Stellus Capital Investment Corporation Reports Results for Its Second Fiscal Quarter Ended June 30, 2016
HOUSTON, TX -- (Marketwired) -- 08/05/16 -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its second fiscal quarter ended June 30, 2016.
HIGHLIGHTS
($ in millions, except data relating to per share amounts
and number of portfolio companies)
As of
Portfolio results June 30, 2016
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Total assets $366.1
Investment portfolio, at fair value $350.8
Net assets $163.7
Weighted average yield on debt investments 10.7%
Net asset value per share $13.12
Quarter Quarter
ended ended
June 30, 2016 June 30, 2015
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Portfolio activity
Total investments made, at par $12.8 $38.9
Number of new investments 3 6
Repayments of investments, including
amortization $15.6 $36.6
Number of portfolio companies at
end of period 42 35
Operating results
Total investment income $9.6 $8.7
Net investment income $3.9 $4.0
Net investment income per share $0.32 $0.32
Realized Gains per share $0.00 $0.02
Regular dividends declared per share $0.34 $0.34
Net increase in net assets from operations $5.0 $4.0
Net increase in net assets from operations per
share $0.41 $0.32
"During the second quarter, we were able to substantially replace repayments with new investments", said Robert T. Ladd, Chief Executive Officer of Stellus. "The Company's investment adviser has informed the Company that it will waive incentive fees for the fiscal year ending December 31, 2016 to the extent necessary for the earnings of the Company to support dividends paid for the year".
Portfolio and Investment Activity
We completed the second quarter of 2016 with a portfolio of $350.8 million (at fair value) invested in 42 companies. As of June 30, 2016, our portfolio included approximately 36% of first lien debt, 40% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. Our debt portfolio consisted of 78% floating rate investments (subject to interest rate floors) and 22% fixed rate investments. The average size of our portfolio company investments was $8.4 million and our largest portfolio company investment was approximately $21.8 million at fair value. The weighted average yield on all of our debt investments as of June 30, 2016 was approximately 10.7%.
During the three months ended June 30, 2016, we made $12.8 million of investments in three new portfolio companies and received $15.6 million from payoffs and amortization of certain other investments.
This compares to the portfolio as of December 31, 2015, which had a fair value of $349.0 million invested in 39 companies comprising 38% of first lien debt, 38% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. As of December 31, 2015, our debt investments had a weighted average yield of 10.6% and consisted of 75% floating rate investments (subject to interest rate floors) and 25% fixed rate investments.
Results of Operations
Investment income for the three months ended June 30, 2016 and 2015 totaled $9.6 million and $8.7 million, respectively, most of which was interest income from portfolio investments.
Operating expenses for the three months ended June 30, 2016 and 2015, totaled $5.7 million and $4.7 million, respectively. For the same respective periods, base management fees totaled $1.6 million and $1.4 million, incentive fees totaled $1.0 million for both periods, fees and expenses related to our borrowings totaled $2.0 million and $1.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million for both periods and other expenses totaled $0.5 million for both periods. Lastly, operating expenses for the three months ended June 30, 2016 included a one-time expense related to previously capitalized deferred offering costs of $0.3 million.
Net investment income was $3.9 million and $4.0 million, or $0.32 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.
The Company's investment portfolio had a net change in unrealized depreciation for the three months ended June 30, 2016 and 2015, of $0.9 million and ($0.2) million, respectively. For the three months ended June 30, 2016 and 2015 the Company had realized gains of $1.5 thousand and $289.5 thousand, respectively.
Our net increase in net assets resulting from operations totaled $5.0 million and $4.0 million, or $0.41 and $0.32 per common share based on weighted average common shares outstanding for the three months ended June 30, 2016 and 2015, respectively.
Liquidity and Capital Resources
As of June 30, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of June 30, 2016, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. As of June 30, 2016 and December 31, 2015, we had $110.0 million and $109.5 million in outstanding borrowings under the credit facility, respectively.
For the six months ended June 30, 2016, our operating activities provided cash of $7.9 million primarily in connection with cash interest received and repayments of our investments, which was offset by the purchase and origination of portfolio investments. For the same period, our financing activities used cash of $8.0 million, due to distributions to stockholders paid during the period.
For the six months ended June 30, 2015 our operating activities provided cash of $2.6 million, primarily in connection with cash interest received and repayments of our investments, and our financing activities provided cash of $1.2 million, primarily related to the issuance of SBA debentures.
Distributions
During the three months ended June 30, 2016 and 2015, we declared distributions of $0.34 per share ($4.2 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.
Recent Portfolio Activity
New investment transactions and repayments which occurred during the three months ended June 30, 2016 are summarized as follows:
- Throughout the quarter, we received a total of $4.5 million in full repayment of the debtor-in-possession loan of Binder & Binder National Security and Disability Advocates, LLC.
