Stellus Capital Investment Corporation Reports Results for its second fiscal quarter ended June 30, 2018

HOUSTON, Aug. 8, 2018 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2018.

"Continued portfolio growth brings our investment portfolio to approximately $500 million. Our shareholders have approved the regulatory leverage increase which allows 2:1 leverage. Our bank credit facility has been increased from $140 million to $180 million and has been amended to allow for leverage to grow the investment portfolio to approximately $600 million. Core EPS was $0.33 per share for Q2 and realized earnings (including gains) for the quarter were $0.36 per share," said Robert T. Ladd, Chief Executive Officer of Stellus Capital.

Portfolio and Investment Activity

We completed the second quarter of 2018 with a portfolio of $499.7 million (at fair value) invested in 52 companies.  As of June 30, 2018, our portfolio included approximately 50% of first lien debt, 39% of second lien debt, 5% of unsecured debt and 6% of equity investments at fair value.  Our debt portfolio consisted of 91% floating rate investments (subject to interest rate floors) and 9% fixed rate investments.  The average size of our portfolio company investments was $9.6 million and our largest portfolio company investment was approximately $28.9 million, both at fair value.  The weighted average yield on all of our debt investments as of June 30, 2018 was approximately 11.2%.

During the three months ended June 30, 2018, we made $97.0 million of investments in five new and four existing portfolio companies at par and received $30.2 million from amortization and repayments of certain other investments.

This compares to the portfolio as of June 30, 2017, which had a fair value of $337.4 million invested in 46 companies, comprised of 24% of first lien debt, 46% of second lien debt, 23% of unsecured debt and 7% of equity investments at fair value.  The weighted average yield on all of our debt investments as of June 30, 2017 was approximately 11.3%.  The debt portfolio consisted of 69% floating rate investments (subject to interest rate floors) and 31% fixed rate investments.

Results of Operations

Investment income for the three months ended June 30, 2018 and 2017 totaled $12.6 million and $10.4 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended June 30, 2018 and 2017, totaled $7.9 million and $5.5 million, respectively. For the same respective periods, base management fees totaled $2.0 million and $1.5 million, income incentive fees totaled $1.3 million and $1.2 million, capital gains incentive fees totaled $0.5 million and $0, fees and expenses related to our borrowings totaled $3.0 million and $1.8 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million for both periods, and other expenses totaled $0.8 million and $0.7 million, respectively.

Net investment income was $4.7 million and $4.9 million, or $0.30 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2018 and 2017 of 15,953,810 and 15,347,814, respectively.

The capital gains incentive fee of $0.5 million for the three months ended June 30, 2018 was accrued for U.S. GAAP purposes due to the increase in realized and unrealized gains over the quarter.  There can be no assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued, would not necessarily be payable under the investment advisory agreement.  Excluding this accrual, core net investment income for the three months ended June 30, 2018 would be $5.2 million, or $0.33 per share.  There was no such capital gains incentive fee accrued for the three months ended June 30, 2017.

The Company's investment portfolio had a net change in unrealized appreciation for the three months ended June 30, 2018 and 2017, of $1.8 million and $1.1 million, respectively.  For the three months ended June 30, 2018, the Company had realized gains of $1.1 million.  There were no realized losses and a de minimis amount of realized gain for the three months ended June 30, 2017.

Net increase in net assets resulting from operations totaled $7.6 million and $6.0 million, or $0.48 and $0.39 per common share based on weighted average common shares outstanding for the three months ended June 30, 2018 and 2017 of 15,953,810 and 15,347,814, respectively.

Liquidity and Capital Resources

As of both June 30, 2018 and December 31, 2017, our credit facilities provided for borrowings in an aggregate amount up to $140.0 million, on a committed basis.  As of June 30, 2018, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195.0 million. As of June 30, 2018 and December 31, 2017, we had $119.3 million and $40.8 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2018, our operating activities used cash of $110.4 million primarily in connection with purchases and origination of portfolio investments, which was slightly offset by repayments of our portfolio investments.  For the same period, our financing activities provided cash of $106.2 million, due to borrowings under our credit facility, as well as SBA-guaranteed debentures drawn during the period.

