Group 1 - Business Development Companies (BDCs) remain attractive for investors due to the higher interest rate environment, but many are beginning to experience pressure from these elevated rates [1] - Stellus Capital Investment Corporation is highlighted as a specific example within the BDC sector [1] - A hybrid investment strategy combining classic dividend growth stocks, BDCs, REITs, and Closed-End Funds can enhance investment income while achieving total returns comparable to traditional index funds like the S&P [1]

Financial Data and Key Metrics Changes - For Q2 2025, the company generated GAAP net investment income of $0.34 per share and core net investment income of $0.35 per share, which excludes estimated excise taxes [6] - Net asset value per share decreased by $0.04 during the quarter due to a reduction in spillover income [6] - The investment portfolio at fair value was $985.9 million, slightly down from $991 million in Q1 2025 [7] Business Line Data and Key Metrics Changes - The company invested $15.4 million in three new portfolio companies during the quarter and had $7.4 million in other investment activity at par [7] - Two full repayments totaled $21.7 million, with an additional $10.4 million of other repayments, all at par [7] - 98% of loans were secured, and 91% were priced at floating rates [8] Market Data and Key Metrics Changes - The company ended the quarter with loans to five portfolio companies on nonaccrual, comprising 6.8% of total cost and 3.8% of fair value, representing a decrease from the prior quarter [9] - The average loan per company was $9.2 million, with the largest overall investment at $21.2 million [8] Company Strategy and Development Direction - The company expects to see more equity realizations in the second half of the year, estimating $12 million in proceeds and approximately $10 million in gains [11] - The company plans to continue funding qualifying portfolio company investments through new leverage under the SBIC III license [9] Management's Comments on Operating Environment and Future Outlook - Management noted a meaningful pickup in investment activity and M&A activity, indicating a busy second half of the year [10] - The company anticipates being able to grow the portfolio despite expected repayments, with a robust pipeline of opportunities [30][41] Other Important Information - The company has paid $306 million in dividends since its IPO, representing $17.35 per share to an investor in the IPO [6] - The company has received a green light letter from the Small Business Administration for SBIC III, which is an important step in the process [9] Q&A Session Summary Question: How much spillover is there left over and what's the strategy in terms of increasing leverage to cover the dividend? - The company has just under $45 million of spillover to work off through the dividend, expecting it to be about $38 million next year [17] - Current leverage is about 0.9 on a regulatory test and total leverage for GAAP is about 1.7 times, with a target leverage of about one to one [19] Question: How is the pipeline looking for the remainder of the year and where are the opportunities? - The company has seen a significant increase in M&A activity and expects to continue growing the portfolio with a robust pipeline of actionable opportunities [28][30] Question: Any insight into potential resolutions or progress with the current non-accrual list? - The company is working through the non-accruals, all backed by private equity firms, and had no new non-accruals this quarter [31] Question: What is the level of confidence on realizing potential equity realizations this year? - The company has a high likelihood of realizing the forecasted equity realizations as the businesses are actively marketed and well-performing [36] Question: How much of the portfolio rated three or lower is the company seriously nervous about? - The company expects to receive all principal and associated income from the portfolio rated three or lower, indicating a positive outlook [39]

分组1 - Stellus Capital reported quarterly earnings of $0.35 per share, matching the Zacks Consensus Estimate, but down from $0.50 per share a year ago [1] - The company posted revenues of $25.7 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 0.18%, but down from $26.63 million year-over-year [2] - Stellus Capital shares have increased by approximately 1.8% since the beginning of the year, compared to a 7.1% gain in the S&P 500 [3] 分组2 - The earnings outlook for Stellus Capital is uncertain, with current consensus EPS estimates at $0.31 for the coming quarter and $1.35 for the current fiscal year [7] - The Zacks Industry Rank for Financial - SBIC & Commercial Industry is in the top 41% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] 分组3 - The estimate revisions trend for Stellus Capital was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, suggesting it will perform in line with the market [6]

