STELLUS CAPITAL INVESTMENT CORPORATION HOUSTON, May 8, 2018 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its first fiscal quarter ended March 31, 2018.
HIGHLIGHTS | |||
($ in millions, except data relating to per share amounts and number of portfolio companies) | |||
As of | |||
Portfolio results | March 31, 2018 | ||
Total assets | $480.9 | ||
Investment portfolio, at fair value | $431.3 | ||
Net assets | $222.3 | ||
Weighted average yield on debt investments | 11.1% | ||
Net asset value per share | $13.93 | ||
Quarter | Quarter | ||
ended | ended | ||
March 31, 2018 | March 31, 2017 | ||
Portfolio activity | |||
Total investments made, at par | $73.2 | $23.2 | |
Number of new investments | 4 | 3 | |
Repayments and sale of investments, including amortization | $15.6 | $39.3 | |
Number of portfolio companies at | |||
end of period | 52 | 46 | |
Operating results | |||
Total investment income | $10.9 | $9.9 | |
Net investment income | $4.5 | $4.1 | |
Net investment income per share | $0.28 | $0.33 | |
Realized Gains per share | $0.08 | ($0.06) | |
Distributions per share | $0.34 | $0.34 | |
Net increase in net assets from operations | $7.3 | $6.0 | |
Net increase in net assets from operations per share | $0.46 | $0.48 | |
"Realized gains and net investment income of $0.36 per share covered our dividends of $0.34 per share for the first quarter. Net asset value ("NAV") per share at March 31, 2018 increased to $13.93 from $13.81 at December 31, 2017," said Robert T. Ladd, Chief Executive Officer of Stellus Capital.
Portfolio and Investment Activity
We completed the first quarter of 2018 with a portfolio of $431.3 million (at fair value) invested in 52 companies. As of March 31, 2018, our portfolio included approximately 46% of first lien debt, 41% of second lien debt, 6% of unsecured debt and 6% of equity investments at fair value. Our debt portfolio consisted of 89% floating rate investments (subject to interest rate floors) and 11% fixed rate investments. The average size of our portfolio company investments was $8.3 million and our largest portfolio company investment was approximately $22.2 million, both at fair value. The weighted average yield on all of our debt investments as of March 31, 2018 was approximately 11.1%.
During the three months ended March 31, 2018, we made $73.2 million of investments in four new and four existing portfolio companies at par and received $15.6 million from amortization and repayments of certain other investments.
This compares to the portfolio as of December 31, 2017, which had a fair value of $371.8 million invested in 48 companies comprising 38% of first lien debt, 48% of second lien debt, 7% of unsecured debt and 7% of equity investments at fair value. The weighted average yield on all of our debt investments as of December 31, 2017 was approximately 10.8%. The debt portfolio consisted of and 87% floating rate investments (subject to interest rate floors) and 13% fixed rate investments.
Results of Operations
Investment income for the three months ended March 31, 2018 and 2017 totaled $10.9 million and $9.9 million, respectively, most of which was interest income from portfolio investments.
Operating expenses for the three months ended March 31, 2018 and 2017, totaled $6.4 million and $5.7 million, respectively. For the same respective periods, base management fees totaled $1.7 million and $1.6 million, incentive fees totaled $ 1.0 million for both periods, fees and expenses related to our borrowings totaled $2.5 million and $ 2.1 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.4 million and $0.3 million, and other expenses totaled $0.8 million and $0.7 million, respectively.
Net investment income was $4.5 million and $4.1 million, or $0.28 and $0.33 per common share based on weighted average common shares outstanding for the three months ended March 31, 2018 and 2017 of 15,952,841 and 12,479,957, respectively.
The Company's investment portfolio had a net change in unrealized appreciation for the three months ended March 31, 2018 and 2017, of $1.5 million and $2.6 million, respectively. For the three months ended March 31, 2018 and 2017, the Company had a realized gain of $1.3 million and a realized loss of $712.1 thousand, respectively.
Our net increase in net assets resulting from operations totaled $7.3 million and $6.0 million, or $0.46 and $0.48 per common share based on weighted average common shares outstanding for the three months ended March 31, 2018 and 2017 of 15,952,841 and 12,479,957, respectively.
Liquidity and Capital Resources
As of March 31, 2018 and 2017, our credit facilities provided for borrowings in an aggregate amount up to $140.0 and $120.0 million, respectively, on a committed basis. As of March 31, 2018, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195.0 million. As of March 31, 2018 and December 31, 2017, we had $118.3 million and $40.8 million in outstanding borrowings under the credit facility, respectively.
For the three months ended March 31, 2018, our operating activities used cash of $51.8 million primarily in connection with purchases and origination of portfolio investments, which was slightly offset by repayments of our investments. For the same period, our financing activities provided cash of $72.2 million, due to borrowings under our credit facility.
