• GAAP Net Investment Income: $0.39 per share.
• Core Net Investment Income: $0.40 per share, excluding estimated excise taxes.
• Net Asset Value per Share: Increased by $0.19 during the quarter.
• Investment Portfolio at Fair Value: $908.7 million across 99 portfolio companies.
• New Investments: $9.4 million in one new portfolio company.
• Repayments: $8.4 million full repayment and $5.5 million other repayments at par.
• Equity Realization Proceeds: $2.6 million with a realized gain of $2.2 million.
• Non-Accrual Loans: Loans to six portfolio companies, comprising 4.7% of the fair value of the total loan portfolio.
• Dividend for Fourth Quarter: $0.40 per quarter, payable monthly.

• Warning! GuruFocus has detected 7 Warning Signs with SCM.

Release Date: November 08, 2024

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

Positive Points

• Stellus Capital Investment Corp (NYSE:SCM) reported a net asset value per share increase of $0.19 during the quarter due to net unrealized appreciation on its investment portfolio.
• The company has paid over $273 million in dividends to investors since its IPO, representing $16.28 per share for initial investors.
• Stellus Capital Investment Corp (NYSE:SCM) successfully issued $14.6 million in shares through its ATM program at an average gross price above net asset value.
• The investment portfolio at fair value increased to $908.7 million across 99 portfolio companies, up from $899.7 million across 100 companies in the previous quarter.
• The company increased its bank facility by $55 million, enhancing its capacity to grow the portfolio to over a billion dollars.

Negative Points

• Net investment income was slightly below expectations and the dividend for the quarter, attributed to lower investment activity and a slight increase in non-accrual loans.
• The company experienced a decline in base rates, which impacted the yield and net investment income.
• There are currently loans to six portfolio companies that are non-accrual, comprising 4.7% of the fair value of the total loan portfolio.
• The portfolio size at the end of the third quarter was below the anticipated $930 million, ending closer to $900 million.
• The company noted a trend of spread compression in new opportunities, with spreads decreasing from the sixes to the fives, which could impact future yields.

Q & A Highlights

Q: With NII slightly below expectations and the dividend this quarter, were there any temporary factors affecting this? A: Robert Ladd, CEO: There was nothing unusual. We had a lower SOFR rate and a slight increase in non-accruals. Last quarter had more other income, which made it higher. Investment activity was lighter than expected, but we anticipate it will pick up in the fourth quarter.

Q: Is the current NII range of $0.39 to low $0.40s a good run rate going forward? A: Robert Ladd, CEO: It depends on other income in the fourth quarter. SOFR dropped, affecting loan repricing, which impacts yield. The base rates are the main drivers.

Q: What drove the portfolio write-up this quarter? A: Robert Ladd, CEO: It was primarily due to one portfolio company with significant appreciation tied to a potential transaction, increasing the value of one of our equity co-investments.

Q: Given the Fed's recent rate actions, how will this affect EPS and non-accruals? A: Robert Ladd, CEO: Lower rates will have some impact. The Fed's announcement hasn't changed the forward curve much, but SOFR will be lower in the fourth quarter compared to the third.

Q: Can you clarify the status of fee waivers and spillover income? A: W. Todd Huskinson, CFO: Fee waivers depend on quarterly outcomes. We don't expect one this quarter but possibly in the second quarter of 2025. Spillover income stands at $42 million as of the end of Q3.

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