News Press Releases

Stellus Capital Investment Corporation Reports Results for Its Fourth Fiscal Quarter Ended December 31, 2014

SCM | March 9, 2015

HOUSTON, TX--(Marketwired - March 09, 2015) - Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its fourth fiscal quarter ended December 31, 2014.


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

Portfolio results	As of December 31, 2014
Total assets	$327.1
Investment portfolio, at fair value	$316.0
Net assets	$173.9
Weighted average yield on debt investments	10.9%
Net asset value per share	$13.94

	Year ended December 31, 2014	Quarter ended December 31, 2014

Portfolio activity

Total investments made, at cost	$98.0	$39.5
Number of new investments	11	4
Repayments of investments, including amortization	$54.9	$5.3
Number of portfolio companies at end of period	32	32

Operating results

Total investment income	$32.3	$8.6
Net investment income	$16.5	$3.8
Net investment income per share	$1.34	$0.30
Regular dividends declared per share	$1.36	$0.34
Net increase in net assets from operations	$10.2	$1.0
Net increase in net assets from operations per share	$0.83	$0.08
Weighted average shares outstanding during the period	12,281,178	12,477,925

"We are pleased to have completed our second full fiscal year of operations in which we covered our regular dividend through net investment income and realized gains, and paid a special dividend of $0.065 per share. Additionally, we increased our portfolio by 16% with $98.0 million of fundings across 11 investments and strengthened our capital base in four ways. In May, we closed a public offering of $25.0 million of notes. In June, the Small Business Administration approved our application to operate as a Small Business Investment Company. We also established an at-the-market equity issuance program through which we raised $5.1 million of gross proceeds. Finally, we amended our Credit Facility, which extended the maturity date by approximately two years and reduced the applicable margin rate for LIBOR-based loans," said Robert T. Ladd, Chief Executive Officer of Stellus.

Portfolio and Investment Activity

We completed the fourth quarter of 2014 with a portfolio of $316.0 million (at fair value) invested in 32 companies. As of December 31, 2014, our portfolio included approximately 24% of first lien debt, 32% of second lien debt, 41% of mezzanine debt and 3% of equity investments at fair value. Our debt portfolio consisted of 44% fixed rate investments and 56% floating rate investments (subject to interest rate floors). The average size of our portfolio company investments was $9.9 million and our largest portfolio company investment was approximately $22.9 million at fair value. The weighted average yield on all of our debt investments as of December 31, 2014 was approximately 10.9%.

During the three months ended December 31, 2014, we made $39.5 million of investments in four new portfolio companies and two existing portfolio companies and received $5.3 million of proceeds principally from the partial sale of one investment, including $0.4 million from amortization of certain other investments.

This compares to the portfolio as of December 31, 2013, which had a fair value of $277.5 million invested in 26 companies comprising 17% of first lien debt, 43% of second lien debt, 38% of mezzanine debt and 2% of equity investments at fair value. As of December 31, 2013, our debt investments had a weighted average yield of 11.4% and consisted of 42% fixed rate investments and 58% floating rate investments (subject to interest rate floors).

Results of Operations

Investment income for the three months ended December 31, 2014 and 2013 totaled $8.6 million and $7.7 million, respectively, most of which was interest income from portfolio investments. For the years ended December 31, 2014 and 2013, investment income was $32.3 million and $29.4 million, respectively, most of which was interest income from portfolio investments.

Operating expenses, net of fee waivers for the three months ended December 31, 2014 and 2013 totaled $4.8 million and $3.5 million, respectively. For the same respective periods, base management fees totaled $1.4 million and $1.2 million, incentive fees totaled $0.9 million and $0.6 million (net of $0.3 million of fees waived by the manager), fees and expenses related to our borrowings totaled $1.5 million and $0.9 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.3 million and $0.2 million and other expenses totaled $0.7 million and $0.6 million.

