Stellus Capital Investment (US:SCM)2021-10-29 18:02Financial Data and Key Metrics Changes - The company reported core net investment income of $0.31 per share, covering the dividend of $0.27 per share, while GAAP net investment income was $0.21 per share [9] - The net asset value increased to $14.15 per share during the quarter [11] - Realized gains of $7.9 million were generated, with unrealized gains of $2.1 million primarily from equity co-investments [9][10] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $786 million across 74 portfolio companies, up from $653.4 million across 66 companies at year-end [15] - The company invested $60.5 million in 4 new and 10 existing portfolio companies during the third quarter [15] Market Data and Key Metrics Changes - The company is seeing a competitive market with attractive SBIC qualifying opportunities, and a mix of larger companies that do not qualify for SBIC [38][39] - New investments are yielding around 8%, with repayments and new loans yielding similar rates [43] Company Strategy and Development Direction - The company plans to maintain a regular dividend of $0.28 per share for the fourth quarter and an additional $0.06 per share for the first quarter of 2022, aiming to return to pre-COVID dividend levels [17][18] - The strategy includes recycling capital from repayments to fund new investments, with a focus on maintaining a regulatory leverage around 1:1 [46] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the performance of portfolio companies, despite concerns about inflation and supply chain issues [55] - The company expects meaningful repayments in the fourth quarter, offset by new fundings, and anticipates realized equity gains of up to $7.5 million [20][19] Other Important Information - The company has paid over $180 million in dividends since its IPO in 2012, representing $11.99 per share for initial investors [14] - The spillover income from the previous year is estimated at about $21 million, which will continue to influence distributions [35] Q&A Session Summary Question: What was the level of accelerated or one-time fees recognized in the third quarter? - The fee acceleration was approximately $700,000, significantly higher than in previous quarters due to increased repayments [24] Question: Will the company operate within the incentive fee hurdle range going forward? - The company expects to operate within the range on a normalized basis, with potential to exceed it during quarters with significant early repayments [28] Question: Is the $7.5 million of potential realized gains in the fourth quarter already recognized as unrealized gains? - Yes, the expected proceeds indicate a potential increase in NAV by $2.8 million if realized [30] Question: What is the outlook for the $0.06 supplemental dividend? - The supplemental dividend is planned to be a regular quarterly event starting in the first quarter of 2022 [32] Question: How are portfolio companies responding to the macroeconomic environment? - Portfolio companies are performing well, with optimism despite challenges like labor shortages and supply chain issues [55]