Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended December 31, 2017 - 06.03.18 - News

HOUSTON, March 6, 2018

HIGHLIGHTS

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

As of

Portfolio results

December 31, 2017

ARIVA.DE Börsen-Geflüster

Kurse

Stellus Capital Investment

13,82 $

+0,66%

Total assets

$400.3

Investment portfolio, at fair value

$371.8

Net assets

$220.2

Weighted average yield on debt investments

10.8%

Net asset value per share

$13.81

Year

Quarter

ended

December 31,
2017

Portfolio activity

Total investments made, at par

$175.5

$55.3

Number of new investments

16

5

Repayments of investments, including amortization

$172.3

$38.9

Number of portfolio companies at end of period

48

Operating results

Total investment income

$39.6

$9.4

Net investment income

$18.0

$4.4

Net investment income per share

$1.21

$0.28

Net Investment income per share excluding loss on extinguishment of debt

$1.24

$0.28

Realized Gain / (Loss) per share

$0.31

$0.01

Regular distributions per share

$1.36

$0.34

Net increase in net assets from operations

$22.6

$4.9

Net increase in net assets from operations per share

$1.52

$0.31

"Since the end of 2016, we have achieved a number of objectives: strengthening our capital base, which will allow us to grow our investment portfolio to over $500 million, fully funding the equity capital of our SBIC subsidiary and covering our annual dividend through a combination of investment income and realized gains. On the capital front, we issued $43.1 million of equity in a secondary offering, $4.0 million in equity through our at-the-market program, $48.9 million of 5-year unsecured notes and modified our credit facility to extend the maturity and increase the amount available for borrowing. We earned $1.52 per share, including a realized gain of $0.31 per share, more than covering our $1.36 annual dividend. Net asset value per share increased from $13.69 to $13.81. Since year end, we have closed investments in three new and three existing portfolio companies totaling $62.4 million and have received no full repayments" said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the fourth quarter of 2017 with a portfolio of $371.8 million (at fair value) invested in 48 companies. As of December 31, 2017, our portfolio included approximately 38% of first lien debt, 48% of second lien debt, 7% of unsecured debt and 7% of equity investments at fair value. Our debt portfolio consisted of 87% floating rate investments (subject to interest rate floors) and 13% fixed rate investments. The average size of our portfolio company investments was $7.7 million at fair value, and our largest aggregate investment in a portfolio company was approximately $22.2 million at fair value. The weighted average yield on all of our debt investments as of December 31, 2017 was approximately 10.8%.

During the year ended December 31, 2017, we made $175.5 million of investments, at par, in fourteen new portfolio companies and two existing portfolio companies, and received $172.3 million in proceeds from repayments and amortization.

This compares to the portfolio as of December 31, 2016, which had a fair value of $365.6 million invested in 45 companies, comprised 31% of first lien debt, 45% of second lien debt, 19% of unsecured debt and 5% of equity investments at fair value. The weighted average yield on all of our debt investments as of December 31, 2016 was approximately 11.0%. The debt portfolio consisted of 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments.

Results of Operations

Investment income for the year ended December 31, 2017 and 2016, totaled $39.6 million and $39.5 million, respectively, most of which was interest income from portfolio company investments.

Operating expenses for the year ended December 31, 2017 and 2016, totaled $21.3 million and $22.2 million, respectively. For the same respective periods, base management fees totaled $6.3 million and $6.3 million, incentive fees totaled $2.9 million and $4.3 million, fees and expenses related to our borrowings of $7.9 million and $8.0 million respectively (including interest and amortization of deferred financing costs), administrative services expenses totaled $1.2 million and $1.0 million and other expenses totaled $3.0 and $2.6 million, respectively.

Net investment income was $18.0 million, or $1.21 per common share, and $17.3 million, or $1.39 per common share, based on weighted average common shares outstanding for years ended December 31, 2017 and 2016.

For the year ended December 31, 2017 and 2016, we had a realized gain of $4.7 million and a realized loss of $13.1 million respectively. The Company's investment portfolio had a net change in unrealized depreciation for the year ended December 31, 2017 of $0.02 million and a net change in unrealized appreciation for the year ended December 31, 2016, of $18.6 million.

Our net increase in net assets resulting from operations totaled $22.6 million and $23.2 million, or $1.52 and $1.86 per common share, based on weighted average common shares outstanding, for the year ended December 31, 2017 and 2016, respectively.

Liquidity and Capital Resources

For the year ended December 31, 2017, the Company issued 3,465,922 additional shares of common stock in connection with an equity capital raise in April 2017 and an at-the-market program, which began in the third quarter of the year. Gross proceeds resulting from the issuances totaled $48.7 million, and underwriting and other expenses related to the offering totaled $1.7 million. For the same period, our financing activities used cash of $3.3 million, which included distributions to stockholders of $20.3 million and net repayments of $75.3 million under the credit facility.