Financial Performance - Stellus Capital Investment Corporation reported U.S. GAAP net investment income of $0.34 per share and core net investment income of $0.35 per share for the quarter ended June 30, 2025 [2][9] - The company funded $23 million in investments and received $32 million in repayments, resulting in a total portfolio valued at $986 million [2][3] - Total investment income for the three months ended June 30, 2025, was $25.7 million, compared to $26.6 million for the same period in 2024 [7][29] Portfolio Activity - As of June 30, 2025, the company had investments at fair value of $985.9 million, an increase from $953.5 million as of December 31, 2024 [5] - The weighted average yield of total investments was 9.6% as of June 30, 2025, slightly down from 9.7% a year earlier [5] - The company had 112 portfolio company investments as of June 30, 2025, up from 105 at the end of 2024 [5] Distributions - The company declared aggregate distributions of $0.40 per share for both the three months ended June 30, 2025, and 2024, totaling $11.4 million and $10.0 million, respectively [15] - Since operations began, investors have received a total of $306 million in distributions, equivalent to $17.35 per share [2] Capital Resources - As of June 30, 2025, the company had $163.1 million in outstanding borrowings under its credit facility, down from $175.4 million at the end of 2024 [13] - The credit facility allows for borrowings of up to $315 million, with an accordion feature for potential expansion to $350 million [12] Recent Investments - During the three months ended June 30, 2025, the company made several new investments, including $4.3 million in Gourmet Specialty Foods, LLC, and $5.7 million in Solid Surface Care Holdings, Inc. [16][18] - The company also realized investments, including full repayments from Florachem Corporation and Anne Lewis Strategies, LLC, totaling $21.5 million [17][19]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements for Q2 2025, covering assets, operations, cash flows, and investments [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets increased to $1,034.8 million, liabilities to $659.4 million, and NAV per share decreased to $13.21 Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Investments, at fair value** | $985.9 | $953.5 | | **Cash and cash equivalents** | $40.0 | $20.1 | | **Total Assets** | $1,034.8 | $980.9 | | **Total Liabilities** | $659.4 | $611.0 | | **Net Assets** | $375.4 | $369.9 | | **Net Asset Value Per Share** | $13.21 | $13.46 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Net increase in net assets for H1 2025 was $15.1 million ($0.54 per share), down from $21.7 million in H1 2024 Key Operating Results (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Investment Income** | $25.7 | $26.6 | $50.6 | $52.6 | | **Net Investment Income** | $9.6 | $11.8 | $19.4 | $22.0 | | **Net Increase in Net Assets** | $10.1 | $8.5 | $15.1 | $21.7 | | **Net Investment Income Per Share** | $0.34 | $0.48 | $0.69 | $0.90 | | **Net Increase in Net Assets Per Share** | $0.36 | $0.35 | $0.54 | $0.89 | [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets grew to $375.4 million, driven by stock issuance and net income, partially offset by distributions Reconciliation of Net Assets for the Six Months Ended June 30, 2025 (in millions) | Description | Amount | | :--- | :--- | | **Net Assets at December 31, 2024** | $369.9 | | Net investment income | $19.4 | | Net realized loss on investments | ($6.8) | | Net change in unrealized appreciation | $2.6 | | **Net Increase in Net Assets from Operations** | **$15.1** | | Distributions from net investment income | ($22.4) | | Issuance of common stock, net | $12.8 | | **Net Assets at June 30, 2025** | **$375.4** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was $13.3 million, financing provided $33.2 million, increasing cash to $40.0 million Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | ($13.3) | ($8.6) | | **Net Cash Provided by Financing Activities** | $33.2 | $18.4 | | **Net Increase in Cash and Cash Equivalents** | $19.9 | $9.7 | | **Cash and Cash Equivalents at End of Period** | $40.0 | $35.9 | [Consolidated Schedules of Investments](index=7&type=section&id=Consolidated%20Schedules%20of%20Investments) Portfolio fair value was $985.9 million across 112 companies, primarily non-controlled, with $58.7 million unfunded commitments Portfolio Summary as of June 30, 2025 | Investment Type | Amortized Cost | Fair Value | % of Net Assets | | :--- | :--- | :--- | :--- | | Control investments | $32,732,016 | $13,046,041 | 3.47% | | Non-controlled, non-affiliated investments | $957,687,672 | $972,839,633 | 259.17% | | **Total Investments** | **$990,419,688** | **$985,885,674** | **262.64%** | - As of June 30, 2025, the company had total unfunded debt commitments of **$58,445,238** across numerous portfolio companies[53](index=53&type=chunk) - The company's investments are deemed to be Level 3 under the fair value hierarchy, meaning their valuation is determined using significant unobservable inputs[41](index=41&type=chunk) [Notes to Unaudited Financial Statements](index=37&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) Detailed explanations of accounting policies, related party transactions, debt, and BDC/RIC structure disclosures - The company operates