Stellus Capital Investment Corporation Reports Results for its Second Fiscal Quarter Ended June 30, 2021

HOUSTON, Aug. 2, 2021 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2021.

Robert T. Ladd, Chief Executive Officer of Stellus, stated, "I am pleased to report that our second quarter net investment income of $0.28 per share covered our aggregate dividends of $0.25 per share.  Additionally, core net investment income was $0.30 per share. Based on the consistency of our dividend coverage, our Board of Directors approved an increase in the regular dividend to $0.27 per quarter and declared $0.03 of supplemental dividends for the third quarter.  Our portfolio at fair value grew to over $782 million, largely due to strong deployment of $92 million during the period.  Year to date we have invested $185 million, and our pipeline remains strong. We continue to have available capital at favorable terms in which to grow through our SBIC licenses."

Results of Operations

Investment income for the three months ended June 30, 2021 and 2020 totaled $15.1 million and $13.8 million, respectively, most of which was interest income from portfolio investments. 

Operating expenses for the three months ended June 30, 2021 and 2020 totaled $9.6 million and $8.4 million, respectively. For the same respective periods, base management fees totaled $3.3 million and $2.7 million, income incentive fees totaled $0.1 million and $0.2 million, capital gains incentive fees totaled $0.0 million and $0.0 million, fees and expenses related to our borrowings totaled $4.7 million and $4.1 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.5 million and $0.4 million, income tax totaled $0.3 million and $0.3 million, and other expenses totaled $0.7 million and $0.7 million, respectively.

For the three months ended June 30, 2021 and 2020, net investment income was $5.5 million and $5.4 million, or $0.28 and $0.28 per common share based on weighted average common shares outstanding of 19,486,003 and 19,484,217, respectively.

The capital gains incentive fee of $14.4 thousand for the three months ended June 30, 2021 was accrued for GAAP purposes due to the increase in realized and unrealized gains over the quarter.  Such fees, as calculated and accrued, would not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.  The income tax expense accrual of $0.3 million for the three months ended June 30, 2021 was accrued based on estimates of undistributed taxable income, which was generated largely from capital gains.  Core net investment income, which is a non-U.S GAAP measure that excludes these accruals, for the three months ended June 30, 2021 was $5.8 million, or $0.30 per share; and for the three months ended June 30, 2020, was $5.7 million, or $0.29 per share.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended June 30, 2021 and 2020, of $1.7 million and $38.3 million, respectively.  For the three months ended June 30, 2021 and 2020, the Company had realized losses of ($1.8) million and ($3.9) million, respectively. 

For the three months ended June 30, 2021 and 2020, net increase in net assets resulting from operations totaled $5.6 million and $39.8 million, or $0.29 per common share and $2.04 per common share, based on weighted average common shares outstanding of 19,486,003 and 19,484,217, respectively. 

Liquidity and Capital Resources

As of both June 30, 2021 and 2020, our amended and restated senior secured revolving credit agreement with certain bank lenders and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the "Credit Facility") provided for borrowings in an aggregate amount of up to $230.0 million on a committed basis. As of June 30, 2021, our credit facility had an accordion feature that allowed for potential future expansion of the facility size to $280.0 million. As of June 30, 2021 and December 31, 2020, we had $192.6 million and $174.0 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2021, our operating activities used cash of ($114.5) million primarily in connection with the purchase and origination of new portfolio investments, some of which was offset by repayment of portfolio investments.  For the same period, our financing activities provided cash of $114.7 million, due to the issuance of our 4.875% fixed-rate notes due 2026 (the "2026 Notes") offset by the repayment of our 5.75% fixed-rate notes due 2022 (the "2022 Notes"), issuance of additional SBA-guaranteed debentures, and net repayments on our Credit Facility.

For the six months ended June 30, 2020, our operating activities used cash of $12.4 million, primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $19.5 million, due to net borrowings under our Credit Facility.

Distributions

During both the three months ended June 30, 2021 and 2020, we declared aggregate distributions of $0.25 per share ($4.9 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.

Portfolio Activity During the Quarter

On April 20, 2021, we invested $0.1 million in the equity of Venbrook Holdings, LLC, an existing portfolio company. On June 25, 2020, we invested an additional $0.1 million in the equity of the company.

On April 22, 2021, we received full repayment on the unsecured term loan of Skopos Financial, LLC for total proceeds of $14.0 million.

