Stellus Private Credit BDC Reports Results for its First Fiscal Quarter Ended March 31, 2023

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May 11, 2023, 19:08 ET

HOUSTON, May 11, 2023 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC" or the "Company") today announced financial results for its first fiscal quarter ended March 31, 2023.

Robert T. Ladd, Chief Executive Officer of Stellus Private Credit BDC, stated: "We are pleased to report solid results in the first quarter in which we generated $0.48 per share of net investment income and maintained net asset value. During the quarter we made three new investments and one investment in an existing portfolio company, and had one payoff, totaling net portfolio growth of $7 million at fair value, bringing the total portfolio to $165 million at fair value. On March 14, 2023, we declared our first quarter dividend of $0.42 per share which was covered by net investment income and represents an annualized dividend yield of 11.4%."


FINANCIAL HIGHLIGHTS
($ in millions, except data relating to per share amounts and shares outstanding)

	Three Months Ended		Three Months Ended
	March 31, 2023		March 31, 2022
	Amount	Per Share	Amount	Per Share
Net investment income	$2.64	$0.48	$0.08	$0.03
Net unrealized loss included in earnings	(0.06)	(0.01)	(0.11)	(0.04)
Net increase in net assets resulting from operations	$2.58	$0.47	(0.03)	(0.01)
Distributions	(2.31)	(0.42)	—	—
Other weighted average share adjustments⁽¹⁾	—	(0.01)	—	—
Net asset value	85.7	$14.68	80.3	$14.76
Weighted average shares outstanding		5,501,765		2,333,334


(1)	Includes the impact of different share amounts as a result of calculating certain per share data based on weighted average shares outstanding during the period and certain per share data based on shares outstanding as of the period end.


PORTFOLIO ACTIVITY
($ in millions)

	As of	As of
	March 31, 2023	December 31, 2022
Investments at fair value	$164.8	$157.5
Total assets	$174.4	$174.4
Net assets	$85.7	$80.3
Shares outstanding	5,832,979	5,483,433
Net asset value per share	$14.68	$14.64

	Three Months Ended	Three Months Ended
	March 31, 2023	March 31, 2022
New investments	$17.1	$38.0
Repayments of investments	(9.8)	(0.5)
Net activity	$7.3	$37.5

Results of Operations

Investment income for the three months ended March 31, 2023 and 2022 totaled $4.9 million and $0.4 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended March 31, 2023 and 2022 totaled $3.2 million and $0.5 million, respectively, net of $1.0 million and $0.3 million in expenses reimbursed and fees waived by the Company's investment advisor, Stellus Private BDC Advisor, LLC (the "Advisor"), respectively. For the same periods, base management fees totaled $0.6 million and $0.1 million (all of which were waived by the Advisor), income incentive fees totaled $0.4 million (net of $0.1 million which were waived as our shares were not listed on a national exchange) and $0.0 million, respectively, fees and expenses related to our borrowings totaled $1.7 million and $0.1 million, respectively (including interest and amortization of deferred financing costs), administrative expenses totaled $0.1 million for both periods, and other expenses totaled $0.4 million and $0.3 million, respectively.

Net investment income was $2.6 million and $0.1 million, or $0.48 and $0.03 per common share based on weighted average common shares outstanding for the three months ended March 31, 2023 and 2022 of 5,501,765 and 2,333,334, respectively.

The Company's investment portfolio had a net change in unrealized depreciation of ($0.1) million for both the three months ended March 31, 2023 and 2022.

Net increase (decrease) in net assets resulting from operations totaled $2.6 million and $(0.0) million, or $0.47 and ($0.01) per common share, based on weighted average common shares outstanding for the three months ended March 31, 2023 and 2022 of 5,501,765 and 2,333,334, respectively.