as a Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for tax purposes, utilizing two SBIC subsidiaries for SBA-guaranteed leverage[111](index=111&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The Investment Advisory Agreement stipulates a base management fee of **1.75% of gross assets** (excluding cash) and a two-part incentive fee based on investment income and capital gains[172](index=172&type=chunk)[174](index=174&type=chunk) - As of June 30, 2025, the company had five portfolio companies on non-accrual status, representing **3.8% of the loan portfolio at fair value**[147](index=147&type=chunk) - Subsequent to the quarter end, the company made new and add-on investments totaling approximately **$25.5 million** and had one full repayment of **$8.3 million**[292](index=292&type=chunk)[293](index=293&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion of financial performance, portfolio, investment activity, liquidity, and capital resources [Portfolio Composition and Investment Activity](index=70&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) Portfolio fair value was $985.9 million, 89% first-lien debt, with $78.2 million invested and stable asset quality Portfolio Composition by Investment Type (at Fair Value) | Investment Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior Secured – First Lien | 89% | 90% | | Senior Secured – Second Lien | 1% | 1% | | Unsecured Debt | 1% | 1% | | Equity | 9% | 8% | - For the six months ended June 30, 2025, the company invested **$78.2 million** in 9 new and 13 existing portfolio companies and received **$46.6 million** in proceeds from repayments[323](index=323&type=chunk) Asset Quality Rating (% of Total Portfolio at Fair Value) | Investment Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 1 - Performing Above Expectations | 25% | 24% | | 2 - Performing Within Expectations | 59% | 59% | | 3 - Performing Below Expectations | 12% | 12% | | 4 - Substantially Below (Loss of Return) | 3% | 4% | | 5 - Substantially Below (Loss of Principal) | 1% | 1% | [Results of Operations](index=77&type=section&id=Results%20of%20Operations) Total investment income decreased to $50.6 million, net investment income to $19.4 million, due to lower rates Comparison of Operating Results (in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Total Investment Income** | $50.6 | $52.6 | | **Total Operating Expenses, net** | $31.3 | $30.6 | | **Net Investment Income** | $19.4 | $22.0 | | **Net Realized Loss** | ($6.8) | ($18.4) | | **Net Change in Unrealized Appreciation** | $2.6 | $17.9 | | **Net Increase in Net Assets** | $15.1 | $21.7 | [Financial Condition, Liquidity and Capital Resources](index=81&type=section&id=Financial%20Condition,%20Liquidity%20and%20Capital%20Resources) Strong liquidity with $40.0 million cash, $315 million credit facility, and 211% asset coverage ratio - The company's asset coverage ratio was **211%** as of June 30, 2025, well above the regulatory requirement of 150%[361](index=361&type=chunk) Key Debt Facilities as of June 30, 2025 (in millions) | Facility | Total Commitment/Issued | Outstanding Balance | | :--- | :--- | :--- | | Credit Facility | $315.0 | $163.1 | | SBA-guaranteed Debentures | $308.8 | $308.8 | | 2026 Notes Payable | $100.0 | $100.0 | | 2030 Notes Payable | $75.0 | $75.0 | - During the six months ended June 30, 2025, the company issued **935,030 shares** under its ATM Program for gross proceeds of **$13.2 million**[383](index=383&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary exposure to interest rate risk with 91.2% floating-rate debt; 100 bps rate hike increases net income by $6.7 million - As of June 30, 2025, **91.2%** of the loans in the company's portfolio bore interest at a floating rate, making interest rate changes a key market risk[399](index=399&type=chunk) Annual Impact on Net Income from Interest Rate Changes (in millions) | Change in Basis Points | Net Interest Income Impact | | :--- | :--- | | Up 200 | $13.3 | | Up 100 | $6.7 | | Up 50 | $3.3 | | Down 50 | ($3.3) | | Down 100 | ($6.7) | | Down 200 | ($13.3) | [Item 4. Controls and Procedures](index=88&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[404](index=404&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[405](index=405&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=89&type=section&id=Item%201.%20Legal%20Proceedings) No material legal proceedings are currently active or threatened against the company - The company is not currently a party to any material legal proceedings[407](index=407&type=chunk) [Item 1A. Risk Factors](index=89&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the 2024 Annual Report on Form 10-K - During the three and six months ended June 30, 2025, there were no material changes to the risk factors discussed in the company's prior SEC filings[409](index=409&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=89&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or shares issued under dividend reinvestment program in Q2 2025 - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[410](index=410&type=chunk) [Item 3. Defaults Upon Senior Securities](index=89&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable, as there were no defaults on senior securities during the period - Not applicable[412](index=412&type=chunk) [Item 4. Mine Safety Disclosures](index=89&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable, as the company does not engage in mining operations - Not applicable[413](index=413&type=chunk) [Item 5. Other Information](index=89&type=section&id=Item%205.