Stellus Capital Investment (US:SCM)2020-10-30 20:03Financial Data and Key Metrics Changes - The company generated net investment income of $0.27 per share, exceeding the regular distribution of $0.25 per share for Q3 2020 [10] - Core net investment income, including taxes, was reported at $0.29 per share [10] - Total earnings for the quarter amounted to $0.39 per share, with a net asset value (NAV) decline to $13.17 per share at the end of the quarter [11][13] Business Line Data and Key Metrics Changes - The portfolio valuation increased by approximately $2.1 million, or $0.11 per share, with realized gains contributing an additional $0.01 per share [11] - Non-accrual loans represented only 1.5% of the total loan portfolio's fair value, with no new loans added to non-accrual status since April 1 [17] - The investment portfolio at fair value decreased to $622.4 million across 66 portfolio companies, down from $641 million at the end of Q2 2020 [18] Market Data and Key Metrics Changes - The company noted that 90% of its portfolio is rated at two or better on a one-to-five investment rating system, indicating stable asset quality [16] - The largest industry sector represented 18% of the total portfolio at fair value, with an average investment per company of about $9.4 million [17] Company Strategy and Development Direction - The company is focusing on investing in first lien unitranche debt and is unlikely to participate in mezzanine financing, indicating a strategic shift towards safer investments [35] - The company plans to utilize both cash in SBIC 1 and debentures in SBIC 2 to fund new investments, reflecting a proactive approach to capital management [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the portfolio and noted that most portfolio companies are managing well in the current environment [15] - The company anticipates new investments in Q4 2020 to at least match the amount of repayments and equity realizations, potentially reaching $30 million [21] - Management highlighted a robust pipeline of over 10 companies under consideration, indicating a return to pre-COVID levels of activity [45][55] Other Important Information - The company declared a regular dividend of $0.25 per share and a special dividend of $0.06 per share for Q4 2020, totaling $1.15 per share for the year [22] - The company has extended the revolving period of its $230 million bank facility to September 2024, enhancing its liquidity position [19] Q&A Session Summary Question: What is the current cash position in SBIC and plans for debentures? - The company has approximately $25 million in cash in SBIC 1 and plans to use this along with debentures from SBIC 2 for new investments [26] Question: Thoughts on the redemption of 2022 baby bonds? - The company has $49 million of unsecured notes maturing in September 2022 and is considering a new fixed income offering to address this requirement [29][30] Question: Trends in portfolio favoring first lien debt? - The company has been shifting towards first lien debt over the past 2-2.5 years and expects this trend to continue [35] Question: Drivers of stable interest income despite lower investment volumes? - The stability in interest income is attributed to fee income from payoffs during the quarter [37] Question: Insights on market activity and deal quality? - The company is seeing strong activity in business-to-business sectors and technology-related companies, with a robust pipeline of quality transactions [44][46] Question: Anticipated changes in investment philosophy? - The company remains selective in its investments, focusing on companies that can withstand economic downturns, while also being cautious about the impact of COVID-19 on performance [58][62]