Stellus Private Credit BDC Reports Results for its Second Fiscal Quarter Ended June 30, 2024

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Aug 09, 2024, 14:45 ET

HOUSTON, Aug. 9, 2024 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC" or the "Company") today announced financial results for its second fiscal quarter ended June 30, 2024.

Robert T. Ladd, Chief Executive Officer of Stellus PBDC, stated "We are pleased to report strong results in the second quarter in which we generated $0.46 per share of net investment income and maintained a stable net asset value. During the quarter, we funded $42 million of investments and received $4 million of repayments, bringing the total portfolio to $254 million at fair value. On June 26, 2024, we declared our 2024 third quarter monthly dividend of $0.50 per share in the aggregate, which represents an annualized dividend yield of approximately 13%."


FINANCIAL HIGHLIGHTS
($ in millions, except data relating to per share amounts and shares outstanding)

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	Amount	Per Share	Amount	Per Share	Amount	Per Share	Amount	Per Share
Net investment income	$3.86	$0.46	$2.68	$0.44	$7.42	$0.95	$5.33	$0.92
Net unrealized gain (loss) included in earnings	(0.41)	(0.05)	1.83	0.31	(0.09)	(0.01)	1.76	0.30
Benefit (provision) for taxes on net unrealized depreciation (appreciation) on investments	(0.04)	—	—	—	0.01	—	—	—
Net increase in net assets resulting from operations	$3.41	$0.41	$4.51	$0.75	7.34	0.94	7.09	1.23
Distributions	(4.08)	(0.49)	(2.72)	(0.45)	(7.69)	(0.99)	(5.03)	(0.87)
Other weighted average share adjustments⁽¹⁾	—	0.01	—	—	—	0.03	—	(0.01)
Net asset value	142.6	$15.19	92.6	$14.98	142.6	$15.19	92.6	$14.98
Weighted average shares outstanding		8,310,559		6,037,036		7,768,883		5,770,879


(1)	Includes the impact of different share amounts as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of the period end.


PORTFOLIO ACTIVITY
($ in millions)

	As of	As of
	June 30, 2024	December 31, 2023
Investments at fair value	$254.2	$208.6
Total assets	$257.3	$211.2
Net assets	$142.6	$108.0
Shares outstanding	9,390,537	7,102,136
Net asset value per share	$15.19	$15.21

	Three Months Ended
	June 30, 2024	June 30, 2023
New investments	$41.6	$24.4
Repayments of investments	(3.7)	(2.8)
Net activity	$37.9	$21.6

	As of	As of
	June 30, 2024	December 31, 2023
Number of portfolio company investments	49	39
Number of debt investments	47	37

Weight average yield of debt and other income producing investments ⁽²⁾
Cash	11.6 %	11.8 %
Payment-in-kind ("PIK")	0.3 %	0.3 %
Fee amortization	0.4 %	0.4 %
Total	12.3 %	12.5 %

Weighted average yield on total investments ⁽³⁾
Cash	11.0 %	11.2 %
Payment-in-kind ("PIK")	0.3 %	0.3 %
Fee amortization	0.4 %	0.4 %
Total	11.7 %	11.9 %


(2)	The dollar-weighted average annualized effective yield is computed using the effective interest rate for our debt investments and other income producing investments, including cash and PIK interest, as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective cost of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be higher than what investors of our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expense or any sales load that may be paid by investors.
(3)	The dollar weighted average yield on total investments takes the same yields as calculated in the footnote above, but weights them to determine the weighted average effective yield as a percentage of the Company's total investments, including non-income producing loans and equity.

Results of Operations

Investment income for the three months ended June 30, 2024 and 2023 totaled $6.9 million and $5.2 million, respectively, most of which was interest income from portfolio investments.