Operating expenses, net of fee waivers for the years ended December 31, 2014 and 2013 totaled $15.8 million and $13.4 million, respectively. For the same respective periods, base management fees totaled $5.2 million and $4.2 million, incentive fees totaled $1.7 million (net of $1.4 million of fees waived by the manager) and $2.9 million (net of $1.0 million of fees waived by the manager), fees and expenses related to our borrowings totaled $5.3 million and $3.1 million (including interest and amortization of deferred financing costs), administrative expenses totaled $1.2 million and $0.9 million and other expenses totaled $2.4 million and $2.3 million.

Net investment income was $3.8 million and $4.2 million, or $0.30 and $0.35 per common share based on weighted average common shares outstanding for the three months ended December 31, 2014 and 2013, respectively.

For the years ended December 31, 2014 and 2013, net investment income was $16.5 million and $16.0 million, or $1.34 and $1.33 per common share based on weighted average common shares outstanding, respectively.

The Company's investment portfolio had unrealized depreciation for the three months ended December 31, 2014 and 2013, of $2.7 million and $0.5 million, respectively. The company had no material realized gains for either period.

The Company's investment portfolio had unrealized appreciation (depreciation) for the years ended December 31, 2014 and 2013, of $(6.5) million and $0.5 million, respectively. During the same periods, the Company's investment portfolio had realized gains of $0.4 million and $1.0 million, respectively.

Our net increase in net assets resulting from operations totaled $1.0 million and $3.7 million, or $0.08 and $0.30 per common share based on weighted average common shares outstanding, for the three months ended December 31, 2014 and 2013, respectively. For the years ended December 31, 2014 and 2013, our net increase in net assets resulting from operations totaled $10.2 million and $17.5 million, or $0.83 and $1.45 per common share based on weighted average common shares outstanding, for the years ended December 31, 2014 and 2013, respectively.

Liquidity and Capital Resources

Our liquidity and capital resources are derived from our committed 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, 2014 and 2013, our credit facility provided for borrowings in an aggregate amount up to $120 million and $135 million, respectively, on a committed basis. As of December 31, 2014, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195 million. On November 21, 2014, we entered into a First Amendment to extend the maturity date of the credit facility, reduce the margin rate, and reduce the initial aggregate commitments to $120 million with an accordion feature which allows for potential future expansion of the facility size to $195 million. As of December 31, 2014 and 2013, we had $106.5 million and $110.0 million, respectively, in outstanding borrowings under the credit facility.

For the year ended December 31, 2014, our operating activities used cash of $27.2 million primarily in connection with the acquisition of new investments. For the same period, our financing activities provided net cash of $15.6 million, primarily from the draws under the SBA-guaranteed debenture program.

For the year ended December 31, 2013, our operating activities used cash of $68.4 million primarily in connection with the purchase of investments. Our financing activities provided cash of $19.9 million, which included $72 million of net borrowings under the credit facility.

Distributions

During the three and twelve months ended December 31, 2014, 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. In addition, we paid a special dividend of $0.065 per share during the year related to realized gains from 2013.

Recent Portfolio Activity

New investment transactions and repayments which occurred during the three months ended December 31, 2014 are summarized as follows:

On October 21, 2014, we made a $7.4 million investment in the first lien loan of Hollander Sleep Products, a bed product manufacturer. We also invested $0.25 million in the equity of the company.
On October 22, 2014, we made a $15.2 million investment in the first lien loan of Huf Distribution Corporation, a designer and distributer of apparel. We also committed to fund a $1.75 million revolver and invested $0.5 million in the equity of the company.
On October 23, 2014, we made a $3.9 million investment in the second lien loan of Zemax, LLC, a provider of optical and illumination design software. We also invested $0.25 million in the equity of the company.
On December 31, 2014, we made a $3.4 million investment in the first lien term loan of EOS Fitness Opco Holdings, LLC, a health club franchise operator in the United States. We also invested $0.1 million in the equity of the company.
On October 3 and November 4, respectively, we made follow on investments of $2.5 and $4.9 million in the debt of SKOPOS. We also invested an additional $0.1 million in the company's equity.
On December 9, 2014, we made a follow on funding of $1.0 million in the delayed draw term loan of Colford Capital. The $3.0 million unfunded commitment to this delayed draw term loan expired on December 31, 2014.

