Stellus Capital Investment Corporation
Mar 10, 2017
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Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended December 31, 2016.

HOUSTON, March 10, 2017 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its fourth fiscal quarter and year ended December 31, 2016.

HIGHLIGHTS



($ in millions, except data relating to per share amounts and number of portfolio companies)


As of


Portfolio results

December 31, 2016


Total assets

$379.9


Investment portfolio, at fair value

$365.6


Net assets

$170.9


Weighted average yield on debt investments on accrual

11.0%


Net asset value per share

$13.69



Year

Quarter


ended

ended


December 31, 2016

December 31, 2016

Portfolio activity



Total investments made, at par

$66.5

$28.7

Number of new investments

10

3

Repayments and sale of investments, including amortization

$56.0

$16.8

Number of portfolio companies at



end of period

45

45

Operating results



Total investment income

$39.5

$10.2

Net investment income

$17.3

$4.7

Net investment income per share

$1.39

$0.37

Realized Loss per share

$1.05

$0.98

Regular dividends declared per share

$1.36

$0.34

Net increase in net assets from operations

$23.2

$5.7

Net increase in net assets from operations per share

$1.86

$0.46

"We completed 2016 with net investment income of $1.39 per share, which comfortably covered our dividends of $1.36 per share, making 2016 the best year for net investment income in our Company's history. Net investment income for the fourth quarter of 2016 was $0.37 per share, which covered fourth quarter dividends by $0.03 per share," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the fourth quarter of 2016 with a portfolio of $365.6 million (at fair value) invested in 45 companies. As of December 31, 2016, our portfolio included approximately 31% of first lien debt, 45% of second lien debt, 19% of mezzanine debt and 5% of equity investments at fair value.  Our debt portfolio consisted of 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments. The average size of our portfolio company investments was $8.1 million and our largest aggregate investment in a portfolio company was approximately $23 million at fair value. The weighted average yield on all of our debt investments as of December 31, 2016 was approximately 11.0%.

During the year ended December 31, 2016, we made $28.7 million at par of investments in three new portfolio companies and received $16.8 million in proceeds from amortization and repayments 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, comprised 38% of first lien debt, 38% of second lien debt, 20% of mezzanine debt and 4% of equity investments at fair value. The weighted average yield on all of our debt investments as of December 31, 2015 was approximately 10.6%. The debt portfolio consisted of and 75% floating rate investments (subject to interest rate floors) and 25% fixed rate investments.

Results of Operations

Investment income for the year ended December 31, 2016 and 2015, totaled $39.5 million and $35.2 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the year ended December 31, 2016 and 2015, totaled $22.2 million and $19.3 million, respectively. For the same respective periods, base management fees totaled $6.3 million and $5.8 million, incentive fees totaled $4.3 million and $4.0 million, fees and expenses related to our borrowings totaled $8.0 million and $6.2 million (including interest and amortization of deferred financing costs), administrative expenses totaled $1.0 million for both periods and other expenses totaled $2.6 million and $2.2 million, respectively.

Net investment income was $17.3 million and $16.5 million, or $1.39 and $1.33 per common share based on weighted average common shares outstanding for the year ended December 31, 2016 and 2015, respectively.

For the year ended December 31, 2016 and 2015 the Company had a realized loss of ($13.1) million and a realized gain of $0.4 million, respectively. The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the year ended December 31, 2016 and 2015, of $18.6 million and ($9.2) million, respectively.  Included in the realized loss and the unrealized gain for the year ended December 31, 2016 is the reclassification of the $12.2 million loss on our term loan to Binder & Binder from an unrealized loss to a realized loss (refer to Recent Portfolio Activity, below).

Our net increase (decrease) in net assets resulting from operations totaled $23.2 million and $7.7 million, or $1.86 and $0.61 per common share based on weighted average common shares outstanding for the year ended December 31, 2016 and 2015, respectively.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our credit facility and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common stock. We used, and expect to continue to use, these capital resources as well as proceeds from any future public and private offerings of securities to finance our investment activities.

As of December 31, 2016 and 2015, our credit facility provided for borrowings in an aggregate amount up to $120 million on a committed basis. As of December 31, 2016 and 2015, we had $116 million and $109.5 million in outstanding borrowings under the credit facility, respectively.

