Stellus Capital Investment (US:SCM)2023-02-28 22:07Investment Portfolio - As of December 31, 2022, the company had $844.7 million invested in 85 companies, with approximately 87% in first lien debt[438]. - The portfolio composition included 5% second lien debt, 1% unsecured debt, and 7% equity investments at fair value[438]. - The investment portfolio primarily consists of first lien (including unitranche), second lien, and unsecured debt financing[437]. - The geographical concentration of investments showed Texas and California as the largest markets, accounting for 20.26% and 19.57% of total investments, respectively[442]. - As of December 31, 2022, the company made $211.0 million of investments in 22 new portfolio companies and 28 existing portfolio companies[450]. - The investment rating system categorized 17% of the portfolio as performing above expectations as of December 31, 2022, compared to 8% as of December 31, 2021[454]. - The investment portfolio valued at fair value represented approximately 94% of total assets as of December 31, 2022[520]. - The overall investment strategy focuses on sectors such as chemicals, utilities, and real estate, indicating a diversified portfolio approach[561]. - The overall investment strategy focuses on consumer goods across various sectors, including durable and non-durable goods[567]. - The overall portfolio shows a diverse range of industries including healthcare, consumer goods, and automotive, indicating strategic market expansion[593]. - The investment portfolio includes a mix of first lien and second lien loans, with varying interest rates and maturities, reflecting a diversified investment strategy[600]. Financial Performance - For the year ended December 31, 2022, net investment income was $28.6 million, or $1.46 per common share, an increase from $19.8 million, or $1.01 per common share in 2021[467]. - Total interest income for the year ended December 31, 2022 was $70.8 million, up from $60.7 million in 2021, reflecting growth in the investment portfolio and rising interest rates[461][462]. - Total Investment Income for the year ended December 31, 2022, was $75,112,576, an increase of 17.9% from $63,678,994 in 2021[550]. - Net Investment Income for 2022 was $28,586,684, representing a 44.5% increase compared to $19,776,467 in 2021[550]. - The Net Increase in Net Assets Resulting from Operations for 2022 was $14,491,784, a decrease of 56.8% from $33,572,872 in 2021[550]. - The company reported a net cash used in operating activities of $56,286,557 for 2022, compared to $76,102,738 in 2021[555]. - The company recognized a deferred tax provision related to unrealized appreciation on certain equity investments of approximately ($213.2) thousand for the year ended December 31, 2022[476]. - The company expects total dollar amount of interest and dividend income to increase as the size of the investment portfolio grows[459]. Asset and Liability Management - The asset coverage ratio was 192% as of December 31, 2022, indicating a decrease from the previous requirement of 200%[432]. - The outstanding balance under the Credit Facility was $199.2 million as of December 31, 2022, compared to $177.3 million as of December 31, 2021[491]. - The total contractual obligations amount to $612.8 million, with $199.2 million due under the Credit Facility and $100.0 million in notes payable[507]. - The Company has a maximum borrowing capacity of $265.0 million under the Credit Facility, with an accordion feature allowing for an increase to $280.0 million[488]. - The Company incurred $10.9 million in financing costs related to the SBA-guaranteed debentures as of December 31, 2022[499]. - The total interest and financing expenses for the year ended December 31, 2022, were $9.8 million, up from $5.8 million in 2021[493]. - The average debt outstanding for the year ended December 31, 2022, was $204.3 million, compared to $176.9 million in 2021[493]. - The Company intends to distribute between 90% and 100% of its taxable income to satisfy RIC requirements[484]. Market Conditions and Risks - Economic conditions have shown acceleration, but challenges such as supply chain interruptions and rising interest rates may affect market stability[436]. - The impact of the COVID-19 pandemic has been assessed on individual portfolio companies, with potential adverse effects on future net investment income[434]. - Loans to three portfolio companies on non-accrual status represented approximately 5.2% of the loan portfolio at cost as of December 31, 2022, compared to 4.2% as of December 31, 2021[457]. - The company did not engage in interest rate hedging activities for the years ended December 31, 2022, and 2021[532]. - The company may hedge against interest rate fluctuations using standard hedging instruments, although it may limit participation in benefits from lower interest rates[532]. Shareholder Returns - A regular monthly distribution of $0.1333 per share was declared for January, February, and March 2023[527]. - Distributions Per Share for 2022 were $1.30, an increase from $1.14 in 2021[550]. - The company intends to distribute between 90% and 100% of its annual taxable income, with $28.6 million of undistributed taxable income carried forward to 2023[511]. Company Structure and Regulation - The company is regulated as a Business Development Company (BDC) under the Investment Company Act of 1940, which imposes specific asset acquisition requirements[429]. - The company is structured as a business development company (BDC) and intends to qualify as a regulated investment company (RIC) for U.S. federal income tax purposes[618]. - The company has established several wholly owned subsidiaries to hold equity or equity-like investments in portfolio companies, which are consolidated for U.S. GAAP reporting purposes[620]. - The company formed Stellus Capital SBIC, LP, which received a license from the U.S. Small Business Administration to operate as a Small Business Investment Company (SBIC)[621].