Stellus Private Credit BDC Reports Results for its Third Fiscal Quarter Ended September 30, 2024

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Nov 12, 2024, 10:29 ET

HOUSTON, Nov. 12, 2024 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC", "we", or the "Company") today announced financial results for its third fiscal quarter ended September 30, 2024.

Robert T. Ladd, Chief Executive Officer of Stellus PBDC, stated, "We are pleased to report strong results in the third quarter in which we generated $0.49 per share of net investment income and maintained a stable net asset value. During the quarter, we funded $9 million of investments and received $7 million of repayments, bringing the total portfolio to $257 million at fair value. On October 10, 2024, we declared our 2024 fourth quarter monthly dividend of $0.48 per share in the aggregate, which represents an annualized dividend yield of approximately 13%. Subsequent to quarter end, we increased our capital base by $25 million through the upsizing of our Credit Facility to $175 million."


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

	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	Amount	Per Share	Amount	Per Share	Amount	Per Share	Amount	Per Share
Net investment income	$4.66	$0.49	$3.08	$0.47	$12.08	$1.45	$8.41	$1.39
Net unrealized (depreciation) appreciation included in earnings	(0.40)	(0.04)	1.05	0.16	(0.49)	(0.06)	2.81	0.47
Provision for taxes on net unrealized appreciation on investments	(0.01)	—	(0.05)	(0.01)	(0.01)	—	(0.06)	(0.01)
Net increase in net assets resulting from operations	$4.25	$0.45	$4.08	$0.62	11.58	1.39	11.16	1.85
Distributions	(4.74)	(0.50)	(3.19)	(0.48)	(12.43)	(1.49)	(8.22)	(1.36)
Other weighted average share adjustments⁽¹⁾	—	—	—	(0.02)	—	0.03	—	(0.03)
Net asset value	142.2	$15.14	104.7	$15.10	142.2	$15.14	104.7	$15.10
Weighted average shares outstanding		9,456,180		6,584,179		8,335,421		6,044,958


(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
	September 30, 2024	December 31, 2023
Investments at fair value	$256.7	$208.6
Total assets	$262.5	$211.2
Net assets	$142.2	$108.0
Shares outstanding	9,394,977	7,102,136
Net asset value per share	$15.14	$15.21

	Three Months Ended
	September 30, 2024	September 30, 2023
New investments	$9.0	$27.1
Repayments of investments	(6.6)	(4.8)
Net activity	$2.4	$22.3

	As of	As of
	September 30, 2024	December 31, 2023
Number of portfolio company investments	50	39
Number of debt investments	47	37

Weight average yield of debt and other income producing investments ⁽²⁾
Cash	10.8 %	11.8 %
Payment-in-kind ("PIK")	0.3 %	0.3 %
Fee amortization	0.4 %	0.4 %
Total	11.5 %	12.5 %

Weighted average yield on total investments ⁽³⁾
Cash	10.3 %	11.2 %
PIK	0.3 %	0.3 %
Fee amortization	0.4 %	0.4 %
Total	11.0 %	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 September 30, 2024 and 2023 totaled $7.9 million and $6.1 million, respectively, most of which was interest income from portfolio investments.

Gross operating expenses for the three months ended September 30, 2024 and 2023 totaled $4.6 million and $4.1 million, respectively. For the same periods, base management fees totaled $0.9 million and $0.8 million, income incentive fees totaled $0.8 million and $0.5 million, capital gains incentive (reversal) fees of ($0.1) million and $0.1 million, which are not currently payable, fees and expenses related to our borrowings totaled $2.5 million and $2.3 million, respectively (including interest and amortization of deferred financing costs), administrative expenses totaled $0.1 million and $0.1 million, and other expenses totaled $0.4 million and $0.3 million, respectively. For the three months ended September 30, 2024 and 2023, the Company's investment advisor, Stellus Private BDC Advisor, LLC (the "Advisor"), waived $0.9 million and $0.8 million of management fees (voluntarily waived until October 1, 2024), $0.3 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 $3.3 million and $3.1 million, respectively.

For the three months ended September 30, 2024 and 2023, net investment income was $4.7 million and $3.1 million, or $0.49 and $0.47 per common share based on weighted average common shares outstanding of 9,456,180 and 6,584,179, respectively.

