Stellus Capital Investment (US:SCM)2023-05-10 19:29Financial Data and Key Metrics Changes - Net asset value per share decreased from $14.02 to $13.87, a drop of $0.15 per share [5] - Total assets under management across the Stellus platform reached $2.9 billion [10] - GAAP net investment income for the first quarter was $0.46 per share, while core net investment income was $0.45 per share [55] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $877 million across 88 portfolio companies, up from $845 million across 85 companies at year-end [21] - The company invested $41 million in 4 new and 2 existing portfolio companies during the first quarter, with no full repayments received [21] - 99% of loans were secured and 97% were priced at floating rates, with 88% of the portfolio consisting of unitranche loans [22] Market Data and Key Metrics Changes - The company is approaching the overall economic environment cautiously due to the higher interest rate environment and stress in the regional banking sector [10] - The company has not seen a significant increase in amendment requests from portfolio companies, indicating stable credit conditions [38] Company Strategy and Development Direction - The company aims to invest in larger transactions through private institutional funds that co-invest alongside its public company [9] - The strategy includes investing modestly in the equity of portfolio companies to generate realized gains to offset losses over time [8] - The focus remains on diversification, with an average loan per company of about $10.8 million [56] Management's Comments on Operating Environment and Future Outlook - Management expects second quarter earnings to exceed those of the first quarter due to the repricing of loans in a higher interest rate environment [8] - There is an expectation for some equity realizations during 2023, although the pace may be reduced compared to previous years [30] - Management advises portfolio companies to maintain adequate working capital liquidity and avoid over-leverage [31][32] Other Important Information - The company declared over $223 million in dividends to investors since its IPO in November 2012, equating to $14.15 per share [6] - The company has four loans on nonaccrual, comprising 2% of the fair value of the total loan portfolio [7] Q&A Session Summary Question: Update on spillover income and potential special dividend - Management indicated that the current spillover income is a little over $28 million, and they do not expect a special dividend this year [11] Question: Sentiment of PE sponsors in a severe economic environment - Management noted no unusual increase in amendment requests and emphasized the importance of the quality and track record of private equity firms in their underwriting process [38] Question: NII and ROE expectations for the quarter - Management explained that repayments in the fourth quarter provided key acceleration income, which was not present in the first quarter, affecting NII and ROE [43] Question: Expectations for equity realizations - Management expects some incremental realizations in equity investments, but at a reduced pace compared to previous years [44] Question: Demand for cash flow lending as offshoring trends change - Management has not seen a significant increase in U.S. manufacturing demand yet, but acknowledges the potential for future growth as companies reposition away from China [48]