On August 21, 2017, the Company issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due 2022 (the "Notes"). On September 8, 2017, the Company issued an additional $6.38 million in aggregate principal amount of the Notes pursuant to a full exercise of the underwriters' overallotment option. The Notes will mature on September 15, 2022, and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after September 15, 2019 at a redemption price equal to 100% of the outstanding principal, plus accrued and unpaid interest. Interest is payable quarterly beginning December 15, 2017. The Company used all of the net proceeds from this offering to fully redeem the $25.0 million of 6.50% notes due 2019 and repay a portion of the amount outstanding under the existing credit facility.

On November 28, 2017, the Company drew $25.0 million in aggregate principal amount of debentures guaranteed by the U.S. Small Business Administration (SBA-guaranteed debentures). The SBA-guaranteed debentures will mature on March 21, 2028 with interest due biannually. The Company used all of the proceeds from this draw to repay a portion of the amount outstanding under the credit facility.

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

On October 11, 2017, the Company entered into a $140 million revolving credit facility with ZB, N.A., dba Amegy Bank, and various other lenders with a maturity date of October 10, 2021 (the "Credit Facility"). In conjunction with securing and entering into the Credit Facility, the Company terminated its senior secured revolving credit facility with SunTrust Bank (the "Original Facility"). The Credit Facility became effective as of October 10, 2017 and is materially the same as the Original Facility. The Company incurred upfront costs of approximately $1.2 million which were deferred and will be amortized over the four year term of the Credit Facility. As of December 31, 2017 and 2016, we had $40.8 million and $116.0 million in outstanding borrowings under the credit facilities, respectively.

On November 1, 2017, we entered into a custody agreement with our new custodian, ZB, N.A., dba, Amegy Bank. On November 2, 2017, we provided notice of termination of our prior custody agreement with State Street effective 60 days from the date of notice.

For the year ended December 31, 2017, our operating activities provided cash of $19.2 million primarily in connection with cash interest received and repayments of our investments.

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.

Distributions

During the three and twelve months ended December 31, 2017 and 2016, we declared aggregate distributions of $0.34 and $1.36 per share, $5.4 million and $4.2 million for the quarter ended and $20.3 million and $17.0 million for the year, respectively. Tax characteristics of all distributions were reported to stockholders on Form 1099-DIV. None of these distributions included a return of capital.

Recent Portfolio Activity

For the quarter ended December 31, 2017, the Company funded $55.3 million in four new and one existing portfolio companies and received $38.9 million from three repayments, ten pay downs, including amounts received from equity investments. The new investment transactions and repayments that occurred during the quarter are summarized as follows:

On November 21 and 27, 2017, we invested a total of $0.09 million in the equity of Apex Environmental Resources Holdings, LLC, an existing portfolio company.
On October 20, 2017, we received full repayment of the unsecured lien to Colford Capital Holdings, LLC, for proceeds of $19.5 million.
On December 15, 2017, we received full repayment of the first term loan of Huf Worldwide, LLC, for proceeds of $9.8 million and equity proceeds of $0.7 million.
On October 16, 2017, we invested $12.5 million in the second lien term loan of Magdata Intermediate Holdings, LLC, a provider of enterprise information management software and services.
On October 27, 2017, we invested $13.8 million in the second lien term loan of Condor Borrowing, LLC, (Comodo), a technology company that provides secure socket layer certificates. Additionally, we invested $0.5 million in the equity of the company.
On December 22, 2017, we invested $12.5 million in the first lien term loan of J.R. Watkins, LLC, a manufacturer and distributor of home and personal care products. We also committed to a $1.75 million revolver and invested $1.0 million in the equity of the company.
On December 22, 2017, we received full repayment of the unsecured term loan of SQAD, LLC, for proceeds of $7.3 million.
On December 22, 2017, we invested $15.0 million in the first lien term loan SQAD, LLC, a provider of media and planning software to advertisement agencies.

Subsequent Events

Portfolio Activity

On January 2, 2018, the Company invested $10.0 million in the second lien term loan of ICD Intermediate Holdco 2, LLC, a financial company that connects corporate treasury departments with money market and short duration bond funds. Additionally, the Company 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).
On January 30, 2018, the Company received a dividend of $1.35 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, an advisory services and specialized technology platform services company. 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.

Credit Facility

The outstanding balance under the credit facility as of March 2, 2018 was $83.1 million.

SBIC Subsidiary

During January 2018, the Company contributed $7.5 million to the SBIC Subsidiary, bringing total contributed capital to $75.0 million.

Dividend Reinvestment Program ("DRIP")

Since December 31, 2017, the Company has issued 7,932 shares through the DRIP.

Dividends Declared

On January 11, 2018, the Company's board of directors declared a regular monthly dividend for each of January, February and March 2018 as follows:

Declared

Ex-Dividend Date

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