For the year ended December 31, 2016, our operating activities provided cash of $8.8 million primarily in connection with cash interest received and repayments of our investments, which was slightly offset by the purchase and origination of portfolio investments.  For the same period, our financing activities used cash of $10.5 million, due to distributions to stockholders paid during the period.

For the year ended December 31, 2015, our operating activities used cash of $24.4 million, primarily in connection with the acquisition and origination of new investments. For the same period our financing activities provided cash of $33.3 million, primarily from the draws under the SBA-guaranteed debenture program.

Distributions

During the three and twelve months ended for both December 31, 2016 and 2015, we declared distributions of $0.34 and $1.36 per share respectively. 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 that occurred during the quarter ended December 31, 2016 are summarized as follows:

  • On October 11, 2016, we received full repayment on the second lien and unsecured term loans of NetMotion Wireless, Inc. at par plus a 1% prepayment premium for proceeds of $10.2 million. Additionally, we received proceeds of $1.0 million for the equity in Endpoint Security Holdings, LLC.
  • On October 21, 2016, we made a $5.9 million investment in the second lien term loan of TFH Reliability, LLC. Additionally, we invested $0.25 million in the company's equity.
  • On October 31, 2016, we made a $9 million investment in the second lien term loan of Mobileum, Inc. Additionally, we invested $0.75 million in the company's equity.
  • On November 28, 2016, we made a $5 million investment in the first lien term loan of Madison Logic, Inc. Additionally, we invested $0.5 million in the company's equity.
  • On December 22, 2016, we made an additional $6.5 million investment in the second lien term loan of Keais Records Service, LLC. Additionally, we invested $0.78 million in the company's equity.
  • In the fourth quarter of 2016, Binder & Binder emerged from Chapter 11 Bankruptcy in the U.S. Bankruptcy Court, Southern District of New York. The Company's investment in Binder & Binder was extinguished and has been replaced with a residual claim with a cost basis of $1 million which reflects the court-approved unsecured claim distribution proceeds that have been awarded to the Company. As of this time we do not expect to receive any additional repayment other than what the court has awarded.  As a result, the Company reclassified its previously-recorded unrealized loss in the investment to a realized loss.

Events Subsequent to December 31, 2016

Investment Portfolio

On January 5, 2017, we sold our position in Securus Technologies Holdings, Inc. for proceeds of $8.4 million.  We realized a loss of $41 thousand related to the sale.

On January 25, 2017, we received full repayment on the first lien term loan of Momentum Telecom, Inc. for proceeds of $15.3 million, including a $0.2 million premium.

On February 1, 2017, our first lien term loan in Glori Energy Production, Inc. was converted to an equity position at par plus accrued interest equal to $1.7 million.

On February 3, 2017, we invested $6.3 million in the unsecured term loan of Time Manufacturing, Inc., a global manufacturer of vehicle-mounted aerial lift equipment. Additionally, we invested $0.5 million in the equity of the company.

On February 8, 2017, we received full repayment on the second lien term loan of MTC Intermediate Holdco for proceeds of $10.4 million, including a $0.1 million premium. Additionally, we received $0.7 million in dividends for the equity in MTC Parent, LP.

On March 1, 2017, we received full repayment on the first lien term loan of 360 Holdings III Corp for proceeds of $4.0 million, including a small premium.

Credit Facility

The outstanding balance under the Credit Facility as of March 8, 2017 was $103.8 million.

Dividend Declared

On January 13, 2017, the Company's board of directors declared a regular monthly dividend for each of January, February and March 2017 as follows:

Declared

Ex-Dividend Date

Record Date

Payment Date

Amount Per Share

1/13/2017

1/27/2017

1/31/2017

2/15/2017

$0.1133

1/13/2017

2/24/2017

2/28/2017

3/15/2017

$0.1133

1/13/2017

3/29/2017

3/31/2017

4/14/2017

$0.1133

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on March 10, 2017, 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 888-224-1145 (domestic). Use passcode 4933699. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through March 18, 2017 by dialing (888) 203-1112 and entering passcode 4933699. The replay will also be available on the company's website.

