Participants

Robert Ladd; Chairman of the Board, President, Chief Executive Officer; Stellus Capital Investment Corp

W. Todd Huskinson; Chief Financial Officer, Chief Compliance Officer, Treasurer, Secretary; Stellus Capital Investment Corp

Sean-Paul Adams; Analyst; Raymond James

Christopher Nolan; Analyst; Ladenburg Thalmann & Co. Inc.

Erik Zwick; Analyst; Lucid Capital Markets, LLC

Paul Johnson; Analyst; Keefe, Bruyette & Woods North America

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its fourth fiscal quarter ended December 31, 2024. (Operator Instructions) This conference is being recorded today, March 5, 2025.
It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.

Robert Ladd

Yes. Thank you, Ali, and good morning, everyone. Thank you for joining the call. Welcome to our conference call covering the quarter and the year ended December 31, 2024. Joining me as usual this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements and then start off our discussion.

W. Todd Huskinson

Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and pin provided in our press release announcing this call.
I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at (713) 292-5400.
Now, I'll cover our operating results for the quarter. I would like to start off with our life-to-date activity. Since our IPO in November 2012, we've invested approximately $2.6 billion in over 200 companies and received approximately $1.6 billion of repayments while maintaining stable asset quality. We've paid over $288 million of dividends to our investors, which represents $16.69 per share to an investor in our IPO in November 2012, which was offered at $15 per share.
Turning to our current operating results. In the fourth quarter, we generated $0.35 per share of GAAP net investment income and core net investment income of $0.37 per share, which excludes estimated excise taxes. Net asset value per share decreased $0.09 during the quarter due to net unrealized depreciation on our investment portfolio and reduction of spillover income, offset by net realized gains on our investment portfolio primarily related to one equity investment.
Our ATM program was active during the quarter, and we issued 441,754 shares for $6.1 million in shares at an average gross price of $13.86 per share. All issuances were above net asset value. Regarding portfolio and asset quality, we ended the quarter with an investment portfolio at fair value of $953.5 million across 105 portfolio companies, up from $908.7 million across 99 companies as of September 30, 2024.
During the fourth quarter, we invested $76.5 million in nine new portfolio companies and had $33 million in other investment activity, all at par. We also received three full repayments totaling $46.9 million and received $15.6 million of other repayments, both at par. We also received one full equity realization and one material partial realization that generated proceeds of $6.5 million and realized gains of $5.5 million.
At December 31, 98% of our loans were secured, and 95% were priced at floating rates. The average loan per company is $9.5 million, and the largest overall investment is $21.2 million, both at fair value. All but one of our portfolio companies are backed by a private equity firm. Overall, our asset quality is on plan. At fair value, 24% of our portfolio is rated a one or ahead of plan and 21% of the portfolio is marked at an investment category of three or below plan, meaning not meeting plan or expectations.
Currently, we have loans to seven portfolio companies on non-accrual, which comprise 5.4% of the fair value of the total loan portfolio. And with that, I'll turn it back over to Rob to discuss the overall outlook.

Robert Ladd

Okay. Very good. Thank you, Todd. So as we look ahead to the first quarter of 2025, I'll cover portfolio growth, equity realizations, and dividends. The active fourth quarter has continued into the first quarter of 2025. As of last Friday, we have funded an additional $47 million, bringing our portfolio to $1 billion for the first time in our firm's history. We expect that level to maintain and probably finish the quarter at the $1 billion number.
As Todd noted earlier, we had realized equity gains in the fourth quarter of $5.5 million. We expect we'll see more equity gains in 2025, with approximately $4 million to $5 million by June 30. And as a reminder, our equity co-invest business, we have equity co-investments across 92 companies with a cost basis of $59 million. We believe over time that we should see meaningful uplift from here. Our historical results would indicate realizations in excess of 2 times our cost.
And finally, regarding dividends, we declared the dividend for the fourth quarter -- sorry, for the first quarter of 2025 at a rate of $0.40 per share, again, payable monthly. We do expect that level of dividend, again, $0.40 per share payable monthly, to continue into the second quarter. And based on spillover or previous year's earnings that have not been distributed, we would expect this level to continue throughout the year. Of course, all of this is subject to Board approval.
And with that, we'll open up for questions. Ali, please begin the Q&A session, please.