For the six months ended June 30, 2017, our operating activities provided cash of $40.9 million, primarily in connection with cash interest received and repayments of our investments, and our financing activities used cash of $43.1 million, primarily related to the repayments under our credit facility and distributions to stockholders, offset by an issuance of common stock.

Distributions

During the three months ended June 30, 2018 and 2017, we declared aggregate distributions of $0.34 per share ($5.4 million and $5.3 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 that occurred during the three months ended June 30, 2018 are summarized as follows:

     On April 2, 2018, the Company invested $7.9 million in the first lien term loan and $0.9 million in the unfunded revolver of BFC Solmetex LLC, a leading provider of filtration products in the U.S. and Canada. The Company also invested $1.2 million in a first lien term loan of Bonded Filter Co. LLC, a subsidiary of BFC Solmetex LLC.

     On April 13, 2018, the Company invested $16.4 million in the first lien term loan and a $0.75 million in the unfunded revolver of DTE Enterprises, Inc., a provider of industrial powertrain repair and maintenance services for the oil & gas and mining sectors.  We also invested $1.5 million in the equity of the company.

     On April 13, 2018, the Company made an additional investment of $12.5 million in the second lien term loan of Mobileum, Inc., an existing portfolio company.

     On April 24, 2018, the Company received a payoff of its $12.2 million term loan to Catapult Learning, LLC. 

     On April 30, 2018, the Company received a payoff of its $0.1 million term loan to Binder & Binder National Social Security Disability Advocates, LLC.

     On May 1, 2018, the Company invested $4.5 million in the second lien term loan of General LED OPCO, LLC, a provider of LED lighting systems and modules.

     On June 1, 2018, the Company made an additional investment of $0.3 million in the unsecured term loan of BW DME Holdings, LLC, an existing portfolio company.

     On June 22, 2018, the Company made an additional investment of $2.3 million in the second lien term loan of Magdata Intermediate Holdings, LLC, an existing portfolio company.

     On June 25, 2018, the Company received a payoff of its $1.9 million term loan to Zemax, LLC and $1.3 million in full realization of its equity in Zemax Software Holdings, LLC., resulting in a realized gain of $1.0 million.

     On June 27, 2018, the Company invested $20.9 million in the first lien term loan of Catapult Learning, Inc., a provider of K-12 outsourced educational services. We also committed to fund a $1.1 million delayed draw term loan.

     On June 29, 2018, the Company invested $28.5 million in the first lien term loan of Good Source Solutions, Inc., a specialty food solutions provider to the corrections, education and other institutional foodservice markets.

     On June 29, 2018, the Company received a payoff of its $1.9 million term loan to Good Source Solutions, Inc.  and $0.2 million in full realization of its equity of Good Source Holdings, LLC. 

     On June 29, 2018, the Company received a payoff of its $5.1 million term loan to SPM Capital LLC.

Events Subsequent to June 30, 2018

     On July 5, 2018 the Company received $4.0 million in full realization on the equity of MBS Holdings, Inc., resulting in a realized gain of $2.8 million.

     On July 31, 2018, the Company received full repayment on the second lien term loan of Sitel Worldwide Corporation for total proceeds of $10.1 million, including a $0.1million prepayment fee.

     On August 3, 2018, the Company invested $7.5 million in the first lien term loan and $0.9 million in the unfunded delayed draw term loan of Adams Publishing Group, LLC, a platform of multiple newspaper and publishing businesses across the United States.

Credit Facility

The outstanding balance under the credit facility as of August 6, 2018 was $91.3 million.

On August 2, 2018, the credit facility was amended to (1) increase the committed amount of the credit facility from $140.0 million to $180.0 million and (2) reduce the minimum asset coverage ratio from 200% to 175%.  The amendment also provides for the credit facility to be priced at LIBOR plus 2.75% to the extent that asset coverage is below 190% at the end of any calendar quarter.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed Debentures outstanding as of August 6, 2018 was $147.5 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Wednesday, August 8, 2018 at 10:00 AM, 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 877-260-1479 (domestic).  Use passcode 1065311.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Thursday, August 16, 2018 by dialing (888) 203-1112 and entering passcode 1065311. 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]

SOURCE Stellus Capital Investment Corporation

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