Events Subsequent to December 31, 2014

Since December 31, 2014, we made two new investments totaling $16.0 million, two follow on investments totaling $4.7 million, and received one repayment of $16.9 million which brings the investment portfolio to approximately $330 million (at par) and the average investment per company to $10.0 million at par as of March 4, 2015.

The following changes to the portfolio have occurred since year end:

The $7.5 million unfunded commitment to Empirix, Inc. expired on February 1, 2015.
On February 6, 2015, we made a $5.0 million investment in the second lien term loan of GK Holdings, Inc.
On February 12, 2015, we received full repayment on the unsecured term loan of the Studer Group, LLC at par resulting in total proceeds of $16.9 million.
On February 19, 2015, we made a $10.0 million investment in the second lien term loan of NetMotion Wireless, Inc. We also invested $1.0 million in the company's equity.
On March 4, 2015, we made an additional $0.2 million equity investment in Skopos Financial Group, LLC.
On March 4, 2015, we invested $4.5 million in the debtor-in-possession financing of Binder & Binder.

Credit Facility

The outstanding balance under the Credit Facility as of March 4, 2015 was $108.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on March 10, 2015, 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) 364-3109 (domestic). Use passcode 5971730. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through March 18, 2015 by dialing (888) 203-1112 and entering passcode 5971730. The replay will also be available on the company's website.


STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

			December 31, 2014			December 31, 2013
ASSETS
	Non-controlled, non-affiliated investments, at fair value (amortized cost of $321,955,480 and $277,004,466, respectively)		$	315,965,434		$	277,504,510
	Cash and cash equivalents			2,046,563			13,663,542
	Interest receivable			5,082,665			4,713,912
	Deferred offering costs			261,761			205,165
	Deferred financing costs			828,956			-
	Accounts receivable			696			-
	Receivable for affiliated transaction			-			43,450
	Prepaid loan fees on SBA Debentures			681,947			-
	Prepaid loan structure fees			1,774,630			1,586,405
	Prepaid expenses			419,283			411,321
		Total Assets	$	327,061,935		$	298,128,305
LIABILITIES
	Notes Payable			25,000,000			-
	Credit facility payable			106,500,000			110,000,000
	SBA Debentures			16,250,000			-
	Short-term loan			-			9,000,000
	Dividends payable			1,413,983			-
	Base management fees payable			1,360,019			1,176,730
	Incentive fees payable			1,121,556			1,056,942
	Interest payable			346,204			234,051
	Directors' fees payable			-			96,000
	Unearned revenue			157,403			146,965
	Deferred tax liability			288,122			-
	Administrative services payable			591,744			263,225
	Other accrued expenses and liabilities			83,452			262,878
		Total Liabilities		153,112,483			122,236,791
Commitments and contingencies (Note 7)
Net Assets			$	173,949,452		$	175,891,514
NET ASSETS
	Common Stock, par value $0.001 per share (100,000,000 shares authorized, 12,479,962 and 12,099,022 shares issued and outstanding, as of December 31, 2014 and December 31, 2013 respectively)		$	12,480		$	12,099
	Paid-in capital			180,994,783			175,614,738
	Accumulated undistributed net realized gain			-			1,027,392
	Distributions in excess of net investment income			(779,643	)		(1,262,659	)
	Net unrealized appreciation (depreciation) on investments and cash equivalents, net of provision for taxes of $288,122 and $0 as of December 31, 2014 and December 31, 2013, respectively			(6,278,168	)		499,944
Net Assets			$	173,949,452		$	175,891,514
		Total Liabilities and Net Assets	$	327,061,935		$	298,128,305
		Net Asset Value Per Share	$	13.94		$	14.54