- On May 23, 2016, we received full repayment of both the first lien and delayed draw term loans of Software Paradigms International Group, LLC at par plus a 2% prepayment premium for total proceeds of $9.8 million.
- On June 10, 2016, we made a $10.0 million investment in the first lien term loan of Furniture Factory Outlet, LLC. We invested an additional $0.1 million in the unsecured term loan and $0.1 million in the equity of the company as well.
- On June 30, 2016, we made a $1.25 million investment in the second lien term loan of Keais Records Service, LLC.
- On June 30, 2016, we made a $1.25 million investment in the unsecured term loan of Wise Holding Corporation. In addition, we invested $0.1 million in the equity of the company.
Events Subsequent to June 30, 2016
Investment Portfolio
On July 5, 2016 and July 19, 2016, we funded $0.3 million and $0.1 million, respectively, of the revolver of HUF Worldwide, LLC.
On July 15, 2016, we made a $2.6 million investment in the first lien term loan of Good Source Solutions, Inc. Additionally, we invested $0.2 million in the company's equity.
Credit Facility
The outstanding balance under the Credit Facility as of August 3, 2016 was $103.0 million.
Conference Call Information
Stellus Capital Investment Corporation will host a conference call to discuss these results on August 5, 2016, at 10:00 a.m. 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 888-359-3624 (domestic). Use passcode 3493477. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through August 13, 2016 by dialing (888) 203-1112 and entering passcode 3493477. The replay will also be available on the company's website.
PART I - FINANCIAL INFORMATION
STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
June 30, December 31,
2016 2015
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ASSETS
Non-controlled, non-affiliated investments,
at fair value (amortized cost of
$366,819,533 and $364,212,459,
respectively) $ 350,809,617 $ 349,017,697
Cash and cash equivalents 10,834,194 10,875,790
Receivable for sales and repayments of
investments - 10,000
Interest receivable 4,197,307 4,720,031
Deferred offering costs - 261,761
Accounts receivable - 7,684
Prepaid expenses 297,699 475,449
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Total Assets $ 366,138,817 $ 365,368,412
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LIABILITIES
Notes Payable, net of deferred financing
costs $ 24,469,817 $ 24,381,108
Credit facility payable, net of prepaid loan
structure fees 108,958,219 108,197,373
SBA Debentures, net of prepaid loan fees 63,178,049 63,015,846
Dividends payable 1,413,982 1,413,982
Base management fees payable 1,550,841 1,518,779
Incentive fees payable 1,319,029 607,956
Interest payable 842,369 570,189
Directors' fees payable 86,000 -
Unearned revenue 23,593 36,877
Administrative services payable 234,248 397,799
Deferred tax liability 59,572 381,723
Other accrued expenses and liabilities 282,597 195,676
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Total Liabilities $ 202,418,316 $ 200,717,308
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Commitments and contingencies (Note 5)
Net Assets $ 163,720,501 $ 164,651,104
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NET ASSETS
Common Stock, par value $0.001 per share
(100,000,000 shares authorized, 12,479,959
and 12,479,960 shares issued and
outstanding, respectively) $ 12,480 $ 12,480
Paid-in capital 180,994,749 180,994,752
Accumulated undistributed net realized gain 2,380 -
Distributions in excess of net investment
income (1,219,620) (779,643)
Net unrealized depreciation on investments
and cash equivalents, net of provision for
taxes of $59,572 and $381,723,
respectively. (16,069,488) (15,576,485)
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Net Assets $ 163,720,501 $ 164,651,104
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Total Liabilities and Net Assets $ 366,138,817 $ 365,368,412
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Net Asset Value Per Share $ 13.12 $ 13.19
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the
For the three For the For the
three months months six months six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
------------------------ ------------------------
INVESTMENT INCOME
Interest income $ 9,328,416 $ 8,635,047 $18,703,153 $17,266,343
Other income 294,753 55,415 387,849 138,210
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Total Investment
Income $ 9,623,169 $ 8,690,462 $19,091,002 $17,404,553
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OPERATING EXPENSES
Management fees $ 1,550,841 $ 1,446,330 $ 3,099,214 $ 2,860,464
Valuation fees 67,701 41,324 200,167 188,799
Administrative
services expenses 250,627 296,827 537,927 576,027
Incentive fees 986,276 998,871 2,011,098 1,959,725
Professional fees 195,203 67,794 387,314 362,355
Directors' fees 86,000 95,000 178,000 184,000
Insurance expense 118,027 118,242 236,053 235,186
Interest expense and
other fees 2,015,189 1,514,055 3,895,032 2,964,547
Deferred offering
costs 261,761 - 261,761 -
Other general and
administrative
expenses 146,442 116,532 240,044 234,548
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Total Operating
Expenses $ 5,678,067 $ 4,694,975 $11,046,610 $ 9,565,651
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Net Investment
Income $ 3,945,102 $ 3,995,487 $ 8,044,392 $ 7,838,902