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, and our financing activities used cash of $17.8 million, primarily related to the repayments under our credit facility and distributions to stockholders.
Distributions
During the three months ended March 31, 2018 and 2017, we declared aggregate distributions of $0.34 per share ($5.4 million and $4.2 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 which occurred during the three months ended March 31, 2018 are summarized as follows:
On January 2, 2018, the Company invested $10.0 million in the second lien term loan of ICD Intermediate Holdco 2, LLC, a provider of technology that connects corporate treasury departments with money market funds. We also invested $0.5 million in the equity of the company.
On January 26, 2018, the Company made an additional investment of $7.1 million in the first lien term loan of BW DME Acquisition LLC, (StateServ Medical, LLC). We also invested an additional $0.9 million in equity of the company.
On January 30, 2018, the Company received a dividend of $1.4 million from MTC Parent, L.P. (Millennium Trust).
On January 31, 2018, the Company invested $11.0 million in the first lien term loan of Price for Profit, LLC, a provider of advisory services and specialized technology platform. We also committed to fund a $1.5 million revolver. Additionally, the Company invested $0.8 million in the equity of the company.
On January 31, 2018, the Company made an additional investment of $3.2 million in the first lien term loan of Energy Labs Inc.
On February 5, 2018, the Company invested $20.5 million in the first lien term loan of Fast Growing Trees, LLC, an online provider of hybrid trees and plants. We also committed to fund a $1.0 million revolver. Additionally, the Company invested $1.0 million in the equity of the company.
On February 6, 2018, the Company made an additional investment of $8.3 million in the first lien debt of Furniture Factory Holdings, LLC.
On March 20, 2018, the Company received a dividend of $0.9 million from Glori Energy Production, LLC..
On March 30, 2018, the Company invested $9.8 million in the first lien term loan of Kellyamerit Holdings, Inc. (Amerit Fleet), a nation-wide provider of fleet maintenance and repair services.
On March 30, 2018, the Company received a payoff of its $9.0 million term loan to Douglas Products and Packaging Company, LLC. The Company also received a dividend of $0.3 million on the equity of Fumigation Holdings, Inc. (Douglas).
Events Subsequent to March 31, 2018
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 2nd Lien term loan of Mobileum, Inc., an existing portfolio company.
On April 24, 2018, the Company received full repayment of the first lien term loan of Catapult Learning, LLC for total proceeds of $12.1 million.
On April 30, 2018, the Company received full repayment on the unsecured first lien term loan of Binder & Binder National Social Security Disability Advocates, LLC for total proceeds of $0.1 million.
On May 2, 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.
Credit Facility
The outstanding balance under the credit facility as of May 4, 2018 was $66.1 million.
SBA-guaranteed Debentures
On April 25, 2018, the Company drew $40.0 million of SBA-guaranteed debentures, bringing the total balance of SBA-guaranteed Debentures outstanding to $130.0 million as of May 4, 2018.
Legislative Changes
On March 23, 2018, the Small Business Credit Availability Act (the "SBCAA") was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the 1940 Act to allow BDCs to decrease their asset coverage requirement to 150% from 200% under certain circumstances.
On April 4, 2018, the board of directors (the "Board") of Stellus Capital Investment Corporation (the "Company"), including a "required majority" (as such term is defined in Section 57(o) of the Investment Company Act of 1940, as amended (the "1940 Act")) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio test applicable to the Company will be decreased from 200% to 150%, effective April 4, 2019 unless approved earlier by a vote of the Company's stockholders. The Board also approved the submission of a proposal to approve the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act at the Company's 2018 annual meeting of stockholders.