The Company's investment portfolio had a net change in unrealized (depreciation) appreciation of ($0.4) million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024 and 2023, net increase in net assets resulting from operations totaled $4.2 million and $4.1 million, or $0.45 and $0.62 per common share, based on weighted average common shares outstanding of 9,456,180 and 6,584,179, 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 September 30, 2024 and December 31, 2023, the Company had $68.6 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 September 30, 2024:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	August 16, 2024	Bart & Associates, LLC	Provides IT modernization services for federal customers	$	3,390,671	Senior Secured – First Lien
				$	4,624,972	Delayed Draw Term Loan Commitment
				$	785,847	Revolver Commitment
				$	314,339	Equity
Add-On Investment	August 26, 2024	Impact Home Services LLC*	Residential garage door, electrical, and plumbing services provider	$	869,871	Delayed Draw Term Loan Commitment
Add-On Investment	September 11, 2024	Service Minds Company, LLC*	Provider of residential electrical services	$	129,317	Revolver Commitment
Add-On Investment	September 30, 2024	The Hardenbergh Group, Inc. *	Provider of temporary professional staffing of Medical Services Professionals, external peer review, consulting and physician leadership solutions	$	366,253	Senior Secured – First Lien
Add-On Investment	September 30, 2024	Monitorus Holding, LLC*	Provider of media monitoring and evaluation services	$	34,111	Unsecured Convertible Bond


*	Existing portfolio company

The Company realized investments in the following portfolio company during the three months ended September 30, 2024:


Activity Type	Date	Company Name	Company Description	Proceeds Received		Instrument Type
Full Repayment	September 27, 2024	EHI Buyer, Inc.*	Provider of design, engineering, installation, and maintenance services for building management systems	$	2,792,479	Senior Secured – First Lien
				$	1,071,860	Delayed Draw Term Loan


*	Existing portfolio company

Events Subsequent to September 30, 2024

The Company's management has evaluated subsequent events through November 8, 2024. There have been no subsequent events that require recognition or disclosure except for the following described below.

Investment Portfolio

The Company invested in the following portfolio companies subsequent to September 30, 2024:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
Add-On Investment	October 18, 2024	Compost 360 Acquisition, LLC*	Organic waste recycler and producer of compost, mulch, and engineered soils	$	40,880	Equity
New Investment	October 31, 2024	Norplex Micarta Acquisition, Inc.	Manufacturer of thermoset composite laminates	$	5,972,094	Senior Secured – First Lien
				$	1,822,665	Revolver Commitment
				$	427,155	Equity
Add-On Investment	November 7, 2024	Green Intermediateco II, Inc.*	Cyber-security focused value-added reseller and associated service provider	$	3,607,117	Senior Secured – First Lien


*	Existing portfolio company

The Company realized investments in the following portfolio company subsequent to September 30, 2024:


Activity Type	Date	Company Name	Company Description	Proceeds Received		Instrument Type
Full Repayment	November 4, 2024	Baker Manufacturing Company, LLC*	Manufacturer of water well equipment, specialized filtration pumps, and custom castings		5,668,459	Senior Secured – First Lien


*	Existing portfolio company

Credit Facilities

On October 30, 2024, we entered into an Increase Agreement to the Credit Facility which, among other things, amends the Credit Facility to increase the total available commitments under the Credit Facility from $150.0 million to $175.0 million on a committed basis.

The outstanding balance under the Credit Facility and SPV Facility as of November 8, 2024 was $74.8 million and $50.0 million, respectively.

Distributions Declared

On October 10, 2024, our Board of Directors declared a regular monthly distribution for each of October 2024, November 2024, and December 2024, as follows:


	Record	Payment	Amount per
Declared	Date	Date	Share
10/10/2024	10/10/2024	10/31/2024	$	0.1600
10/10/2024	11/1/2024	11/29/2024	$	0.1600
10/10/2024	12/2/2024	12/31/2024	$	0.1600

Sale of Unregistered Securities

Since September 30, 2024, the Company sold 19,735 common shares of beneficial interest at a price of $15.14 per share for aggregate proceeds of $0.3 million which included less than $0.1 million of organizational expense allocation pursuant to subscription agreements entered into between the Company and investors.

Additionally, on October 16, 2024, the Company called $0.2 million pursuant to capital draw down subscription agreements between the Company and its shareholders. The transaction closed on October 30, 2024, and resulted in the issuance of 9,868 common shares of beneficial interest at a price of $15.14 per share.