Gross operating expenses for the three months ended June 30, 2024 and 2023 totaled $4.2 million and $3.5 million, respectively. For the same periods, base management fees totaled $0.8 million and $0.7 million, income incentive fees totaled $0.6 million and $0.5 million, capital gains incentive (reversal) fees of less than ($0.1) million and $0.1 million, which are not currently payable, fees and expenses related to our borrowings totaled $2.3 million and $1.8 million, respectively (including interest and amortization of deferred financing costs), administrative expenses totaled $0.1 million and $0.1 million, and other expenses totaled $0.3 million for both periods. For the three months ended June 30, 2024 and 2023, the Company's investment advisor, Stellus Private BDC Advisor, LLC (the "Advisor"), waived $0.8 million and $0.7 million of management fees (voluntarily waived until October 1, 2024), $0.2 million and $0.2 million of income incentive fees (waived as our shares were not listed on a national exchange), and $0.1 million and $0.1 million of expenses pursuant to expense support and conditional reimbursements from the Advisor for net operating expenses of $3.1 million and $2.5 million, respectively.

For the three months ended June 30, 2024 and 2023, net investment income was $3.9 million and $2.7 million, or $0.46 and $0.44 per common share based on weighted average common shares outstanding of 8,310,559 and 6,037,036, respectively.

The Company's investment portfolio had a net change in unrealized (depreciation) appreciation of ($0.4) million and $1.8 million for the three months ended June 30, 2024 and 2023, respectively.

For the three months ended June 30, 2024 and 2023, net increase in net assets resulting from operations totaled $3.4 million and $4.5 million, or $0.41 and $0.75 per common share, based on weighted average common shares outstanding of 8,310,559 and 6,037,036, respectively.

Liquidity and Capital Resources

On September 30, 2022, the Company entered into a senior secured revolving credit agreement with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the "Credit Facility"). The Credit Facility, as amended, provides for borrowings up to a maximum of $150.0 million on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $200.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions. As of June 30, 2024 and December 31, 2023, the Company had $113.0 million and $98.0 million in outstanding borrowings under the Credit Facility.

Recent Portfolio Activity

The Company invested in the following portfolio companies for the three months ended June 30, 2024:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	April 1, 2024	FairWave Holdings, LLC	Specialty coffee platform	$	3,084,350	Senior Secured – First Lien
				$	1,079,522	Delayed Draw Term Loan Commitment
				$	462,652	Revolver Commitment
				$	115,663	Equity
New Investment	April 11, 2024	WER Holdings, LLC	Regional provider of commercial landscaping services	$	1,099,727	Senior Secured – First Lien
				$	544,419	Delayed Draw Term Loan Commitment
				$	163,326	Revolver Commitment
				$	73,300	Equity
Add-On Investment	April 16, 2024	Impact Home Services LLC*	Residential garage door, electrical, and plumbing services provider	$	5,055	Equity
New Investment	May 10, 2024	Luxium Solutions, LLC	Manufacturer and distributor of high-performance advanced materials and assemblies	$	3,372,885	Senior Secured – First Lien
				$	488,117	Delayed Draw Term Loan Commitment
Add-On Investment	May 16, 2024	Impact Home Services LLC*	Residential garage door, electrical, and plumbing services provider	$	2,527	Equity
New Investment	May 24, 2024	Teckrez, LLC	Distributor of tackifier resins and acrylic monomers	$	1,755,164	Senior Secured – First Lien
				$	586,521	Revolver Commitment
				$	36,658	Equity
New Investment	May 28, 2024	FiscalNote Boards LLC*	Facilitator of executive-level in-person events and remote peer-to-peer industry insights	$	77,109	Equity
New Investment	May 31, 2024	TriplePoint Acquisition Holdings LLC	Provider of HVAC, plumbing, and other mechanical and industrial services	$	4,246,034	Senior Secured – First Lien
				$	1,061,509	Delayed Draw Term Loan Commitment
				$	589,727	Revolver Commitment
				$	442,295	Equity
New Investment	June 6, 2024	Monarch Behavioral Therapy, LLC	Provider of center-based applied behavioral analysis therapy services	$	5,261,383	Senior Secured – First Lien
				$	843,170	Delayed Draw Term Loan Commitment
				$	562,114	Revolver Commitment
				$	333,333	Equity
Add-On Investment	June 6, 2024	Impact Home Services LLC*	Residential garage door, electrical, and plumbing services provider	$	1,264	Equity
New Investment	June 13, 2024	Said Intermediate, LLC	Digital transformation consulting firm	$	5,818,182	Senior Secured – First Lien
				$	909,091	Revolver Commitment
				$	272,727	Equity
New Investment	June 24, 2024	AGT Robotique, Inc.	Manufacturer of robotic welding solutions for metal fabrication industry	$	8,503,125	Senior Secured – First Lien
				$	1,210,120	Revolver Commitment


*	Existing portfolio company

Events Subsequent to June 30, 2024

The Company's management has evaluated subsequent events through August 9, 2024. There have been no subsequent events that require recognition or disclosure except for the following described below.