Liquidity and Capital Resources

As of March 31, 2023, our amended and restated senior secured revolving credit agreement with Signature Bank (as amended from time to time, the "Commitment Facility") provided for borrowings in an aggregate amount of up to $50.0 million on a committed basis. On March 10, 2023, Signature Bank was placed into receivership by the Federal Deposit Insurance Corporation ("FDIC"), however, the Commitment Facility remained in full force and effect. As of March 31, 2023 and December 31, 2022, we had $45.0 million and $80.6 million in outstanding borrowings under the Commitment Facility, respectively.

On September 30, 2022, the Company entered into a senior secured revolving credit agreement with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the "Credit Facility", together with the Commitment Facility, the "Credit Facilities"). The Credit Facility, as amended, provides for borrowings up to a maximum of $130.0 million on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $200.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions. As of March 31, 2023 and December 31, 2022, we had $31.0 million and $0.0 million in outstanding borrowings under the Credit Facility.

Recent Portfolio Activity

The Company invested in the following portfolio companies for the three months ended March 31, 2023:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	January 31, 2023	Red's All Natural, LLC	Premium frozen food manufacturer	$	4,900,742	Senior Secured – First Lien
				$	318,998	Equity
New Investment	March 15, 2023	Cerebro Buyer, LLC	Manufacturer of single-use electrodes for medical procedures	$	2,114,000	Senior Secured – First Lien
				$	478,771	Revolver commitment
				$	184,925	Equity
				$	34,135	Equity
Add-On Investment	March 27, 2023	BDS Solutions Intermediateco, LLC*	Leading provider of outsourced marketing services	$	653,070	Senior Secured – First Lien
New Investment	March 31, 2023	American Refrigeration, LLC	Provider of industrial refrigeration installation and maintenance services	$	3,736,348	Senior Secured – First Lien
				$	1,243,392	Revolver commitment
				$	482,132	Delayed Draw Term Loan Commitment
				$	91,031	Equity


*	Existing portfolio company

The Company received proceeds from payoffs from the following portfolio companies for the three months ended March 31, 2023:


Activity Type	Date	Company Name	Proceeds Received		Instrument Type
Full Repayment	March 29, 2023	AIP ATCO Buyer, LLC	$	8,823,357	First lien term loan

Events Subsequent to March 31, 2023

The Company's management has evaluated subsequent events through May 11, 2023. There have been no subsequent events that require recognition or disclosure except for the following described below.

Investment Portfolio

The Company invested in the following portfolio companies subsequent to March 31, 2023:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
Add-On Investment	April 14, 2023	BLP Buyer, Inc.*	Distributor of lifting solutions	$	781,051	Senior Secured – First Lien
				$	102,981	Equity
Add-On Investment	April 17, 2023	Axis Portable Air, LLC*	Air conditioning, heating, and air quality equipment rental company	$	854,937	Senior Secured – First Lien
New Investment	April 28, 2023	Impact Home Services, LLC	Residential, garage door, electrical, and plumbing services provider	$	2,680,423	Senior Secured – First Lien
				$	735,885	Revolver commitment
				$	175,908	Equity
New Investment	May 1, 2023	RIA Advisory, LLC	Provider of Oracle software implementation services	$	4,173,954	Senior Secured – First Lien
				$	683,288	Revolver commitment
				$	193,866	Equity

Credit Facility

On April 26, 2023, the Company entered into an increase agreement to the September 30, 2022 by and between the Company, as the borrower and Zions Bancorporation, N.A., dba Amegy Bank and various other lenders. The increase agreement amends the Credit Facility and increases the maximum commitment amount under the Credit Facility from $130,000,000 to $150,000,000 on a committed basis.

The outstanding balance under the Commitment Facility as of May 11, 2023 was $45,000,000 and the outstanding balance under the Credit Facility was $39,650,000.

Sale of Unregistered Securities

Since March 31, 2023, the Company sold 339,316 common shares of beneficial interest at a price of $14.68 per share for aggregate proceeds of $5.0 million, which includes less than $0.1 million of Organizational Expense Allocation pursuant to the Immediate Share Issuance Agreement. The sale of common shares of beneficial interest was made pursuant to subscription agreements entered into by the Company and its shareholders. Additionally, the Company entered into a Capital Draw Down Subscription Agreement for an aggregate of $5.0 million in undrawn commitments. Under the terms of the subscription agreements, are required to fund drawdowns to purchase shares of common stock up to the amount of their respective capital commitments on an as-needed basis with a minimum of ten days' prior notice to shareholders.