Since September 30, 2024, the Company also issued 10,747 common shares of beneficial interest for aggregate proceeds of $0.2 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

	September 30, 2024
	(unaudited)		December 31, 2023
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $255,095,531 and $206,513,758, respectively)	$	256,654,766	$	208,574,078
Cash and cash equivalents		3,518,021		593,685
Other receivable		144,561		—
Interest receivable		1,807,092		1,495,581
Expense reimbursement receivable from the Advisor (Note 2)		128,330		126,539
Deferred offering costs		115,952		72,875
Related party receivable		3,249		162,455
Prepaid expenses		52,145		127,019
Receivable for sales and repayments of investments		96,583		71,105
Total Assets	$	262,520,699	$	211,223,337
LIABILITIES
Credit Facilities payable	$	117,030,797	$	97,031,517
Related party payable		51,719		—
Dividends payable		—		3,551,068
Unearned revenue		739,887		897,538
Income incentive fee payable		532,486		439,854
Capital gains incentive fee payable		167,045		261,684
Interest payable		902,052		367,093
Administrative services payable		113,714		124,958
Income tax payable		51,769		182,489
Deferred tax liability		183,857		167,865
Other accrued expenses and liabilities		520,791		177,249
Total Liabilities	$	120,294,117	$	103,201,315
Commitments and contingencies (Note 7)
Net Assets	$	142,226,582	$	108,022,022
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 9,394,977 and 7,102,136 issued and outstanding, respectively)	$	93,950	$	71,021
Paid-in capital		139,835,601		104,810,048
Total distributable earnings		2,297,031		3,140,953
Net Assets	$	142,226,582	$	108,022,022
Total Liabilities and Net Assets	$	262,520,699	$	211,223,337
Net Asset Value Per Share	$	15.14	$	15.21

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
INVESTMENT INCOME
Interest income	$	7,800,382	$	6,042,784	$	20,954,358	$	15,933,509
Other income		132,962		96,972		328,683		335,525
Total Investment Income	$	7,933,344	$	6,139,756	$	21,283,041	$	16,269,034
OPERATING EXPENSES
Management fees	$	896,304	$	763,066	$	2,497,611	$	2,031,626
Income incentive fees		756,668		529,714		1,997,539		1,437,391
Capital gains incentive (reversal) fee		(124,713)		99,640		(94,639)		224,532
Professional fees		156,396		142,356		481,328		522,867
Organization costs		—		—		—		1,000
Amortization of deferred offering costs		61,701		25,108		157,083		123,837
Administrative services expenses		135,018		103,415		379,067		298,089
Trustees' fees		40,000		40,000		120,000		120,000
Insurance expense		20,418		20,530		60,811		60,921
Valuation fees		31,965		20,572		60,683		38,846
Interest expense and other fees		2,496,503		2,312,758		6,884,954		5,838,668
Income tax expense		—		3,953		29,274		20,643
Other general and administrative expenses		75,218		22,386		196,063		103,409
Total Operating Expenses	$	4,545,478	$	4,083,498	$	12,769,774	$	10,821,829
Expenses reimbursed/fees waived by Investment Advisor (Note 2)	$	(1,276,857)	$	(1,022,379)	$	(3,566,605)	$	(2,952,608)
Net Operating Expenses	$	3,268,621	$	3,061,119	$	9,203,169	$	7,869,221
Net Investment Income	$	4,664,723	$	3,078,637	$	12,079,872	$	8,399,813
Net realized gain on foreign currency translation	$	5,522	$	8,599		20,367		19,920
Net change in unrealized (depreciation) appreciation on non-controlled, non-affiliated investments		(424,614)		1,054,344		(508,252)		2,801,721
Net change in unrealized appreciation (depreciation) on foreign currency translations		20,336		(9,918)		7,167		(3,725)
Provision for taxes on net unrealized gain on investments		(19,791)		(56,622)		(15,993)		(56,622)
Net Increase in Net Assets Resulting from Operations	$	4,246,176	$	4,075,040	$	11,583,161	$	11,161,107
Net Investment Income Per Share – basic and diluted	$	0.49	$	0.47	$	1.45	$	1.39
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.45	$	0.62	$	1.39	$	1.85
Weighted Average Common Shares of Beneficial Interest Outstanding – basic and diluted		9,456,180		6,584,179		8,335,421		6,044,958
Distributions Per Share – basic and diluted	$	0.50	$	0.48	$	1.49	$	1.36