%20Other%20Information) Updated fee and expense table as of June 30, 2025, detailing stockholder transaction and annual expenses Annual Expenses (as a percentage of net assets) | Expense Category | Percentage | | :--- | :--- | | Base management fee | 4.36% | | Incentive fees payable | 2.63% | | Interest payments on borrowed funds | 8.29% | | Other expenses | 1.91% | | **Total annual expenses** | **17.19%** | [Item 6. Exhibits](index=92&type=section&id=Item%206.%20Exhibits) List of exhibits filed, including CEO/CFO certifications and XBRL data files - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[422](index=422&type=chunk)

Core Viewpoint - Stellus Capital Investment Corporation is set to release its financial results for the second quarter of 2025 on August 6, 2025, after market close [1] - A conference call to discuss these results will be held on August 7, 2025, at 10:00 AM Central Time, led by the CEO and CFO [2] Financial Results Announcement - The financial results for the second quarter ended June 30, 2025, will be disclosed on August 6, 2025 [1] - The conference call for discussing the results will take place on August 7, 2025 [2] Conference Call Details - The conference call can be accessed via phone by dialing 877-545-0523 with passcode 398771 [3] - A replay of the call will be available starting approximately two hours after the conclusion and can be accessed until August 7, 2026 [3] - The call will also be available via live webcast on the company's website [3] Company Overview - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [4] - The company's investment objective is to maximize total return to stockholders through current income and capital appreciation by investing primarily in private middle-market companies [4] - The investment strategy includes first lien, second lien, unitranche, and mezzanine debt financing, along with corresponding equity investments [4]

Core Viewpoint - Stellus Capital Investment Corporation has declared a monthly dividend of $0.1333 for July, August, and September 2025, totaling $0.40 per share for the third quarter [1] Dividend Summary - The declared monthly dividends are as follows: - July 2025: Ex-Dividend Date 7/31/2025, Record Date 7/31/2025, Payment Date 8/15/2025, Amount per Share $0.1333 [2] - August 2025: Ex-Dividend Date 8/29/2025, Record Date 8/29/2025, Payment Date 9/15/2025, Amount per Share $0.1333 [2] - September 2025: Ex-Dividend Date 9/30/2025, Record Date 9/30/2025, Payment Date 10/15/2025, Amount per Share $0.1333 [2] Company Overview - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [3] - The company's investment objective is to maximize total return to stockholders through current income and capital appreciation by investing primarily in private middle-market companies with EBITDA between $5.0 million and $50.0 million [3] - Investment strategies include first lien, second lien, unitranche, and mezzanine debt financing, along with corresponding equity investments [3]

Financial Data and Key Metrics Changes - For the first quarter ended March 31, 2025, the company generated GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, which excludes estimated excise taxes [6] - Net asset value per share decreased by $0.21 during the quarter primarily due to company-specific write-downs in the loan portfolio and a reduction of spillover income [6] - The company issued 656,085 shares for $9.3 million at an average gross price of $14.11, all above net asset value [6] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $991.1 million across 110 portfolio companies, up from $953.5 million across 105 companies as of December 31, 2024 [7] - During the first quarter, the company invested $46.7 million in seven new portfolio companies and had $8.7 million in other investment activity at par [7] - 90% of the loans were secured, and 91% were priced at floating rates, with an average loan per company of $9.4 million [7][9] Market Data and Key Metrics Changes - The company noted that 52% of the portfolio is rated two or on or ahead of plan, while 21% is marked at an investment category of three or below, indicating some loans are not meeting expectations [9] - Currently, loans to five portfolio companies are on non-accrual status, comprising 6.7% of the total cost and 4% of the fair value of the total loan portfolio, representing a decrease from the prior quarter [9] Company Strategy and Development Direction - The company plans to draw new leverage under the SBIC III license to continue funding qualifying portfolio company investments [10] - The company aims to grow the portfolio to over $1 billion, with expectations for more than $10 million in equity gains by year-end [12] Management's Comments on