Credit Facilities

On August 1, 2024, the Company entered into a Loan Financing and Servicing Agreement (the "Loan Agreement") for a special purpose vehicle financing credit facility (the "SPV Facility") by and among Stellus Private Credit BDC SPV LLC ("Stellus SPV"), as borrower, the Company, as equityholder and servicer, Deutsche Bank AG, New York Branch ("Deutsche Bank"), as facility agent, Citibank, N.A., as collateral agent and collateral custodian, Alter Domus (US) LLC, as collateral administrator, and the lenders that are party thereto from time to time. The SPV Facility provides for $50 million of initial commitments with an accordion feature that allows for an additional $50 million of total commitments from new and existing lenders on the same terms and conditions as the existing commitments. Advances under the SPV Facility bear interest at three-month Term SOFR (as defined in the Loan Agreement) plus an applicable margin of 2.50% during the revolving period ending on August 1, 2027 and three-month Term SOFR plus an applicable margin of 2.85% thereafter. The Loan Agreement provides for an unused commitment fee, from the effective date of the Loan Agreement through August 1, 2027, of 0.25% per annum on the unused commitments if Stellus SPV's credit facility utilization is greater than or equal to 80%, and otherwise, 0.50% per annum on the unused commitments, and other customary fees. The SPV Facility will mature on August 1, 2030.

The outstanding balance under the Credit Facility and SPV Facility as of August 9, 2024 was $63.2 million and $50.0 million, respectively.

Distributions Declared

On June 26, 2024, our Board of Directors declared a regular monthly distribution for each of July 2024, August 2024, and September 2024, as follows:

	Record	Payment	Amount per
Declared	Date	Date	Share
6/26/2024	7/1/2024	7/31/2024	$	0.1666
6/26/2024	8/1/2024	8/30/2024	$	0.1666
6/26/2024	9/2/2024	9/30/2024	$	0.1666

Sale of Unregistered Securities

Since June 30, 2024, the Company sold 104,924 common shares of beneficial interest at a price of $15.19 per share for aggregate proceeds of $1.6 million, which included less than $0.1 million of organizational expense allocation pursuant to subscription agreements entered into between the Company and investors.

Since June 30, 2024, the Company also issued 8,014 common shares of beneficial interest for aggregate proceeds of $0.1 million under the DRIP.

About Stellus Private Credit BDC

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, as amended. 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 (including unitranche) loans and second lien loans, with corresponding equity co-investments. The Company's investment activities are managed by its investment adviser, Stellus Private BDC Advisor, LLC.

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 including the final prospectus that will be filed 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.

Contacts

Stellus Private Credit BDC
W. Todd Huskinson, Chief Financial Officer
(713) 292-5414
[email protected]

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	June 30, 2024
	(unaudited)		December 31, 2023
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $252,191,163 and $206,513,758, respectively)	$	254,154,676	$	208,574,078
Cash and cash equivalents		565,106		593,685
Interest receivable		1,918,469		1,495,581
Expense reimbursement receivable from the Advisor (Note 2)		77,042		126,539
Deferred offering costs		105,843		72,875
Related party receivable		113,666		162,455
Prepaid expenses		84,493		127,019
Receivable for sales and repayments of investments		121,092		71,105
Total Assets	$	257,263,779	$	211,223,337
LIABILITIES
Credit Facilities payable	$	112,219,734	$	97,031,517
Dividends payable		—		3,551,068
Unearned revenue		801,369		897,538
Income incentive fee payable		445,911		439,854
Capital gains incentive fee payable		291,758		261,684
Interest payable		334,536		367,093
Administrative services payable		131,543		124,958
Income tax payable		51,769		182,489
Deferred tax liability		164,066		167,865
Other accrued expenses and liabilities		190,207		177,249
Total Liabilities	$	114,630,893	$	103,201,315
Commitments and contingencies (Note 7)
Net Assets	$	142,632,886	$	108,022,022
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 9,390,537 and 7,102,136 issued and outstanding, respectively)	$	93,905	$	71,021
Paid-in capital		139,747,341		104,810,048
Total distributable earnings		2,791,640		3,140,953
Net Assets	$	142,632,886	$	108,022,022
Total Liabilities and Net Assets	$	257,263,779	$	211,223,337
Net Asset Value Per Share	$	15.19	$	15.21