Question and Answer Session

Operator

(Operator Instructions) Sean-Paul Adams, Raymond James.

Sean-Paul Adams

So when it comes to discussions about potential tariff impacts to companies within the portfolio and also discussions about potential changes in credit quality, what are your thoughts on leverage going into 2025 and 2026 and just the potential concerns about the magnification of that potential credit risk?

Robert Ladd

Yes. Good question. So as you know, we're operating at a lower leverage level than we've normally operated. Our target regulatory leverage is 1:1, and the gap would be 2:1, but we're certainly at a lower level than that now. So I'd say, I think we continue to shoot for that target leverage. We're certainly cautious about the uncertainty that's being created by the executive branch of the government. But I think that at this point, we'd like to, so to speak, wait and see the impact of what's happening, but we're certainly cautious about what that could mean.
We certainly have most -- substantially, all of our businesses are based in the United States, but some would touch government activity. Some would have activities cross-border. So we're certainly cognizant of that. But I think we're in a wait-and-see attitude but cautious, as you say.

Operator

Christopher Nolan, Ladenburg Thalmann.

Christopher Nolan

Rob, could you give us a little thoughts in terms of -- given all the outlook information you gave, which is always appreciated, do you think the first quarter EPS will cover the dividend?

Robert Ladd

We don't have it quite yet, but probably not fully covered. We'll see what the balance of the quarter looks like, but probably not but would be close. And again, I think part of this is we look at the dividend and we look at earnings.
One, we have substantial earnings from the past that have not been paid out. So that's helpful and effectively covering. And then we look at it over time. And as I mentioned, we're likely to start seeing some equity realizations kick in, that will be helpful. But I think as a technical matter, Todd, we probably won't quite cover in the first quarter.

W. Todd Huskinson

Yes, that's right, Chris. We think we'll be off by a few cents, and that general trend will make -- kind of continue throughout the year, just given kind of the rate environment and the spread environment.

Christopher Nolan

Got you. And then on the topic of spreads, what was the driver for the decrease in investment yields in the first quarter?

Robert Ladd

So good -- so in terms of spreads, so maybe as a macro thought, so as we started 2024, we were seeing spreads of 6s and as we end the year, seeing spreads in the 5s. So you probably -- that's one factor. Two, SOFR did decline quarter over quarter and then probably some impact again for some additional non-accruals, Chris. But the good news is, it's in excess of 10% growth.

Christopher Nolan

And on the topic of leverage, your leverage is just so low. I mean, what's the thought here in terms of -- your leverage is -- seems to be artificially low. The EPS outlook doesn't quite cover the dividend, and you're in a tightening spread environment. Why don't you just increase leverage a little bit?

Robert Ladd

Yes. So that's a good counterbalance to the first question. So yes, so we -- as I say, we're targeting a 1:1, being cautious about it. And so we -- you may see that come -- happen over time this year, and there's some different ways to achieve that leverage but more to come.

Christopher Nolan

Got you. And final question. I know you paid off part of an SBA maturity in the first quarter of 2025. Are you guys going to re-up for more SBA lending capacity?

Robert Ladd

Yes, we are. We're moving forward with the third license, and thanks for noting that after 10 years, our first license debentures are starting to come due, and so we did prepay the first debenture payment in mid-February of roughly $16 million. But we're in the process of obtaining, hopefully, a third license, and we'll continue that program along the way.

Operator

Erik Zwick, Lucid Capital Markets.