Dividend Declared
On April 16, 2018, the Company's board of directors declared a regular monthly dividend for each of April, May and June 2018 as follows:
Declared | Ex-Dividend Date | Record Date | Payment Date | Amount per Share |
4/16/18 | 4/27/18 | 4/30/18 | 5/15/18 | $0.1133 |
4/16/18 | 5/30/18 | 5/31/18 | 6/15/18 | $0.1133 |
4/16/18 | 6/28/18 | 6/29/18 | 7/13/18 | $0.1133 |
Conference Call Information
Stellus Capital Investment Corporation will host a conference call to discuss these results on Tuesday, May 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 800-263-0877 (domestic). Use passcode 3214469. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Wednesday, May 16, 2018 by dialing (888) 203-1112 and entering passcode 3214469. 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
thuskinson@stelluscapital.com
PART I — FINANCIAL INFORMATION | |||||||
STELLUS CAPITAL INVESTMENT CORPORATION | |||||||
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES | |||||||
March 31, | |||||||
2018 | December 31, | ||||||
(unaudited) | 2017 | ||||||
ASSETS | |||||||
Non-controlled, affiliated investments, at fair value (amortized cost of $135,519 and $1,052,185, respectively) | |||||||
$ | 140,000 | $ | 990,000 | ||||
Non-controlled, non-affiliated investments, at fair value (amortized cost of $426,244,352 and $367,401,021, respectively) | |||||||
431,159,720 | 370,849,772 | ||||||
Cash and cash equivalents | 45,494,363 | 25,110,718 | |||||
Receivable for sales and repayments of investments | 26,891 | 26,891 | |||||
Interest receivable | 3,787,060 | 2,922,204 | |||||
Other receivables | 37,647 | — | |||||
Prepaid expenses | 298,186 | 361,270 | |||||
Total Assets | $ | 480,943,867 | $ | 400,260,855 | |||
LIABILITIES | |||||||
Notes payable | $ | 47,389,684 | $ | 47,306,488 | |||
Credit facility payable | 116,948,703 | 39,332,479 | |||||
SBA-guaranteed debentures | 87,919,481 | 87,818,813 | |||||
Dividends payable | 1,807,570 | 1,806,671 | |||||
Management fees payable | 1,575,366 | 1,621,592 | |||||
Incentive fees payable | 1,164,735 | 371,647 | |||||
Interest payable | 683,980 | 1,021,173 | |||||
Unearned revenue | 175,989 | 139,304 | |||||
Administrative services payable | 361,727 | 327,033 | |||||
Other accrued expenses and liabilities | 653,500 | 268,413 | |||||
Total Liabilities | $ | 258,680,735 | $ | 180,013,613 | |||
Commitments and contingencies | |||||||
Net Assets | $ | 222,263,132 | $ | 220,247,242 | |||
NET ASSETS | |||||||
Common Stock, par value $0.001 per share (200,000,000 and 100,000,000 shares authorized; 15,953,810 and 15,945,879 shares issued and outstanding, respectively) | $ | 15,954 | $ | 15,946 | |||
Paid-in capital | 228,161,215 | 228,066,762 | |||||
Accumulated net realized loss from investments, net of cumulative dividends of $4,246,819 for both periods | (9,450,971) | (10,786,240) | |||||
Distributions in excess of net investment income | (1,382,915) | (435,794) | |||||
Net Unrealized appreciation on investments and cash equivalents, net of provision for taxes of $0 for both periods | |||||||
4,919,849 | 3,386,568 | ||||||
Net Assets | $ | 222,263,132 | $ | 220,247,242 | |||
Total Liabilities and Net Assets | $ | 480,943,867 | $ | 400,260,855 | |||
Net Asset Value Per Share | $ | 13.93 | $ | 13.81 | |||
STELLUS CAPITAL INVESTMENT CORPORATION | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||||||
For the | For the | |||||||
three months | three months | |||||||
ended | ended | |||||||
March 31, | March 31, | |||||||
2018 | 2017 | |||||||
INVESTMENT INCOME | ||||||||
Interest income | $ | 10,730,748 | $ | 9,476,252 | ||||
Other income | 181,033 | 387,728 | ||||||
Total Investment Income | $ | 10,911,781 | $ | 9,863,980 | ||||
OPERATING EXPENSES | ||||||||
Management fees | $ | 1,748,896 | $ | 1,564,528 | ||||
Valuation fees | 134,410 | 166,089 | ||||||
Administrative services expenses | 351,229 | 309,098 | ||||||
Incentive fees | 968,826 | 1,021,227 | ||||||
Professional fees | 469,138 | 227,677 | ||||||
Directors' fees | 92,000 | 92,000 | ||||||
Insurance expense | 85,697 | 109,252 | ||||||
Interest expense and other fees | 2,464,980 | 2,068,630 | ||||||
Other general and administrative expenses | 121,226 | 161,852 | ||||||
Total Operating Expenses | $ | 6,436,402 | $ | 5,720,353 | ||||
Net Investment Income | $ | 4,475,379 | $ | 4,143,627 | ||||
Net Realized Gain (Loss) on Investments and Cash Equivalents | $ | 1,335,269 | $ | (712,051) | ||||
Net Change in Unrealized Appreciation on Investments and Cash Equivalents | ||||||||
$ | 1,533,281 | $ | 2,584,583 | |||||
Benefit for taxes on unrealized gain on investments | $ | — | $ | 8,593 | ||||
Net Increase in Net Assets Resulting from Operations | $ | 7,343,929 | $ | 6,024,752 | ||||
