Stellus Capital Investment (SCM) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For fiscal year 2019, the company reported realized income of $2.30 per share, covering the dividend of $1.36 per share, which included net realized gains of $19.6 million or $1.07 per share [8] - Core net investment income was $1.32 per share, while GAAP net investment income was $1.23 per share [9] - Net asset value increased from $224.8 million to $270.6 million, primarily due to an equity offering, with a per share increase from $14.09 to $14.14 [11] Business Line Data and Key Metrics Changes - The investment portfolio at fair value was approximately $629 million across 63 portfolio companies, up from $505 million across 57 companies at the end of 2018 [17] - During 2019, the company invested $251 million in 17 new and 12 existing portfolio companies, with repayments of approximately $128 million, resulting in net portfolio growth of about $124 million [17] - 96% of loans were secured, and 93% were priced at floating rates, indicating a focus on secured lending [18] Market Data and Key Metrics Changes - The 90-day LIBOR rate decreased from 195 basis points at December 31 to about 1.24% recently, impacting the pricing of loans [22] - The company has been structuring loans with LIBOR floors, averaging around 1%, to mitigate the impact of falling rates [22][30] Company Strategy and Development Direction - The strategy includes modest investments in the equity of portfolio companies to generate realized gains sufficient to offset losses over time [20] - The company aims to maintain a cautious approach in investing, particularly in light of potential economic impacts from the coronavirus [44] Management's Comments on Operating Environment and Future Outlook - Management noted that while there has been limited impact from sourcing from China, the long-term effects of COVID-19 are being closely monitored [23] - The company expects to generate an additional $4 million of realized gains for the year, following $1.3 million received since year-end [24] Other Important Information - The company has two loans in non-accrual status, comprising just under 1% of the fair value of the loan portfolio, indicating stable asset quality [19] - The company has paid over $141 million in dividends since its IPO, representing $10 per share to investors [16] Q&A Session Summary Question: Impact of China sourcing supply chain - Management indicated limited direct exposure to China among portfolio companies, but potential broader impacts on the U.S. economy are being evaluated [27][29] Question: LIBOR floor issue - Most loans have LIBOR floors, with less than 5% having no floors, and recent structuring has included higher floors to maintain yield [30][32] Question: Markdowns in the fourth quarter - Management noted technological changes in the security monitoring business affecting incumbent companies, but did not comment on specific portfolio companies [34] Question: Leverage expectations - The targeted regulatory leverage is aimed at one-to-one, with potential adjustments based on economic conditions and bank support [41][54] Question: Monitoring portfolio companies amid COVID-19 - The investment teams maintain constant contact with portfolio companies to assess real-time impacts and will provide more information in the next quarterly call [57][59]