Contact
Stellus Capital Investment Corporation
W. Todd Huskinson, (713) 292-5414
Chief Financial Officer
thuskinson@stelluscapital.com  

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES




December 31,



December 31,



2016



2015

ASSETS







Non-controlled, non-affiliated investments, at fair value(amortized cost of $362,217,251 and $364,212,459, respectively)


$

365,625,891


$

349,017,697

Cash and cash equivalents



9,194,129



10,875,790

Receivable for sales and repayments of investments





10,000

Interest receivable



4,601,742



4,720,031

Deferred offering costs





261,761

Accounts receivable



748



7,684

Prepaid expenses



456,219



475,449

Total Assets


$

379,878,729


$

365,368,412

LIABILITIES







Notes Payable


$

24,565,891


$

24,381,108

Credit facility payable



115,171,208



108,197,373

SBA Debentures



63,342,036



63,015,846

Dividends payable



1,413,982



1,413,982

Base management fees payable



1,608,295



1,518,779

Incentive fees payable



1,353,271



607,956

Interest payable



973,812



570,189

Unearned revenue



19,955



36,877

Administrative services payable



272,511



397,799

Deferred tax liability



8,593



381,723

Other accrued expenses and liabilities



267,390



195,676

Total Liabilities


$

208,996,944


$

200,717,308

Commitments and contingencies







Net Assets


$

170,881,785


$

164,651,104

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



180,994,723



180,994,752

Accumulated undistributed net realized loss



(13,089,671)



Distributions in excess of net investment income



(435,794)



(779,643)

Net unrealized appreciation (depreciation) on investments and cash equivalents, net of provision for taxes of $8,593 and $381,723 as of December 31, 2016 and 2015 respectively.



3,400,047



(15,576,485)

Net Assets


$

170,881,785


$

164,651,104

Total Liabilities and Net Assets


$

379,878,729


$

365,368,412

Net Asset Value Per Share


$

13.69


$

13.19


 

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS




For the year
ended
December 31,
2016



For the year
ended
December 31,
2015



For the year
ended
December 31,
2014



















INVESTMENT INCOME




Interest income

$

38,176,617


$

34,643,791


$

31,637,094

Other income


1,313,580



514,768



687,753

Total Investment Income

$

39,490,197


$

35,158,559


$

32,324,847

OPERATING EXPENSES









Management fees

$

6,281,863



5,841,267



5,202,990

Valuation fees


397,330



356,971



384,957

Administrative services expenses


1,045,648



1,029,368



1,195,566

Incentive fees


4,275,436



3,975,198



3,122,890

Professional fees


712,524



596,357



744,547

Directors' fees


324,000



333,000



373,000

Insurance expense


471,427



473,963



482,963

Interest expense and other fees


7,992,185



6,177,015



5,315,325

Deferred offering costs


261,761





Other general and administrative expenses


415,822



474,625



389,738

Total Operating Expenses

$

22,177,996


$

19,257,764


$

17,211,976

Waiver of Incentive Fees




(646,333)



(1,399,226)

Total expenses, net of fee waiver


22,177,996



18,611,431



15,812,750

Net Investment Income

$

17,312,201


$

16,547,128


$

16,512,097

Net Realized Gain (Loss) on Investments and Cash Equivalents


(13,089,671)



421,726



445,157

Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents


18,603,401



(9,204,717)



(6,489,990)

Benefit (provision) for taxes on unrealized gain on investments


373,131



(93,601)



(288,122)

Net Increase in Net Assets Resulting from Operations

$

23,199,062


$

7,670,536


$

10,179,142

Net Investment Income Per Share

$

1.39


$

1.33


$

1.34

Net Increase in Net Assets Resulting from Operations Per Share

$

1.86


$

0.61


$

0.83

Weighted Average Shares of Common Stock Outstanding


12,479,959



12,479,961



12,281,178

Distributions Per Share

$

1.36


$

1.36


$

1.43


 

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS




For the year
ended
December 31,
2016



For the year
ended
December 31,
2015



For the year
ended
December 31,
2014



















Increase in Net Assets Resulting from Operations









Net investment income

$

17,312,201


$

16,547,128


$

16,512,097

Net realized gain (loss) on investments and cash equivalents


(13,089,671)



421,726



445,157

Net change in unrealized appreciation (depreciation) on investments and cash equivalents


18,603,401



(9,204,717)



(6,489,990)

Benefit (provision) for taxes on net realized loss or unrealized depreciation (appreciation) on investments at Taxable Subsidiaries


373,131



(93,601)



(288,122)

Net Increase in Net Assets Resulting from Operations

$

23,199,062


$

7,670,536


$

10,179,142

Stockholder distributions from:









Net investment income


(16,968,350)



(16,547,158)



(16,029,081)

Net realized capital gains




(421,726)



(1,472,549)

