• GAAP Net Investment Income: $0.35 per share for the fourth quarter.
• Core Net Investment Income: $0.37 per share, excluding estimated excise taxes.
• Net Asset Value (NAV) per Share: Decreased by $0.09 during the quarter.
• Investment Portfolio at Fair Value: $953.5 million across 105 portfolio companies.
• New Investments: $76.5 million in nine new portfolio companies during the fourth quarter.
• Repayments: Three full repayments totaling $46.9 million and $15.6 million of other repayments.
• Equity Realizations: One full equity realization and one partial realization generating $6.5 million in proceeds and $5.5 million in realized gains.
• Loans on Non-Accrual: Loans to seven portfolio companies, comprising 5.4% of the total loan portfolio's fair value.
• Dividend for Q1 2025: Declared at $0.40 per share, payable monthly.

• Warning! GuruFocus has detected 9 Warning Signs with SCM.

Release Date: March 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Stellus Capital Investment Corp (NYSE:SCM) has invested approximately $2.6 billion in over 200 companies since its IPO in 2012, demonstrating significant investment activity.
• The company has paid over $288 million in dividends to investors, equating to $16.69 per share for IPO investors.
• In the fourth quarter, Stellus Capital Investment Corp (NYSE:SCM) generated $0.35 per share of GAAP net investment income and $0.37 per share of core net investment income.
• The investment portfolio increased to a fair value of $953.5 million across 105 companies, up from $908.7 million across 99 companies in the previous quarter.
• The company declared a dividend for the first quarter of 2025 at a rate of $0.40 per share, payable monthly, with expectations to maintain this level throughout the year.

Negative Points

• Net asset value per share decreased by $0.09 during the quarter due to net unrealized depreciation on the investment portfolio.
• Currently, loans to seven portfolio companies are on non-accrual, comprising 5.4% of the fair value of the total loan portfolio.
• The first quarter EPS is not expected to fully cover the dividend, indicating potential pressure on earnings.
• Investment yields decreased due to declining spreads and additional non-accruals, impacting overall returns.
• The company is operating at a lower leverage level than its target, which may limit potential growth opportunities.

Q & A Highlights

Q: What are your thoughts on leverage going into 2025 and 2026, considering potential tariff impacts and changes in credit quality? A: Robert Ladd, CEO: We are operating at a lower leverage level than usual, targeting a regulatory leverage of 1:1. We remain cautious due to uncertainties from the government but are in a wait-and-see mode. Most of our businesses are U.S.-based, but some have cross-border activities, so we are aware of potential impacts.

Q: Do you think the first quarter EPS will cover the dividend? A: Robert Ladd, CEO: Probably not fully covered, but it will be close. We have substantial past earnings that haven't been paid out, which helps cover the dividend. We expect equity realizations to kick in, which will be beneficial. Todd Huskinson, CFO, adds that they expect to be off by a few cents due to the rate and spread environment.

Q: What was the driver for the decrease in investment yields in the first quarter? A: Robert Ladd, CEO: Spreads decreased from the 6s to the 5s over the year, SOFR declined quarter over quarter, and there was some impact from additional non-accruals. However, there is still over 10% growth.

Q: Are you planning to increase leverage given the low current levels and tightening spread environment? A: Robert Ladd, CEO: We are targeting a 1:1 leverage and are cautious about it. You may see an increase over time this year, with different ways to achieve that leverage.

Q: Are you going to re-up for more SBA lending capacity after paying off part of an SBA maturity? A: Robert Ladd, CEO: Yes, we are moving forward with obtaining a third license. After 10 years, our first license debentures are coming due, and we prepaid the first debenture payment in mid-February. We will continue the SBA program.

Q: Can you update us on the pipeline and the mix between new versus add-on opportunities? A: Robert Ladd, CEO: We had a busy fourth quarter and are off to a good start this quarter. The pipeline is strong, with good deal flow. About two-thirds of the transactions are new, and one-third are follow-ons or draws under delayed draw term loans.

Q: How are delayed draw term loans typically structured? A: Robert Ladd, CEO: They are true commitments subject to certain tests, such as compliance with covenants and an incurrence test to maintain leverage levels. They are typically used for acquisitions or expansion.

Q: What is the current level of spillover income? A: W. Todd Huskinson, CFO: We had $45 million of spillover at the end of the year, which we are working against during 2025.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.