Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended December 31, 2016. - 10.03.17 - News

HOUSTON, March 10, 2017

HIGHLIGHTS

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

As of

Portfolio results

December 31, 2016

Total assets

ARIVA.DE Börsen-Geflüster

Kurse

Stellus Capital Investment

13,242 €

-0,26%

Stellus Capital Investment Realtime-Chart

$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

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

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

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