Since March 31, 2023, the Company also issued 10,629 common shares of beneficial interest under the DRIP.

About Stellus Private Credit BDC

The Company is an externally-managed, closed-end, non-diversified investment management company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. The Company's investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation by investing primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche) loans and second lien loans, with corresponding equity co-investments. The Company's investment activities are managed by its investment adviser, Stellus Private BDC Advisor, LLC.

Forward-Looking Statements

Statements included herein may contain "forward-looking statements" which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission including the final prospectus that will be filed with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Contacts

Stellus Private Credit BDC
W. Todd Huskinson, Chief Financial Officer
(713) 292-5414
[email protected]

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)

	March 31, 2023
	(unaudited)		December 31, 2022
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $165,413,414 and $158,022,677, respectively)	$	164,829,686	$	157,504,755
Cash and cash equivalents		7,690,197		15,469,823
Other receivable		16,200		—
Interest receivable		1,260,895		1,030,274
Expense reimbursement receivable from the Advisor (Note 2)		364,274		165,638
Deferred offering costs		93,643		54,394
Related party receivable		59,271		9,620
Prepaid expenses		96,495		133,004
Receivable for sales and repayments of investments		23,834		26,996
Total Assets	$	174,434,495	$	174,394,504
LIABILITIES
Credit Facilities payable	$	74,807,833	$	79,448,134
Short-term loan payable		4,500,000		11,250,000
Related party payable		5,000,000		—
Dividends payable		2,306,409		1,809,533
Unearned revenue		535,226		539,634
Income incentive fee payable		621,306		328,196
Interest payable		669,021		563,241
Administrative services payable		140,522		66,064
Income tax payable		15,306		7,471
Other accrued expenses and liabilities		187,202		119,274
Total Liabilities	$	88,782,825	$	94,131,547
Commitments and contingencies (Note 7)
Net Assets	$	85,651,670	$	80,262,957
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 5,832,979 and 5,483,433 issued and outstanding, respectively)	$	58,330	$	54,834
Paid-in capital		86,066,803		80,950,845
Total distributable loss		(473,463)		(742,722)
Net Assets	$	85,651,670	$	80,262,957
Total Liabilities and Net Assets	$	174,434,495	$	174,394,504
Net Asset Value Per Share	$	14.68	$	14.64

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended
	March 31, 2023		March 31, 2022
INVESTMENT INCOME
Interest income	$	4,731,952	$	359,011
Other income		176,069		10,743
Total Investment Income	$	4,908,021	$	369,754
OPERATING EXPENSES
Management fees	$	601,839	$	92,289
Income incentive fees		439,666		—
Professional fees		211,808		108,588
Organization costs		1,000		90,184
Amortization of deferred offering costs		57,623		34,877
Administrative services expenses		93,760		68,142
Trustees' fees		40,000		38,000
Insurance expense		20,084		20,301
Valuation fees		17,659		—
Interest expense and other fees		1,703,503		72,767
Income tax expense		7,835		—
Other general and administrative expenses		43,520		17,977
Total Operating Expenses	$	3,238,297	$	543,125
Expenses reimbursed/fees waived by Investment Advisor (Note 2)	$	(968,275)	$	(250,222)
Net Operating Expenses	$	2,270,022	$	292,903
Net Investment Income	$	2,637,999	$	76,851
Net realized gain on foreign currency translation	$	3,475	$	—
Net change in unrealized depreciation on non-controlled non-affiliated investments		(72,026)		(108,048)
Net change in unrealized appreciation on foreign currency translations		6,220		—
Net Increase (Decrease) in Net Assets Resulting from Operations	$	2,575,668	$	(31,197)
Net Investment Income Per Share – basic and diluted	$	0.48	$	0.03
Net Increase (Decrease) in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.47	$	(0.01)
Weighted Average Common Shares of Beneficial Interest Outstanding – basic and diluted		5,501,765		2,333,334
Distributions Per Share – basic and diluted	$	0.42	$	—