Operating Environment and Future Outlook - Management indicated that the average portfolio in the first quarter was higher than in the fourth quarter, which is expected to continue into the second quarter, leading to a potential increase in yield [16] - The management expressed optimism about the return of M&A activity, which was temporarily disrupted due to tariff-related uncertainties [20][51] - The company expects to maintain the dividend at $0.40 per share for the second and third quarters, subject to Board approval [12][24] Other Important Information - The company has paid $295 million in dividends since its IPO, representing $17.9 per share to an investor in the IPO [6] - The company received a green light letter from the Small Business Administration for Stellus Capital SBIC III, which is a significant step in the licensing process [10] Q&A Session Summary Question: Impact of first quarter originations on interest income - Management noted that the average portfolio in the first quarter was higher than the fourth, which should lead to a pickup in yield in dollars [16] Question: Pipeline status and lending opportunities - Management indicated that the pipeline is slower compared to three months ago, but they expect interesting opportunities to close in the upcoming quarters [20] Question: Trajectory of net investment income (NII) to cover dividends - Management acknowledged that NII is currently less than the dividend but expects to be in a good position by the end of the year due to potential equity co-investments [24] Question: Trade education acquisition restructuring - Management confirmed that the business was restructured and recapitalized satisfactorily, expecting it to perform well going forward [29] Question: Logic behind issuing fixed-rate debt - Management explained that the issuance was necessary to retire maturing bonds and to have some unsecured debt in the capital stack [36] Question: Future issuance of common shares under the ATM program - Management stated that future issuances would depend on market conditions and stock price trading [40] Question: Second lien loans strategy - Management confirmed that they do not expect to issue new second lien loans, focusing instead on first lien unitranche secured lending [42] Question: Impact of SBA green light on earnings in a lower interest rate environment - Management confirmed that the potential for SBIC debentures would allow for borrowing at lower rates, positively impacting earnings [44]

Financial Data and Key Metrics Changes - For the first quarter ended March 31, 2025, the company generated GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, which excludes estimated excise taxes [5] - The net asset value per share decreased by $0.21 during the quarter, primarily due to company-specific write-downs in the loan portfolio and a reduction of spillover income [5] - The company has paid $295 million in dividends to investors since its IPO, representing $17.9 per share to an investor in the IPO [5] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $991.1 million across 110 portfolio companies, up from $953.5 million across 105 companies as of December 31, 2024 [6] - During the first quarter, the company invested $46.7 million in seven new portfolio companies and had $8.7 million in other investment activity at par [6] - The average loan per company is $9.4 million, with the largest overall investment at $21.9 million, both at fair value [6] Market Data and Key Metrics Changes - 90% of the company's loans were secured, and 91% were priced at floating rates as of March 31, 2025 [6] - Currently, loans to five portfolio companies are on non-accrual status, comprising 6.7% of the total cost and 4% of the fair value of the total loan portfolio, representing a decrease from the prior quarter [7] Company Strategy and Development Direction - The company plans to draw new leverage under the SBIC III license to continue funding qualifying portfolio company investments [8] - The company aims to grow its portfolio to over $1 billion, with potential for more than $10 million in equity gains by year-end [10] - The company has shifted its investment strategy to focus on first lien unitranche secured lending with equity co-investments, moving away from second lien loans due to risk management considerations [38] Management's Comments on Operating Environment and Future Outlook - The management noted that the pipeline for new loan originations is slower compared to three months ago, affected by tariff activity and overall economic conditions [17] - The management expressed optimism about picking up activity as clarity improves in the market, indicating that the current slowdown is temporary [46] - The company expects to maintain the dividend at $0.40 per share for the second and third quarters, although net investment income is currently running below this level [19][21] Other Important Information - The company issued $75 million in aggregate principal amount of 7.25% notes due April 1, 2030, using the proceeds to repay the bank facility [8] - The company has received a green light letter from the Small Business Administration