additional shares of common stock, which was exercised on April 24, 2017, resulting in net proceeds to the Company of an additional $5.6 million.

On May 1, 2017, we received full repayment on the second lien term loan of Telecommunications Management, LLC for proceeds of $5.0 million.

Credit Facility

The outstanding balance under the Credit Facility as of May 4, 2017 was $53 million.

Dividend Declared

On April 14, 2017, the Company's board of directors declared a regular monthly dividend for each of April, May and June 2017 as follows:

Declared	Ex-Dividend Date	Record Date	Payment Date	Amount Per Share
4/14/2017	4/26/2017	4/28/2017	5/15/2017	$0.1133
4/14/2017	5/26/2017	5/31/2017	6/15/2017	$0.1133
4/14/2017	6/28/2017	6/30/2017	7/14/2017	$0.1133

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, May 5, 2017, 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 888-572-7029 (domestic). Use passcode 1752487. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through May 13, 2017 by dialing (888) 203-1112 and entering passcode 1752487. 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]

PART I — FINANCIAL INFORMATION

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

			March 31,
			2017 (unaudited)		December 31, 2016
ASSETS
	Non-controlled, affiliated investments, at fair value (amortized cost of $1,010,518 and $0, respectively)		$	1,010,518	$	—
	Non-controlled, non-affiliated investments, at fair value (amortized cost of $344,717,004 and $362,217,251, respectively)			350,710,227		365,625,891
	Cash and cash equivalents			11,488,905		9,194,129
	Interest receivable			4,271,767		4,601,742
	Deferred offering costs			81,813		—
	Accounts receivable			8,042		748
	Prepaid expenses			456,281		456,219
		Total Assets	$	368,027,553	$	379,878,729
LIABILITIES
	Notes Payable, net of deferred financing costs		$	24,612,560	$	24,565,891
	Credit facility payable, net of prepaid loan structure fees			101,794,115		115,171,208
	SBA Debentures, net of prepaid loan fees			63,422,247		63,342,036
	Dividends payable			1,413,982		1,413,982
	Base management fees payable			1,564,528		1,608,295
	Incentive fees payable			1,223,621		1,353,271
	Interest payable			423,474		973,812
	Unearned revenue			18,169		19,955
	Administrative services payable			303,869		272,511
	Deferred Tax Liability			—		8,593
	Other accrued expenses and liabilities			586,354		267,390
		Total Liabilities	$	195,362,919	$	208,996,944
Net Assets			$	172,664,634	$	170,881,785
NET ASSETS
	Common Stock, par value $0.001 per share (100,000,000
		shares authorized, 12,479,957 and 12,479,959 shares
		issued and outstanding, respectively)	$	12,480	$	12,480
	Paid-in capital			180,994,723		180,994,723
	Accumulated Net Realized Loss			(13,801,722)		(13,089,671)
	Distributions in excess of net investment income			(534,070)		(435,794)
	Net unrealized appreciation on investments and cash
		equivalents, net of provision for taxes of $0 and $8,593, respectively		5,993,223		3,400,047
Net Assets			$	172,664,634	$	170,881,785
	Total Liabilities and Net Assets		$	368,027,553	$	379,878,729
	Net Asset Value Per Share		$	13.84	$	13.69




TELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

				For the		For the
				three months		three months
				ended		ended
				March 31,		March 31,
				2017		2016
INVESTMENT INCOME
	Interest income			$	9,476,252	$	9,374,737
	Other income				387,728		93,096
		Total Investment Income			9,863,980		9,467,833
OPERATING EXPENSES
	Management fees			$	1,564,528	$	1,548,373
	Valuation fees				166,089		132,466
	Administrative services expenses				309,098		287,300
	Incentive fees				1,021,227		1,024,822
	Professional fees				227,677		192,111
	Directors' fees				92,000		92,000
	Insurance expense				109,252		118,026
	Interest expense and other fees				2,068,630		1,879,843
	Other general and administrative expenses				161,852		93,602
		Total Operating Expenses		$	5,720,353	$	5,368,543
		Net Investment Income		$	4,143,627	$	4,099,290
		Net Realized Gain (Loss) on Investments and Cash
			Equivalents	$	(712,051)	$	894
		Net Change in Unrealized Appreciation (Depreciation) on
			Investments and Cash Equivalents	$	2,584,583	$	(1,743,674)
		Benefit for taxes on net realized loss or net unrealized gain on investments at Taxable Subsidiaries		$	8,593	$	167,339
		Net Increase in Net Assets Resulting from Operations		$	6,024,752	$	2,523,849
		Net Investment Income Per Share		$	0.33	$	0.33
		Net Increase in Net Assets Resulting from Operations
			Per Share	$	0.48	$	0.20
		Weighted Average Shares of Common Stock
			Outstanding		12,479,957		12,479,960
		Distributions Per Share		$	0.34	$	0.34



STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

		For the		For the
		three months		three months
		ended		ended
		March 31,		March 31,
		2017		2016
Increase in Net Assets Resulting from Operations
Net investment income		$	4,143,627	$	4,099,290
Net realized gain (loss) on investments and cash equivalents			(712,051)		894
Net change in unrealized appreciation (depreciation) on investments and
	cash equivalents		2,584,583		(1,743,674)
Benefit for taxes on net realized loss or
	net unrealized gain on investments at Taxable Subsidiaries		8,593		167,339
Net Increase in Net Assets Resulting from Operations		$	6,024,752	$	2,523,849
Stockholder distributions from:
	Net investment income		(4,241,903)		(4,242,443)
Total Distributions		$	(4,241,903)	$	(4,242,443)
Total increase (decrease) in net assets		$	1,782,849	$	(1,718,594)
Net assets at beginning of period		$	170,881,785	$	164,651,104
Net assets at end of period (includes $534,070 and
	$922,796 of distributions in excess of net investment income, respectively)	$	172,664,634	$	162,932,510




STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

				For the		For the
				three months		three months
				ended		ended
				March 31, 2017		March 31, 2016
Cash flows from operating activities
Net increase in net assets resulting from operations				$	6,024,752	$	2,523,849
	Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
		Purchases of investments			(23,151,902)		(5,367,633)
		Proceeds from sales and repayments of investments			39,279,309		513,365
		Net change in unrealized depreciation (appreciation) on investments			(2,584,583)		1,743,674
		Deferred tax provision (benefit)			(8,593)		(167,339)
		Increase in investments due to PIK			(82,119)		(54,729)
		Amortization of premium and accretion of discount, net			(267,611)		(289,807)
		Amortization of loan structure fees			122,908		130,423
		Amortization of deferred financing costs			46,669		81,101
		Amortization of loan fees on SBIC debentures			80,211		47,184
		Net realized (gain) loss on investments			712,051		(894)
	Changes in other assets and liabilities
			Decrease in interest receivable		329,975		108,022
			Increase in accounts receivable		(7,294)		7,684
			Increase in prepaid expenses and fees		(62)		12,586
			Increase (decrease) in management fees payable		(43,767)		29,594
			Increase (decrease) in incentive fees payable		(129,650)		623,279
			Increase in administrative services payable		31,358		71,425
			Decrease in interest payable		(550,338)		(199,796)
			Decrease in unearned revenue		(1,786)		(3,618)
			Increase in other accrued expenses and liabilities		318,964		82,341
Net cash provided by (used in) operating activities				$	20,118,492		(109,289)
Cash flows from financing activities
		Offering costs paid for common stock issued			(81,813)		—
		Stockholder distributions paid			(4,241,903)		(4,242,443)
		Borrowings under credit facility			9,000,000		—
		Repayments of credit facility			(22,500,000)		—
Net cash used in financing activities					(17,823,716)		(4,242,443)
Net increase (decrease) in cash and cash equivalents					2,294,776		(4,351,732)
Cash and cash equivalents balance at beginning of period					9,194,129		10,875,790
Cash and cash equivalents balance at end of period				$	11,488,905	$	6,524,058
Supplemental and non-cash financing activities
		Interest expense paid		$	2,369,181	$	1,820,930
		Excise tax paid			37,648		—
		Conversion from debt to equity			864,101		—