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

			For the year ended December 31, 2014			For the year ended December 31, 2013			For the period from Inception (May 18, 2012) through December 31, 2012
INVESTMENT INCOME
	Interest income		$	31,637,094		$	27,995,486		$	3,696,432
	Other income			687,753			1,405,250			-
		Total Investment Income		32,324,847			29,400,736			3,696,432
OPERATING EXPENSES
	Management fees		$	5,202,990		$	4,242,608		$	527,034
	Valuation fees			384,957			497,228			184,500
	Administrative services expenses			1,195,566			883,050			103,482
	Incentive fees			3,122,890			3,816,840			-
	Professional fees			744,547			649,863			734,365
	Directors' fees			374,509			350,000			109,439
	Insurance expense			482,963			468,046			79,279
	Interest expense and other fees			5,315,325			3,123,701			282,629
	Credit facility fees			-			-			317,594
	Other general and administrative expenses			388,229			314,196			53,754
		Total Operating Expenses		17,211,976			14,345,532			2,392,076
Waiver of Incentive Fees				(1,399,226	)		(956,525	)		-
		Total expenses, net of fee waivers		15,812,750			13,389,007			1,304,356
		Net Investment Income		16,512,097			16,011,729			1,304,356
		Net Realized Gain on Investments and Cash Equivalents		445,157			1,027,392			-
		Net Change in Unrealized Appreciation (Depreciation) on Investments and Cash Equivalents		(6,489,990	)		505,876			(5,932	)
		Benefit/(Provision) for taxes on unrealized gain on investments		(288,122	)		-			-
		Net Increase in Net Assets Resulting from Operations	$	10,179,142		$	17,544,997		$	1,298,424
		Net Investment Income Per Share	$	1.34		$	1.33		$	0.11
		Net Increase in Net Assets Resulting from Operations Per Share	$	0.83		$	1.45		$	0.11
		Weighted Average Shares of Common Stock Outstanding		12,281,178			12,059,293			12,035,023

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

	For the year ended December 31, 2014				For the year ended December 31, 2013			For the period from Inception (May 18, 2012) through December 31, 2012

Increase in Net Assets Resulting from Operations
Net investment income	$	16,512,097		$	16,011,729		$	1,304,356
Net realized gain on investments and cash equivalents		445,157			1,027,392			-
Net change in unrealized appreciation (depreciation) on investments and cash equivalents		(6,489,990	)		505,876			(5,932	)
Benefits/(Provision) for taxes on unrealized gain on investments		(288,122	)		-			-
Net Increase in Net Assets Resulting from Operations		10,179,142			17,544,997			1,298,424

Stockholder distributions from:
Net Investment Income	$	(16,029,081	)	$	(16,399,402	)	$	(2,179,342	)
Net realized capital gains	$	(1,472,549	)	$	-		$	-
Net decrease in net assets resulting from stockholder distributions		(17,501,630	)		(16,399,402	)		(2,179,342	)

Capital share transactions
Issuance of common stock		5,087,335			-			180,409,145
Reinvestments of stockholder distributions		398,505			899,964			112,948
Sales load		(75,510	)		-			(4,959,720	)
Offering costs		(29,904	)		-			(835,500	)
Net increase in net assets resulting from capital share transactions		5,380,426			899,964			174,726,873
Total increase (decrease) in net assets		(1,942,062	)		2,045,559			173,845,955
Net assets at beginning of year/period		175,891,514			173,845,955			-
Net assets at end of year/period (includes $799,643, $1,262,659 and $874,986 of distributions in excess of net investment income)	$	173,949,452		$	175,891,514		$	173,845,955

Distributions per share	$	1.43		$	1.36		$	0.18

STELLUS CAPITAL INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

			For the year ended December 31, 2014				For the year ended December 31, 2013			For the period from Inception (May 18, 2012) through December 31, 2012