for Stellus Capital SBIC III, which is a significant step in the licensing process [8] Q&A Session Summary Question: Impact of first quarter originations on interest income - The average portfolio in the first quarter was higher than in the fourth quarter, which is expected to result in a pickup in yield in dollars for the second quarter [13][14] Question: Pipeline status and opportunities - The pipeline is slower than three months ago, but there are still interesting opportunities expected to close in the current and next quarter [17][18] Question: Trajectory of net investment income to cover dividends - The company is currently running at a level of net investment income less than the dividend, but expects to be in a good position by the end of the year [21][22] Question: Trade education acquisition restructuring - The business was restructured and recapitalized satisfactorily, with expectations for improved performance going forward [25][26] Question: Logic behind issuing fixed-rate debt - The issuance was necessary to retire maturing bonds and to have some unsecured debt in the capital stack [32][33] Question: Future issuance of common shares - The company will consider issuing shares based on market conditions to ensure accretive outcomes [36] Question: Second lien loans strategy - The company does not expect to issue new second lien loans, focusing instead on first lien unitranche secured lending [38] Question: Impact of SBA green light letter on earnings - The potential for SBIC debentures could allow for lower rates than current borrowing, positively impacting earnings [40][41]

Financial Data and Key Metrics Changes - For Q1 2025, the company generated GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, which excludes estimated excise taxes [6] - Net asset value per share decreased by $0.21 during the quarter, primarily due to company-specific write-downs in the loan portfolio and a reduction of spillover income [6] - The company has paid $295 million in dividends since its IPO, representing $17.9 per share to an investor in the IPO [6] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $991.1 million across 110 portfolio companies, up from $953.5 million across 105 companies as of December 31, 2024 [7] - During Q1, the company invested $46.7 million in seven new portfolio companies and had $8.7 million in other investment activity at par [7] - 90% of the loans were secured, and 91% were priced at floating rates, with an average loan per company of $9.4 million [7][8] Market Data and Key Metrics Changes - The company noted that 52% of the portfolio is rated two or on or ahead of plan, while 21% is marked at an investment category of three or below [8] - Loans to five portfolio companies are on non-accrual, comprising 6.7% of the total cost and 4% of the fair value of the total loan portfolio, representing a decrease from the prior quarter [8] Company Strategy and Development Direction - The company plans to draw new leverage under the SBIC III license to continue funding qualifying portfolio company investments [9] - The company aims to grow the portfolio to over $1 billion, with potential for more than $10 million in equity gains by year-end [11] Management's Comments on Operating Environment and Future Outlook - Management expects new loan originations to be offset by loan repayments for the remainder of Q2 2025, indicating a flat portfolio [11] - The management expressed optimism about the return of M&A activity, which was temporarily disrupted due to tariff-related uncertainties [20][50] Other Important Information - The company issued $75 million in aggregate principal amount of 7.25% notes due April 1, 2030, to repay the bank facility [9] - The company has received a green light letter from the Small Business Administration for Stellus Capital SBIC III, which is a significant step in the licensing process [10] Q&A Session Summary Question: Impact of first quarter originations on interest income - Management indicated that the average portfolio in Q1 was higher than in Q4, which should lead to a pickup in yield for Q2 [15][16] Question: Pipeline status and lending opportunities - Management noted that the pipeline is slower compared to three months ago, but they expect interesting opportunities to close in the upcoming quarters [19][20] Question: Trajectory of net investment income (NII) to cover dividends - Management acknowledged that NII is currently less than the dividend but expects to be in a good position by the end of the year due to potential equity co-investments [23][24] Question: Trade education acquisition restructuring - Management confirmed that the business was restructured and recapitalized satisfactorily, expecting it to perform well moving forward [27][28] Question: Logic behind issuing fixed-rate debt - Management explained that the issuance was necessary to retire maturing bonds and to have some unsecured debt in the capital stack [34][35] Question: Future issuance of unsecured debt - Management indicated that more unsecured debt will be needed before the maturity of existing bonds, with the magnitude still being determined [54]