Stellus Capital Investment (US:SCM)2024-03-04 22:27Investment Portfolio - As of December 31, 2023, the company had $874.5 million invested in 93 companies, with approximately 89% in first lien debt[397]. - The investment portfolio composition included 89% first lien debt, 2% second lien debt, 1% unsecured debt, and 8% equity investments at fair value[397]. - The total investments at cost were $902.1 million, with a fair value of $874.5 million as of December 31, 2023[402]. - The average portfolio company investment at amortized cost was approximately $9.7 million, while the fair value was about $9.4 million as of December 31, 2023[408]. - The geographical concentration of investments as of December 31, 2023, showed Texas and California as the top states, representing 20.04% and 19.18% of total investments at fair value, respectively[401]. - The investment portfolio valued at fair value represented approximately 96% of total assets as of December 31, 2023[485]. - The company has a diversified portfolio with significant investments across various states, ensuring a broad market presence[401]. - The company’s investment strategy focuses on middle-market companies with EBITDA between $5.0 million and $50.0 million[396]. Financial Performance - The total investment income for the year ended December 31, 2023, was $105.8 million, an increase from $75.1 million in 2022[423]. - The increase in interest income from 2022 to 2023 was primarily due to growth in the overall investment portfolio and rising interest rates[425]. - Net investment income for the year ended December 31, 2023 was $42.2 million, or $1.92 per common share, compared to $28.6 million, or $1.46 per common share in 2022, reflecting a 47.5% increase[430]. - The net increase in net assets resulting from operations for the year ended December 31, 2023 was $17.5 million, or $0.80 per common share, compared to $14.5 million, or $0.74 per common share in 2022[441]. - The company reported a net cash used in financing activities of $(4,652,501) for the year ended December 31, 2023, contrasting with a net cash provided of $60,155,030 in 2022[519]. - The total cash and cash equivalents balance at the end of the period was $26,125,741, down from $48,043,329 at the beginning of the period[519]. - The company experienced a net realized loss on investments of $(30,211,467) for the year ended December 31, 2023, compared to a net realized gain of $3,660,595 in 2022[519]. Debt and Financing - The outstanding balance under the Credit Facility as of December 31, 2023, was $160.1 million, down from $199.2 million in 2022[454]. - Interest expense for the year ended December 31, 2023 was $32.0 million, compared to $24.5 million in 2022, reflecting a significant increase due to higher outstanding balances and rising interest rates[429]. - The company has a minimum liquidity test requirement of at least $10.0 million, which it was in compliance with as of December 31, 2023[452]. - The Credit Facility allows for borrowings up to $260.0 million, with an accordion feature increasing commitments to $350.0 million[450]. - The company has outstanding commitments for revolvers and delayed draw term loans totaling $884,858,412, which is a 1.92% increase from the previous period[545]. - The company incurred $11.1 million in financing costs related to the SBA-guaranteed debentures as of December 31, 2023[462]. Compliance and Regulatory - The company has maintained compliance with RIC requirements as of December 31, 2023, allowing it to avoid corporate-level U.S. federal income tax on distributed income[392]. - The asset coverage ratio as of December 31, 2023, was 223%, indicating a strong leverage position compared to the regulatory maximum of 150%[394]. - As of December 31, 2023, the asset coverage ratio was 223%, up from 192% as of December 31, 2022[448]. - Qualifying assets represent approximately 95.7% of the company's total assets as of December 31, 2022[7]. Market Conditions - Economic activity has accelerated, but challenges such as supply chain interruptions and rising interest rates continue to impact market stability[395]. - The company did not engage in interest rate hedging activities for the years ended December 31, 2023, and 2022[499]. - The annual impact on net income from a 200 basis points increase in interest rates would be an increase of $12.7 million[497]. Investment Strategy - The company maintains a focus on healthcare, media, and environmental services within its investment strategy[526]. - The overall investment strategy includes a focus on sectors such as aerospace, automotive, and environmental industries[552]. - The company’s investment strategy includes a focus on income-producing debt investments, with equity securities noted as non-income producing[543]. Shareholder Returns - The company intends to distribute between 90% and 100% of its annual taxable income, with $37.0 million of undistributed taxable income carried forward to 2024[476]. - The company declared a regular monthly distribution of $0.1333 per share for January, February, and March 2024[493]. - Distributions from net investment income totaled $(35,080,734) for the year ended December 31, 2023, compared to $(21,633,343) in 2022, indicating an increase in shareholder returns[519]. SBIC Subsidiaries - Stellus Capital formed SBIC I subsidiary on June 14, 2013, and received SBA license on June 20, 2014[584]. - SBIC II subsidiary was formed on November 29, 2018, and received SBA license on August 14, 2019[585]. - Both SBIC subsidiaries are consolidated for U.S. GAAP reporting purposes[584][585].