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
INVESTMENT INCOME
Interest income	$	6,844,595	$	5,158,773	$	13,153,976	$	9,890,725
Other income		86,125		62,484		195,721		238,553
Total Investment Income	$	6,930,720	$	5,221,257	$	13,349,697	$	10,129,278
OPERATING EXPENSES
Management fees	$	800,653	$	666,721	$	1,601,307	$	1,268,560
Income incentive fees		642,470		468,011		1,240,871		907,677
Capital gains incentive (reversal) fee		(7,817)		124,892		30,074		124,892
Professional fees		128,021		168,703		324,932		380,511
Organization costs		—		—		—		1,000
Amortization of deferred offering costs		48,654		41,106		95,382		98,729
Administrative services expenses		122,272		100,914		244,049		194,674
Trustees' fees		40,000		40,000		80,000		80,000
Insurance expense		20,197		20,307		40,393		40,391
Valuation fees		1,559		615		28,718		18,274
Interest expense and other fees		2,278,332		1,822,407		4,388,451		3,525,910
Income tax expense		7,685		8,855		29,274		16,690
Other general and administrative expenses		77,912		37,503		120,845		81,023
Total Operating Expenses	$	4,159,938	$	3,500,034	$	8,224,296	$	6,738,331
Expenses reimbursed/fees waived by Investment Advisor (Note 2)	$	(1,091,852)	$	(961,954)	$	(2,289,748)	$	(1,930,229)
Net Operating Expenses	$	3,068,086	$	2,538,080	$	5,934,548	$	4,808,102
Net Investment Income	$	3,862,634	$	2,683,177	$	7,415,149	$	5,321,176
Net realized gain on foreign currency translation	$	6,403	$	7,846		14,845		11,321
Net change in unrealized (depreciation) appreciation on non-controlled, non-affiliated investments		(417,099)		1,819,403		(83,638)		1,747,377
Net change in unrealized depreciation on foreign currency translations		(4,288)		(27)		(13,169)		6,193
(Provision) benefit for taxes on net unrealized (gain) loss on investments		(42,087)		—		3,798		—
Net Increase in Net Assets Resulting from Operations	$	3,405,563	$	4,510,399	$	7,336,985	$	7,086,067
Net Investment Income Per Share – basic and diluted	$	0.46	$	0.44	$	0.95	$	0.92
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.41	$	0.75	$	0.94	$	1.23
Weighted Average Common Shares of Beneficial Interest Outstanding – basic and diluted		8,310,559		6,037,036		7,768,883		5,770,879
Distributions Per Share – basic and diluted	$	0.49	$	0.45	$	0.99	$	0.87

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	Common Shares of
	Beneficial Interest					Total
	Number of	Par		Paid-in		distributable
	shares	value		capital		(loss) gain		Net Assets
Balances at December 31, 2022	5,483,433	$	54,834	$	80,950,845	$	(742,722)	$	80,262,957
Net investment income	—		—		—		2,637,999		2,637,999
Net realized gain on foreign currency translation	—		—		—		3,475		3,475
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(72,026)		(72,026)
Net change in unrealized appreciation on foreign currency translations	—		—		—		6,220		6,220
Distributions from net investment income	—		—		—		(2,306,409)		(2,306,409)
Issuance of common shares of beneficial interest	349,546		3,496		5,115,958		—		5,119,454
Balances at March 31, 2023	5,832,979	$	58,330	$	86,066,803	$	(473,463)	$	85,651,670
Net investment income	—		—		—		2,683,177		2,683,177
Net realized gain on foreign currency translation	—		—		—		7,846		7,846
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,819,403		1,819,403
Net change in unrealized depreciation on foreign currency translation	—		—		—		(27)		(27)
Distributions from net investment income	—		—		—		(2,720,486)		(2,720,486)
Issuance of common shares of beneficial interest	349,945		3,499		5,152,116		—		5,155,615
Balances at June 30, 2023	6,182,924	$	61,829	$	91,218,919	$	1,316,450	$	92,597,198