Net Investment Income Per Share | $ | 0.28 | $ | 0.33 | ||||
Net Increase in Net Assets Resulting from Operations Per Share | $ | 0.46 | $ | 0.48 | ||||
Weighted Average Shares of Common Stock Outstanding | 15,952,841 | 12,479,957 | ||||||
Distributions Per Share | $ | 0.34 | $ | 0.34 | ||||
STELLUS CAPITAL INVESTMENT CORPORATION | |||||||
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited) | |||||||
For the three months ended March 31, 2018 | For the three months ended March 31, 2017 | ||||||
Increase in Net Assets Resulting from Operations | |||||||
Net investment income | $ | 4,475,379 | $ | 4,143,627 | |||
Net realized gain/(loss) on investments and cash equivalents | 1,335,269 | (712,051) | |||||
Net change in unrealized appreciation on investments and cash equivalents | |||||||
1,533,281 | 2,584,583 | ||||||
Benefit for taxes on unrealized appreciation on investments | — | 8,593 | |||||
Net Increase in Net Assets Resulting from Operations | $ | 7,343,929 | $ | 6,024,752 | |||
Stockholder distributions from | |||||||
Net investment income | (5,422,500) | (4,241,903) | |||||
Total Distributions | $ | (5,422,500) | $ | (4,241,903) | |||
Capital share transactions | |||||||
Issuance of common stock | 94,788 | — | |||||
Partial Share Redemption | (327) | — | |||||
Net increase in net assets resulting from capital share transactions | $ | 94,461 | $ | — | |||
Total increase in net assets | $ | 2,015,890 | $ | 1,782,849 | |||
Net assets at beginning of period | $ | 220,247,242 | $ | 170,881,785 | |||
Net assets at end of period (includes $1,382,915 and $435,794 of distributions in excess of net investment income, respectively) | $ | 222,263,132 | $ | 172,664,634 | |||
STELLUS CAPITAL INVESTMENT CORPORATION | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||
For the | For the | |||||||
three months | three months | |||||||
ended | ended | |||||||
March 31, 2018 | March 31, 2017 | |||||||
Cash flows from operating activities | ||||||||
Net Increase in net assets resulting from operations | $ | 7,343,929 | $ | 6,024,752 | ||||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: | ||||||||
Purchases of investments | (71,713,787) | (23,151,902) | ||||||
Proceeds from sales and repayments of investments | 15,618,134 | 39,279,309 | ||||||
Net change in unrealized appreciation on investments | (1,533,281) | (2,584,583) | ||||||
Deferred tax benefit | — | (8,593) | ||||||
Increase in investments due to PIK | (152,006) | (82,119) | ||||||
Amortization of premium and accretion of discount, net | (343,739) | (267,611) | ||||||
Amortization of loan structure fees | 66,224 | 122,908 | ||||||
Amortization of deferred financing costs | 83,196 | 46,669 | ||||||
Amortization of loan fees on SBA-guaranteed debentures | 100,668 | 80,211 | ||||||
Net realized loss (gain) on investments | (1,335,269) | 712,051 | ||||||
Changes in other assets and liabilities | ||||||||
Decrease (increase) in interest receivable | (864,856) | 329,975 | ||||||
Increase in other receivable | (37,647) | (7,294) | ||||||
Decrease (increase) in prepaid expenses | 63,084 | (62) | ||||||
Decrease in management fees payable | (46,226) | (43,767) | ||||||
Increase (decrease) in incentive fees payable | 793,088 | (129,650) | ||||||
Increase in administrative services payable | 34,694 | 31,358 | ||||||
Decrease in interest payable | (337,193) | (550,338) | ||||||
Increase (decrease) in unearned revenue | 36,685 | (1,786) | ||||||
Increase in dividend payable | 899 | — | ||||||
Increase in other accrued expenses and liabilities | 385,087 | 318,964 | ||||||
Net cash provided by (used in) operating activities | $ | (51,838,316) | $ | 20,118,492 | ||||
Cash flows from financing activities | ||||||||
Offering costs paid for common stock issued | — | (81,813) | ||||||
Stockholder distributions paid | (5,327,712) | (4,241,903) | ||||||
Borrowings under credit facility | 86,550,000 | 9,000,000 | ||||||
Repayments of credit facility | (9,000,000) | (22,500,000) | ||||||
Partial Share Redemption | (327) | — | ||||||
Net cash provided by (used in) financing activities | $ | 72,221,961 | $ | (17,823,716) | ||||
Net increase in cash and cash equivalents | $ | 20,383,645 | $ | 2,294,776 | ||||
Cash and cash equivalents balance at beginning of period | 25,110,718 | 9,194,129 | ||||||
Cash and cash equivalents balance at end of period | $ | 45,494,363 | $ | 11,488,905 | ||||
Supplemental and non-cash financing activities | ||||||||
Interest expense paid | 2,512,086 | 2,369,181 | ||||||
Excise tax paid | 27,717 | 37,648 | ||||||
Shares issued pursuant to Dividend Reinvestment Plan | 94,788 | — | ||||||
Conversion from debt to equity | — | 864,101 | ||||||
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