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
Net investment income	—		—		—		3,078,637		3,078,637
Net realized gain on foreign currency translation	—		—		—		8,599		8,599
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,054,344		1,054,344
Net change in unrealized depreciation on foreign currency translations	—		—		—		(9,918)		(9,918)
Provision for taxes on net unrealized gain on investments	—		—		—		(56,622)		(56,622)
Distributions from net investment income	—		—		—		(3,190,125)		(3,190,125)
Issuance of common shares of beneficial interest	752,130		7,522		11,260,016		—		11,267,538
Balances at September 30, 2023	6,935,054	$	69,351	$	102,478,935	$	2,201,365	$	104,749,651

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
Net investment income	—		—		—		4,664,723		4,664,723
Net realized gain on foreign currency translation	—		—		—		5,522		5,522
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(424,614)		(424,614)
Net change in unrealized appreciation on foreign currency translations	—		—		—		20,336		20,336
Provision for taxes on net unrealized gain on investments	—		—		—		(19,791)		(19,791)
Distributions from net investment income	—		—		—		(4,740,785)		(4,740,785)
Issuance of common shares of beneficial interest	377,534		3,776		5,751,834		—		5,755,610
Redemption of common shares of beneficial interest	(373,094)		(3,731)		(5,663,574)		—		(5,667,305)
Balances at September 30, 2024	9,394,977	$	93,950	$	139,835,601	$	2,297,031	$	142,226,582

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

	Nine Months Ended
	September 30, 2024		September 30, 2023
Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	11,583,161	$	11,161,107
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(67,038,045)		(68,472,583)
Proceeds from sales and repayments of investments		19,584,247		17,370,805
Net change in unrealized depreciation (appreciation) on investments		508,252		(2,801,721)
Net change in unrealized (appreciation) depreciation foreign currency translations		(7,167)		3,725
Increase in investments due to PIK		(671,421)		(217)
Amortization of premium and accretion of discount, net		(482,032)		(359,012)
Deferred tax provision		15,992		56,622
Amortization of loan structure fees		231,435		442,513
Amortization of deferred offering costs		157,083		123,837
Changes in other assets and liabilities
Increase in interest receivable		(311,511)		(472,546)
Increase in other receivable		(144,561)		—
Decrease (increase) in related party receivable		159,206		(126,946)
(Increase) decrease in expense reimbursements receivable from the Advisor		(1,791)		82,895
Decrease in prepaid expenses		74,874		107,581
Increase in related party payable		51,719		—
(Decrease) increase in administrative services payable		(11,244)		35,267
Increase (decrease) in interest payable		534,959		(276,647)
Increase in income incentive fees payable		92,632		24,946
(Decrease) increase in capital gains incentive fees payable		(94,639)		224,532
(Decrease) increase in unearned revenue		(157,651)		324,516
(Decrease) increase in income tax payable		(130,720)		12,343
Increase in other accrued expenses and liabilities		343,542		5,278
Net Cash Used in Operating Activities	$	(35,713,680)	$	(42,533,705)
Cash Flows from Financing Activities
Proceeds from issuance of common shares of beneficial interest	$	40,715,787	$	21,542,607
Offering costs paid for common shares of beneficial interest issued		(200,160)		(134,882)
Purchase of common shares of beneficial interest in tender offer		(5,667,305)		—
Stockholder distributions paid		(15,978,151)		(6,836,428)
Borrowings under Credit Facilities		131,300,000		96,600,000
Repayments of Credit Facilities		(110,700,000)		(71,415,000)
Financing costs paid on Credit Facilities		(832,155)		(352,744)
Short-term loan repayments		—		(11,250,000)
Net Cash Provided by Financing Activities	$	38,638,016	$	28,153,553
Net Increase (Decrease) in Cash and Cash Equivalents	$	2,924,336	$	(14,380,152)
Cash and Cash Equivalents Balance at Beginning of Period		593,685		15,469,823
Cash and Cash Equivalents Balance at End of Period	$	3,518,021	$	1,089,671
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	6,118,560	$	5,672,802
Income and excise tax paid		159,994		11,045
Increase in deferred offering costs		43,077		8,300
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		1,185,787		442,606
(Decrease) increase in dividends payable		(3,551,068)		1,380,592