Cash flows from operating activities
Net increase in net assets resulting from operations			$	10,179,142		$	17,544,997		$	1,298,424
	Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:
		Purchases of investments		(97,954,324	)		(176,445,413	)		(232,708,419	)
		Proceeds from sales and repayments of investments		54,870,360			97,437,434			66,458,112
		Net change in unrealized (appreciation) depreciation on investments		6,490,090			(504,459	)		4,415
		Increase in investments due to PIK		(730,036	)		(1,073,588	)		(18,044	)
		Net amortization of premium and accretion of discount		(686,985	)		(436,582	)		(28,175	)
		Amortization of loan structure fees		607,404			568,086			67,595
		Amortization of deferred financing costs		90,614			-			-
		Amortization of loan fees on SBIC debentures		37,117			-			-
		Net realized gain on investments		(450,031	)		(1,030,646	)		-
	Changes in other assets and liabilities
		Increase in interest receivable		(368,753	)		(2,140,081	)		(2,573,831	)
		Decrease (increase) in receivable for affiliated transaction		43,450			(43,450	)		-
		Increase in accounts receivable		(696	)		-			-
		Increase (decrease) in prepaid expenses and fees		(7,962	)		27,063			(438,384	)
		Increase (decrease) in payable for investments purchased		-			(4,750,000	)		4,750,000
		Increase in management fees payable		183,289			649,696			527,034
		Increase (decrease) in directors' fees payable		(96,000	)		66,548			29,452
		Increase in incentive fees payable		64,614			1,056,942			-
		Increase in administrative services payable		328,519			-			-
		Increase in interest payable		112,153			167,574			66,477
		Increase in unearned revenue		10,438			146,965			-
		Increase in deferred tax liability		288,122			-			-
		Increase (decrease) in other accrued expenses and liabilities		(179,426	)		350,110			175,993
Net cash used in operating activities				(27,168,901	)		(68,408,804	)		(162,389,351	)
Cash flows from financing activities
		Borrowings on bridge note		-			-			156,000,000
		Payments on bridge note		-			-			(156,000,000	)
		Proceeds from notes issued		25,000,000			-			-
		Proceeds from SBA Debentures		16,250,000			-			-
		Financing costs paid on Notes issued		(919,570	)		-			-
		Financing costs paid on Credit Facility		(795,628	)		(206,671	)		(2,015,415	)
		Financing costs paid on SBA Debentures		(719,063	)		-			-
		Proceeds from the issuance of common stock		5,116,985			-			151,250,000
		Sales load for common stock issued		(75,510	)		-			(4,959,720	)
		Offering costs		(116,150	)		(352,288	)		(688,377	)
		Stockholder distributions paid		(15,689,142	)		(15,499,438	)		(2,066,394	)
		Borrowings under credit facility		105,250,000			159,000,000			71,000,000
		Repayments of credit facility		(108,750,000	)		(87,000,000	)		(33,000,000	)
		Repayments of short-term loan		(9,000,000	)		(85,000,576	)		45,000,943
		Borrowings on short-term loan		-			48,999,633
Net cash provided by financing activities				15,551,922			19,940,660			224,521,037
Net increase (decrease) in cash and cash equivalents				(11,616,979	)		(48,468,144	)		62,131,686
Cash and cash equivalents balance at beginning of year/period				13,663,542			62,131,686			-
Cash and cash equivalents balance at end of year/period			$	2,046,563		$	13,663,542		$	62,131,686
Supplemental and non-cash financing activities
		Purchase of portfolio companies through the issuance of common stock		-			-			29,159,145
		Accrued deferred offering costs		-			-			147,123
		Shares issued pursuant to Dividend Reinvestment Plan		398,505			899,964			112,948
		Interest expense paid		4,465,618			2,377,282			141,205

About Stellus Capital Investment Corporation

The Company is an externally-managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. The Company's investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation by investing primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien, second lien, unitranche and mezzanine debt financing, and corresponding equity investments. The Company's investment activities are managed by its investment adviser, Stellus Capital Management. To learn more about Stellus Capital Investment Corporation, visit www.stelluscapital.com under the Stellus Capital Investment Corporation link.

Forward Looking Statements

Statements included herein may contain "forward-looking statements" which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Available Information

Stellus' filings with the Securities and Exchange Commission, press releases, earnings release, and other financial information are available on its website at www.stelluscapital.com under the Stellus Capital Investment Corporation link.

Contact

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