Total Distributions

$

(16,968,350)


$

(16,968,884)


$

(17,501,630)

Capital share transactions









Issuance of common stock






5,087,335

Reinvestments of stockholder distributions






398,505

Sales load






(75,510)

Offering costs






(29,904)

Partial Share Redemption


(31)





Net increase in net assets resulting from capital share transactions

$

(31)


$


$

5,380,426

Total increase (decrease) in net assets

$

6,230,681


$

(9,298,348)


$

(1,942,062)

Net assets at beginning of year/period

$

164,651,104


$

173,949,452


$

175,891,514

Net assets at end of year/period (includes $435,794 and $779,643 and $779,643 of distributions in excess of net investment income, respectively)

$

170,881,785


$

164,651,104


$

173,949,452


 

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the year
ended
December 31,
2016


 

For the year
ended
December 31,
2015



For the year
ended
December 31,
2014










Cash flows from operating activities









Net increase in net assets resulting from operations

$

23,199,062


$

7,670,536


$

10,179,142

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:









Purchases of investments


(65,661,034)



(133,661,491)



(97,954,324)

Proceeds from sales and repayments of investments


55,949,177



93,289,529



54,870,360

Net change in unrealized appreciation (depreciation) on investments


(18,603,401)



9,204,717



6,490,090

Deferred tax provision (benefit)


(373,131)



93,601



288,122

Increase in investments due to PIK


(243,766)



(439,052)



(730,036)

Amortization of premium and accretion of discount, net


(1,128,511)



(1,034,240)



(686,985)

Amortization of loan structure fees


523,835



472,003



607,404

Amortization of deferred financing costs


326,190



210,064



90,614

Amortization of loan fees on SBIC debentures


184,783



204,980



37,117

Net realized loss (gain) on investments


13,089,341



(421,726)



(450,031)

Deferred offering costs


261,761





Changes in other assets and liabilities









Decrease (increase) in interest receivable


118,289



362,634



(368,753)

Decrease in receivable for affiliated transaction






43,450

(Increase) Decrease in accounts receivable


6,936



(6,988)



(696)

Decrease (increase) in prepaid expenses and fees


19,230



(56,166)



(7,962)

Increase in Management Fees


89,516



158,760



183,289

Decrease in directors' fees payable






(96,000)

Increase (decrease) in incentive fees payable


745,315



(513,600)



64,614

Increase (decrease) in administrative services payable


(125,288)



(193,945)



328,519

Increase in interest payable


403,623



223,985



112,153

Increase (decrease) in unearned revenue


(16,921)



(120,526)



10,438

Increase (decrease) in other accrued expenses and liabilities


71,714



112,224



(179,426)

Net cash provided by (used in) operating activities

$

8,836,720


$

(24,444,701)


$

(27,168,901)

Cash flows from financing activities









Proceeds from notes issued






25,000,000

Proceeds from SBA Debentures




47,567,813



15,855,937

Financing costs paid on notes issued






(919,570)

Financing costs paid on Credit Facility


(50,000)





(795,628)

Financing costs paid on SBA Debentures




(325,000)



(325,000)

Proceeds from the issuance of common stock






5,116,985

Sales load for common stock issued






(75,510)

Offering costs paid for common stock issued






(116,150)

Stockholder distributions paid


(16,968,350)



(16,968,885)



(15,689,142)

Borrowings under credit facility


56,500,000



105,000,000



105,250,000

Repayments of credit facility


(50,000,000)



(102,000,000)


(108,750,000)

Repayments of short-term loan






(9,000,000)

Partial Share Redemption


(31)





Net cash provided by (used in) financing activities

$

(10,518,381)


$

33,273,928


$

15,551,922

Net increase (decrease) in cash and cash equivalents


(1,681,661)



8,829,227



(11,616,979)

Cash and cash equivalents balance at beginning of year/period


10,875,790



2,046,563



13,663,542

Cash and cash equivalents balance at end of year/period

$

9,194,129


$

10,875,790


$

2,046,563

Supplemental and non-cash financing activities









Non-cash purchase of investment through repayment of investment

$


$

4,251,032


$

Fees paid on SBA Debentures through proceeds

$


$

1,182,187


$

394,063

Shares issued pursuant to Dividend Reinvestment Plan

$


$


$

398,505

Interest expense paid

$

6,548,754


$

5,010,984


$

4,465,618

 

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SOURCE Stellus Capital Investment Corporation

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