On April 27, 2021, we invested $7.5 million in the first lien term loan and committed $2.0 million in the unfunded revolver of Unicat Catalyst, LLC, a global formulator and distributor of heterogeneous, consumable catalyst products primarily serving the refinery, petrochemical, and other end markets. Additionally, we invested $0.8 million in the equity of the company.

On April 28, 2021, we invested $10.8 million in the first lien term loan and committed $0.1 million in both the unfunded revolver and delayed draw term loan of an HVAC and plumbing designer, installer, and service provider for new/existing DCs, fulfilment sortation facilities, and warehouses.

On May 7, 2021, we invested $15.6 million in the first lien term loan and committed $1.3 million in the unfunded revolver of Ad.Net Holdings, Inc., a digital marketing company that targets high-conversion consumers through cost-per-click (CPC) digital media advertising. Additionally, we invested $0.8 million in the equity of the company.

On May 19, 2021, we invested $16.5 million in the first lien term loan and committed $0.1 million in the unfunded revolver of MOM Enterprises, LLC, a provider of over-the-counter health and wellness products for babies, kids, and moms focusing on digestive health, wellness, and general care/remedies. Additionally, we invested $0.9 million in the equity of the company.

On May 28, 2021, we invested $1.2 million in the first lien term loan of Munch's Supply, LLC, an existing portfolio company.

On June 1, 2021, we invested $1.2 million in the first lien term loan of Invincible Boat Company, LLC, an existing portfolio company. Additionally, we invested $0.4 million in the equity of the company.

On June 4, 2021, we invested $15 million in the first lien term loan and committed $0.1 million in the unfunded revolver of ADS Group Opco, LLC, a full-service manufacturer for OEMs, prime contractors, and Tier I suppliers across the defense, space, and aerospace industries. Additionally, we invested $0.5 million in the equity of the company.

On June 11, 2021, we received a paydown on the second lien term loan of GK Holdings, Inc. for total proceeds of $1.2 million and a $2.0 million first lien term loan of Software Luxembourg Acquisitions S.À.R.L., resulting in a realized loss of $1.8 million.

On June 25, 2021, we invested $14.3 million in the first lien term loan and committed $4.7 million in the unfunded delayed draw term loan and $0.1 million in the unfunded revolver of Xanitos, Inc, a provider and manager of outsourced environmental services to hospitals, medical campuses, and medical office buildings. Additionally, we invested $0.8 million in the equity of the company.

Events Subsequent to June 30, 2021

On July 16, 2021, we received full repayment on the first lien term loan of Software Luxembourg Acquisition S.A.R.L. (GK Holdings, Inc.) for total proceeds of $2.0 million.

On July 30, 2021, we invested $10.0 million in the first lien term loan and committed $0.1 million in the unfunded revolver of a provider of software solutions to automotive dealerships. Additionally, we invested $0.8 million in the equity of the company.

Credit Facility

The outstanding balance under the credit facility as of August 2, 2021 was $187.0 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of August 2, 2021 was $250.0 million.

Distributions Declared

On July 20, 2021, our Board declared a regular monthly dividend of $0.09 per share for each of July, August and September for an aggregate of $0.27 per share for the quarter, which is an increase of $0.02 for the quarter as compared to the prior quarter.  In addition, the board declared a supplemental dividend of $0.01 for each of the months of July, August and September.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Tuesday, August 3, 2021 at 11:00 AM, Central 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 800-353-6461 (domestic).  Use passcode 5908267.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Wednesday, August 11, 2021 by dialing (888) 203-1112 and entering passcode 5908267. The replay will also be available on the company's website.

For those wishing to participate via Live Webcast, connect via the Public Company (SCIC) section of our website at www.stelluscapital.com, under the Events tab. A replay of the conference will be available on our website for approximately 90 days.

About Stellus Capital Investment Corporation

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, second lien loans and unsecured debt financing, with corresponding equity co-investments. The Company's investment activities are managed by its investment adviser, Stellus Capital Management. To learn more about Stellus Capital Investment Corporation, visit www.stelluscapital.com under the "Public (SCIC)" tab.

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, including statements about COVID-19 and its impacts, 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 Capital Investment Corporation
W. Todd Huskinson, Chief Financial Officer
(713) 292-5414
thuskinson@stelluscapital.com

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