Stellus Capital Investment (US:SCM)2025-11-10 21:08Investment Portfolio - As of September 30, 2025, the company had $1,010.2 million invested in 115 portfolio companies, with approximately 89% in first lien debt[320] - The company's portfolio composition included 1% second lien debt, 1% unsecured debt, and 9% equity investments at fair value[320] - The investment portfolio primarily consists of first lien loans, including unitranche structures, which account for 2.9% of the portfolio at fair value[320] - The average portfolio company investment at fair value was approximately $8.8 million as of September 30, 2025, compared to $9.2 million as of December 31, 2024[328] - The industry concentration as of September 30, 2025, showed that Business Services accounted for 26.56% of the total fair value of $1,010.2 million, followed by High Tech Industries at 10.13%[326] Financial Performance - The net investment income (loss) is a key measure of financial performance, reflecting the difference between income from investments and operating expenses[340] - For the three months ended September 30, 2025, total investment income was $26.3 million, a slight decrease of 0.8% compared to $26.5 million for the same period in 2024[343] - For the nine months ended September 30, 2025, total investment income was $76.9 million, down 2.8% from $79.1 million in 2024[343] - Net investment income for the three months ended September 30, 2025, was $9.1 million, or $0.32 per common share, compared to $10.3 million, or $0.39 per common share in 2024[350] - Net investment income for the nine months ended September 30, 2025, was $28.5 million, or $1.01 per common share, down from $32.3 million, or $1.29 per common share in 2024[351] Operating Expenses - Operating expenses for the three months ended September 30, 2025, totaled $17.6 million, an increase of 8.6% from $16.2 million in 2024[349] - Operating expenses for the nine months ended September 30, 2025, were $51.1 million, up from $48.7 million in 2024[349] Asset Coverage and Commitments - The asset coverage ratio was 210% as of September 30, 2025, indicating a decrease from the previous requirement of 200%[316] - Unfunded commitments amounted to $54.1 million as of September 30, 2025, with sufficient liquidity to meet these commitments[322] - As of September 30, 2025, the asset coverage ratio was 210%, down from 234% on December 31, 2024, indicating compliance with the required minimum of 150%[369] Cash Flow and Financing Activities - Cash flows from operating activities used net cash of $33.5 million for the nine months ended September 30, 2025[365] - Cash flows from financing activities provided cash of $22.4 million for the nine months ended September 30, 2025, primarily from proceeds from the issuance of common stock[365] - The company plans to fund its investment portfolio growth through net proceeds from future public and private equity offerings, but may face limitations if common stock trades below net asset value per share[368] Debt and Interest Expenses - The company has a senior secured revolving credit facility with a maximum borrowing capacity of $335.0 million, which can be increased to $365.0 million under certain conditions[372] - As of September 30, 2025, $167.6 million was outstanding under the credit facility, with a weighted average interest rate of 7.4%[375] - Interest expense for the SBA-guaranteed debentures was $2.5 million for the three months ended September 30, 2025, with a weighted average interest rate of 3.2%[384] - The company incurred $11.1 million in financing costs related to the SBA-guaranteed debentures, with $3.2 million yet to be amortized as of September 30, 2025[383] - The total interest and financing expenses for the 2030 Notes Payable were $1.5 million for the three months and $3.0 million for the nine months ended September 30, 2025[391] Dividends and Share Issuance - The Board declared a regular monthly dividend of $0.1333 per share for October, November, and December 2025[408] - The company issued 531,106 shares under the ATM Program during the three months ended September 30, 2025, generating gross proceeds of $7.4 million[394] - The average per share offering price of shares issued in the ATM Program during the three months ended September 30, 2025, was $14.00[394] Economic Conditions and Market Impact - Economic conditions have shown acceleration, but challenges such as supply chain interruptions and fluctuating interest rates persist[317] - The Federal Reserve raised interest rates to a target range of 5.25% - 5.50% in July 2023, the highest since January 2001[409] - A 200 basis points increase in interest rates would result in a net income increase of $13.4 million, while a decrease of 200 basis points would lead to a net income decrease of $13.4 million[410] - The three-month SOFR rate was 398 basis points as of September 30, 2025[411] - The company did not engage in hedging activities for the three and nine months ended September 30, 2025 and 2024[412] Regulatory Compliance - The company has complied with RIC requirements as of September 30, 2025, allowing it to avoid corporate-level U.S. federal income taxes on distributed income[314] - The company intends to distribute between 90% and 100% of its taxable income to satisfy RIC requirements, potentially limiting funds for new investments[368]