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Net Realized Gain on
Investments and
Cash Equivalents $ 1,486 $ 289,548 $ 2,380 $ 292,717
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Net Change in
Unrealized
Appreciation
(Depreciation) on
Investments and
Cash Equivalents $ 928,520 $ (236,062) $ (815,154) $ 1,377,006
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Benefit (provision)
for taxes on
unrealized gain on
investments $ 154,812 $ (47,980) $ 322,151 $ (114,258)
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Net Increase in Net
Assets Resulting
from Operations $ 5,029,920 $ 4,000,993 $ 7,553,769 $ 9,394,367
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Net Investment
Income Per Share $ 0.32 $ 0.32 $ 0.64 $ 0.63
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Net Increase
(Decrease) in Net
Assets Resulting
from Operations Per
Share $ 0.41 $ 0.32 $ 0.61 $ 0.75
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Weighted Average
Shares of Common
Stock Outstanding 12,479,959 12,479,962 12,479,959 12,479,962
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Distributions Per
Share $ 0.34 $ 0.34 $ 0.68 $ 0.68
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
For the For the
six months six months
ended ended
June 30, June 30,
2016 2015
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Increase in Net Assets Resulting from
Operations
Net investment income $ 8,044,392 $ 7,838,902
Net realized gain on investments and cash
equivalents 2,380 292,717
Net change in unrealized appreciation
(depreciation) on investments and cash
equivalents (815,154) 1,377,006
Benefit (provision) for taxes on unrealized
appreciation on investments 322,151 (114,258)
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Net Increase in Net Assets Resulting from
Operations $ 7,553,769 $ 9,394,367
Stockholder distributions from:
Net investment income (8,484,372) (8,484,513)
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Total Distributions $ (8,484,372) $ (8,484,513)
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Total increase (decrease) in net assets $ (930,603) $ 909,854
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Net assets at beginning of period $ 164,651,104 $ 173,949,452
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Net assets at end of period (includes
$1,219,620 and $1,425,235 of distributions
in excess of net investment income,
respectively) $ 163,720,501 $ 174,859,306
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STELLUS CAPITAL INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the For the
six months six months
ended ended
June 30, June 30,
2016 2015
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Cash flows from operating activities
Net increase in net assets resulting from
operations $ 7,553,769 $ 9,394,367
Adjustments to reconcile net increase in net
assets resulting from operations to net cash
provided by operating activities:
Purchases of investments (17,899,868) (59,970,381)
Proceeds from sales and repayments of
investments 15,972,633 53,942,696
Net change in unrealized depreciation
(appreciation) on investments 815,154 (1,377,006)
Deferred tax provision (benefit) (322,151) 114,258
Increase in investments due to PIK (109,619) (337,295)
Amortization of premium and accretion of
discount, net (557,840) (469,646)
Amortization of loan structure fees 260,846 260,094
Amortization of deferred financing costs 162,203 117,173
Amortization of loan fees on SBIC debentures 88,709 77,851
Net realized gain on investments (2,380) (292,717)
Deferred offering costs 261,761 -
Changes in other assets and liabilities
Increase (decrease) in interest receivable 522,724 989,471
Increase in accounts receivable 7,684 (185,336)
Decrease in prepaid expenses and fees 177,750 136,169
Increase in management fees payable 32,062 86,311
Increase in directors' fees payable 86,000 184,000
Increase (decrease) in incentive fees
payable 711,073 107,295
Increase (decrease) in administrative
services payable (163,551) (220,417)
Increase in interest payable 272,180 43,227
Decrease in unearned revenue (13,284) (113,213)
Increase (decrease) in other accrued
expenses and liabilities 86,921 92,185
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Net cash provided by operating activities $ 7,942,776 $ 2,579,086
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Cash flows from financing activities
Proceeds from SBA Debentures - 9,750,000
Financing costs paid on SBA Debentures - (561,438)
Stockholder distributions paid (8,484,372) (8,484,513)
Borrowings under credit facility 18,500,000 53,750,000
Repayments of credit facility (18,000,000) (53,250,000)
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Net cash provided (used) by financing activities $ (7,984,372) $ 1,204,049
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Net increase (decrease) in cash and cash
equivalents (41,596) 3,783,135
Cash and cash equivalents balance at beginning
of period 10,875,790 2,046,563
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Cash and cash equivalents balance at end of
period $ 10,834,194 $ 5,829,698
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Supplemental and non-cash financing activities
Interest expense paid $ 3,106,094 $ 2,461,204
ContactStellus Capital Investment CorporationW. Todd Huskinson(713) 292-5414Chief Financial [email protected]
Source: Stellus Capital Investment Corporation