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)

	Common Shares of
	Beneficial Interest					Total
	Number of	Par		Paid-in		distributable
	shares	value		capital		loss		Net Assets
Balances at December 31, 2021	—	$	—	$	—	$	(532,845)	$	(532,845)
Net investment loss	—		—		—		76,851		76,851
Net change in unrealized depreciation on non-controlled, non-affiliated investments							(108,048)
Issuance of common shares of beneficial interest	2,333,334		23,333		34,976,667		—		3,500,000
Balances at March 31, 2022	2,333,334	$	23,333	$	34,976,667	$	(564,042)	$	34,435,958

Balances at December 31, 2022	5,483,433	$	54,834	$	80,950,845	$	(742,722)	$	80,262,957
Net investment income	—		—		—		2,637,999		2,637,999
Net realized gain on foreign currency translation	—		—		—		3,475		3,475
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(72,026)		(72,026)
Net change in unrealized appreciation on foreign currency translations	—		—		—		6,220		6,220
Distributions from net investment income	—		—		—		(2,306,409)		(2,306,409)
Issuance of common shares of beneficial interest	349,546		3,496		5,115,958		—		5,119,454
Balances at March 31, 2023	5,832,979	$	58,330	$	86,066,803	$	(473,463)	$	85,651,670

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Three Months Ended
	March 31, 2023		March 31, 2022
Cash flows from Operating Activities
Net increase (decrease) in net assets resulting from operations	$	2,575,668	$	(31,197)
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(17,104,559)		(38,042,681)
Proceeds from sales and repayments of investments		9,823,196		457,829
Net change in unrealized depreciation on investments		72,026		108,048
Net change in unrealized appreciation foreign currency translations		(6,220)		—
Amortization of premium and accretion of discount, net		(106,212)		(12,063)
Amortization of loan structure fees		156,894		47,368
Amortization of deferred offering costs		57,623		34,877
Changes in other assets and liabilities
Increase in interest receivable		(230,621)		(161,594)
Increase in other receivable		(16,200)		(30)
Increase in related party receivable		(49,651)		—
Increase in expense reimbursements receivable from the Advisor		(198,636)		(157,933)
Decrease in prepaid expenses		36,509		20,185
Increase in related party payable		5,000,000		—
Decrease in due to affiliate		—		(460,085)
Increase in trustees' fees payable		—		38,000
Increase in administrative services payable		74,458		63,975
Increase in interest payable		105,780		25,399
Increase in income incentive fees payable		293,110		—
(Decrease) increase in unearned revenue		(4,408)		185,844
Increase in income tax payable		7,835		—
Increase in other accrued expenses and liabilities		67,928		403,148
Net Cash Provided (Used) in Operating Activities	$	554,520	$	(37,480,910)
Cash flows from Financing Activities
Proceeds from issuance of common shares of beneficial interest	$	5,119,454	$	35,000,000
Offering costs paid for common shares of beneficial interest issued		(96,872)		(76,195)
Stockholder distributions paid		(1,809,533)		—
Borrowings under Credit Facilities		49,500,000		34,000,000
Repayments of Credit Facilities		(54,115,000)		—
Financing costs paid on Credit Facilities		(182,195)		(293,382)
Short-term loan repayments		(6,750,000)		—
Net Cash (Used) Provided by Financing Activities	$	(8,334,146)	$	68,630,423
Net (Decrease) Increase in Cash and Cash Equivalents	$	(7,779,626)	$	31,149,513
Cash and Cash Equivalents Balance at Beginning of period		15,469,823		—
Cash and Cash Equivalents Balance at End of Period	$	7,690,197	$	31,149,513
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	1,440,829	$	—
Increase in deferred offering costs		39,249		41,319
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		119,453		—
Increase in dividends payable		496,876		—