Balances at December 31, 2023	7,102,136	$	71,021	$	104,810,048	$	3,140,953	$	108,022,022
Net investment income	—		—		—		3,552,515		3,552,515
Net realized gain on foreign currency translation	—		—		—		8,442		8,442
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		333,461		333,461
Net change in unrealized depreciation on foreign currency translations	—		—		—		(8,881)		(8,881)
Benefit for taxes on net unrealized loss on investments	—		—		—		45,885		45,885
Distributions from net investment income	—		—		—		(3,610,362)		(3,610,362)
Issuance of common shares of beneficial interest	255,902		2,559		3,901,680		—		3,904,239
Balances at March 31, 2024	7,358,038	$	73,580	$	108,711,728	$	3,462,013	$	112,247,321
Net investment income	—		—		—		3,862,634		3,862,634
Net realized gain on foreign currency translation	—		—		—		6,403		6,403
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(417,099)		(417,099)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(4,288)		(4,288)
Provision for taxes on net unrealized gain on investments	—		—		—		(42,087)		(42,087)
Distributions from net investment income	—		—		—		(4,075,936)		(4,075,936)
Issuance of common shares of beneficial interest	2,032,499		20,325		31,035,613		—		31,055,938
Balances at June 30, 2024	9,390,537	$	93,905	$	139,747,341	$	2,791,640	$	142,632,886

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six Months Ended
	June 30, 2024		June 30, 2023
Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	7,336,985	$	7,086,067
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(58,123,495)		(41,418,778)
Proceeds from sales and repayments of investments		13,029,056		12,580,637
Net change in unrealized depreciation (appreciation) on investments		83,638		(1,747,377)
Net change in unrealized depreciation (appreciation) foreign currency translations		13,169		(6,193)
Increase in investments due to PIK		(333,142)		—
Amortization of premium and accretion of discount, net		(299,811)		(221,155)
Deferred tax benefit		(3,799)		—
Amortization of loan structure fees		188,217		298,970
Amortization of deferred offering costs		95,382		98,729
Changes in other assets and liabilities
Increase in interest receivable		(422,888)		(279,075)
Increase in other receivable		(123,392)		—
Decrease (increase) in related party receivable		48,789		(94,964)
Decrease in expense reimbursements receivable from the Advisor		49,497		26,409
Decrease in prepaid expenses		42,526		70,588
Increase in administrative services payable		6,585		26,149
Decrease in interest payable		(32,557)		(389,912)
Increase in income incentive fees payable		6,057		30,837
Increase in capital gains incentive fees payable		30,074		124,892
(Decrease) increase in unearned revenue		(96,169)		68,341
(Decrease) increase in income tax payable		(130,720)		8,390
Increase in other accrued expenses and liabilities		12,958		7,771
Net Cash Used in Operating Activities	$	(38,623,040)	$	(23,729,674)
Cash Flows from Financing Activities
Proceeds from issuance of common shares of beneficial interest	$	34,960,177	$	10,275,069
Offering costs paid for common shares of beneficial interest issued		(128,350)		(131,095)
Stockholder distributions paid		(11,237,366)		(4,115,942)
Borrowings under Credit Facilities		67,100,000		72,000,000
Repayments of Credit Facilities		(52,100,000)		(57,415,000)
Financing costs paid on Credit Facilities		—		(352,744)
Short-term loan repayments		—		(11,250,000)
Net Cash Provided by Financing Activities	$	38,594,461	$	9,010,288
Net Decrease in Cash and Cash Equivalents	$	(28,579)	$	(14,719,386)
Cash and Cash Equivalents Balance at Beginning of Period		593,685		15,469,823
Cash and Cash Equivalents Balance at End of Period	$	565,106	$	750,437
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	4,232,791	$	3,616,852
Income and excise tax paid		159,994		8,300
Increase in deferred offering costs		32,968		32,366
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		780,177		155,615
(Decrease) increase in dividends payable		(3,551,068)		910,953