Erik Zwick

Wanted to start first on the pipeline. You obviously had some nice new origination activity in the fourth quarter, and it seems like you're off to a good start here in the first quarter as well. So maybe just quantitatively, can you maybe kind of update us on kind of where the pipeline stands today relative to 90 days ago? And additionally, kind of what that mix looks like between new versus add-on opportunities?

Robert Ladd

Yes. So I'd say that, again, very busy fourth quarter and really the last month or two of the fourth quarter and then really through the first two months, we're -- this quarter, we're on a pace that would be exceptional. So I think we've seen a little bit of slowness but continued activity. As you know, our platform is it's a $3 billion plus platform overall. And so our investment teams are seeing a number of deals every week so I think good pipeline, good deal flow, probably not expecting the same level every month that we had in the first two.
But then I'd also say, so following question about new investments versus follow-on. So the follow-ons are very helpful. They come in two ways. One would just literally be a new follow-on to the same company. And then alternatively, or in addition to that, we'll have delayed draw term loans, where someone is tapping an existing commitment that's been made. And this is helpful and it's already in place and everything has been negotiated. So it comes in both ways. But I'd say, the quantum of that is probably two-thirds are new transactions and roughly a third would be follow-ons or draws under DDTLs.

Erik Zwick

Great. Appreciate the color there. And just a reminder, in terms of most of the delayed draw term loans you have, do the companies need to meet some sort of financial hurdles to be able to draw on that? Or are they at the discretion of the company? Just remind me how those are typically structured.

Robert Ladd

Right. They're typically structured that they're a true commitment, but they are subject to certain tests. So one it would be they're in compliance with all the covenants, and they typically would have in addition to that, what's known as an incurrence test, and so the leverage quotient at the time they draw would have to be similar to the time when the loan first closed. So keeping the leverage at where we started out.
And then in addition to that, assuming you could have what needs to be used for a certain purpose. And typically, it's for an acquisition or some of the expansion.

Erik Zwick

Yes, that makes sense. Okay. And then transitioning to the spillover. I think you mentioned it in the prepared remarks with regard to the dividend and having some ability to support the dividend in the near term. With that, can you remind us of where the dollar level of the spillover is this quarter or at the end of -- into the fourth quarter?

W. Todd Huskinson

Yes. We had -- Erik, we had $45 million of spillover at the end of the year. So that's kind of what we're working against during 2025.

Operator

Paul Johnson, KBW.

Paul Johnson

Just a little bit more on the just kind of tariff risk in general, higher level. But have you guys run any sort of analysis or assess the portfolio in any way in terms of just kind of how much of the portfolio might be at risk of any of the tariff issues ongoing as well as just exposure to maybe kind of government services or any sort of anecdotal data points you'd be able to provide?

Robert Ladd

Sure, Paul. So we certainly analyzed it or have been looking at it. It would appear that impact from tariffs would be more than the impact from the government kind of exposure, probably like a 2:1 there. Our rough estimate is that it's probably -- could be up to 10%. I mean, it depends how you create them and what actually happens. But at this point, it would not appear to be material in terms of the overall activity. But we're -- as I said at the outset, we're going to wait and see and what really comes through from what's said at the government level and what actually ends up happening.

Paul Johnson

Got it. Appreciate that. And then last one, on the realized gains this quarter, was there any additional markup at all from those investments that were exited in the fourth quarter?

Robert Ladd

Yes. And (inaudible) but it was a few million dollars. We have one equity position that is continuing to grow. And in addition to the partial realization, its value has increased as well.

Paul Johnson

Got it. Great. It's all for me.

Robert Ladd

Okay. Thank you, Paul.

Operator

As we have no further questions on the line, I will now hand the call back over to Mr. Ladd for any closing comments.

Robert Ladd

Okay. Great. Thank you. And again, thank you, everyone, for your support of our company. We look forward to getting back with you in early May as we discuss the first quarter.

Operator

Thank you, ladies and gentlemen. This concludes today's conference, and you may disconnect your lines at this time. And we thank you for your participation.