Stellus Private Credit BDC Reports Results for its Second Fiscal Quarter Ended June 30, 2023

News provided by

Aug 11, 2023, 12:23 ET

HOUSTON, Aug. 11, 2023 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC" or the "Company") today announced financial results for its second fiscal quarter ended June 30, 2023.

Robert T. Ladd, Chief Executive Officer of Stellus Private Credit BDC, stated "We are pleased to report solid results in the second quarter in which we generated $0.44 per share of net investment income and increased net asset value. During the quarter we made five new investments resulting in portfolio growth of $23 million at fair value, bringing the total portfolio to $188 million at fair value. On June 27, 2023, we declared our second quarter dividend of $0.44 per share which represents an annualized dividend yield of 11.7%."


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

	Three Months Ended		Six Months Ended
	June 30, 2023		June 30, 2023
	Amount	Per Share	Amount	Per Share
Net investment income	$2.68	$0.44	$5.33	$0.92
Net unrealized gain included in earnings	1.83	0.30	1.76	0.30
Net increase in net assets resulting from operations	$4.51	$0.75	7.09	1.23
Distributions	(2.72)	(0.45)	(5.03)	(0.87)
Other weighted average share adjustments⁽¹⁾	—	0.01	—	(0.01)
Net asset value	92.6	$14.98	92.6	$14.98
Weighted average shares outstanding		6,037,036		5,770,879

(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
	June 30, 2023	December 31, 2022
Investments at fair value	$188.3	$157.5
Total assets	$190.8	$174.4
Net assets	$92.6	$80.3
Shares outstanding	6,182,924	5,483,433
Net asset value per share	$14.98	$14.64

	Three Months Ended	Six Months Ended
	June 30, 2023	June 30, 2023
New investments	$24.4	$41.4
Repayments of investments	(2.8)	(12.6)
Net activity	$21.6	$28.8

Results of Operations

Investment income for the three and six months ended June 30, 2023 totaled $5.2 million and $10.1 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three and six months ended June 30, 2023 totaled $3.5 million and $6.7 million, respectively, net of $1.0 million and $1.9 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 $0.7 million and $1.3 million (all of which were waived by the Advisor), income incentive fees totaled $0.3 million and $0.6 million (net of $0.2 million and $0.3 million which were waived as our shares were not listed on a national exchange), capital gain incentive fees of $0.1 million and $0.1 million, which are not currently payable, fees and expenses related to our borrowings totaled $1.8 million and $3.5 million, respectively (including interest and amortization of deferred financing costs), administrative expenses totaled $0.1 million and $0.2 million, other expenses totaled $0.3 million and $0.7 million, and expense support and conditional reimbursements from the Advisor of ($0.1) and ($0.3), respectively.

Net investment income was $2.7 million and $5.3 million, or $0.44 and $0.92 per common share based on weighted average common shares outstanding for the three and six months ended June 30, 2023 of 6,037,036 and 5,770,879, respectively.

The Company's investment portfolio had a net change in unrealized appreciation of $1.8 million for both the three and six months ended June 30, 2023.

Net increase in net assets resulting from operations totaled $4.5 million and $7.1 million, or $0.75 and $1.23 per common share, based on weighted average common shares outstanding for the three and six months ended June 30, 2023 of 6,037,036 and 5,770,879, respectively.

Liquidity and Capital Resources

As of June 30, 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 June 30, 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 $150.0 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 June 30, 2023 and December 31, 2022, we had $50.2 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 June 30, 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 Borrower, LLC

Provider of Oracle software implementation services

4,173,954

Senior Secured – First Lien

683,288

Revolver Commitment

193,866

Equity

New Investment

May 22, 2023

Equine Network, LLC

Provider of content, information, tech-enabled
services, and hosts competitions for the U.S. equine
industry

2,261,138

Senior Secured – First Lien

211,919

Revolver Commitment

371,545

Delayed Draw Term Loan Commitment

New Investment

June 5, 2023

2X LLC

Provider of outsourced digital B2B marketing-as-a-
service

2,505,461

Senior Secured – First Lien

2,278,843

Revolver Commitment

503,611

Equity

New Investment

June 30, 2023

Craftable Intermediate II Inc

Hospitality focused back-of-house management and
automation software platform

4,735,553

Senior Secured – First Lien

3,149,231

Revolver Commitment

485,218

Equity

Add-On Investment

June 30, 2023

Impact Home Services LLC*

Provides of garage door, electrical, and plumbing
residential services

121,837

Senior Secured – First Lien

* Existing portfolio company

Events Subsequent to June 30, 2023

The Company's management has evaluated subsequent events through August 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 June 30, 2023:


Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
New Investment	July 7, 2023	Madison Logic, Inc.*	Provider of B2B account based marketing services	$	461,351	Equity
New Investment	July 31, 2023	EHI Buyer, Inc	Provider of design, engineering, installation, and maintenance services for building management systems	$	2,820,685	Senior Secured – First Lien
				$	1,410,343	Delayed Draw Term Loan Commitment
				$	3,149,231	Revolver Commitment
				$	492,017	Equity
New Investment	August 2, 2023	Compost 360 Acquisition, LLC	Organic waste recycler and producer of compost, mulch, and engineered soils	$	5,915,156	Senior Secured – First Lien
				$	2,609,627	Delayed Draw Term Loan Commitment
				$	2,919,023	Revolver Commitment
				$	208,069	Equity
New Investment	August 3, 2023	Morgan Electrical Group Intermediate Holdings, Inc	Provider of commercial electrical services	$	2,022,258	Senior Secured – First Lien
				$	1,304,682	Delayed Draw Term Loan Commitment
				$	717,227	Revolver Commitment
				$	194,900	Equity
New Investment	August 7, 2023	The Hardenbergh Group, Inc	Provider of temporary professional staffing of Medical Services Professionals, external peer review, consulting and physician leadership solutions	$	4,783,836	Senior Secured – First Lien
				$	1,679,360	Revolver Commitment
				$	264,885	Equity
New Investment	August 8, 2023	Green Intermediateco II, Inc	Cyber-security focused value-added reseller and associated service provider	$	6,361,759	Senior Secured – First Lien
				$	2,002,253	Delayed Draw Term Loan Commitment
				$	194,512	Equity

* Existing portfolio company

Credit Facility

As of August 11, 2023, the outstanding balance under the Commitment Facility was $45.0 million and the outstanding balance under the Credit Facility was $73.8 million.

Sale of Unregistered Securities

Since June 30, 2023, the Company sold 73,161 common shares of beneficial interest at a price of $14.98 per share for aggregate proceeds of $1.1 million, which included less than $0.1 million of Organizational Expense Allocation pursuant to Subscription Agreements entered into between the Company and investors.

Additionally, on July 31, 2023, the Company called $10.0 million pursuant to capital draw down subscription agreements between the Company and its shareholders. The transaction is expected to close on August 15, 2023 and result in the issuance of 667,557 common shares of beneficial interest at a price of $14.98 per share.

Since June 30, 2023, the Company also issued 11,413 common shares of beneficial interest for aggregate proceeds of $0.2 million 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)

	June 30, 2023
	(unaudited)		December 31, 2022
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $187,087,867 and $158,022,677, respectively)	$	188,323,515	$	157,504,755
Cash and cash equivalents		750,437		15,469,823
Interest receivable		1,309,349		1,030,274
Expense reimbursement receivable from the Advisor (Note 2)		139,229		165,638
Deferred offering costs		86,760		54,394
Related party receivable		104,584		9,620
Prepaid expenses		62,416		133,004
Receivable for sales and repayments of investments		21,102		26,996
Total Assets	$	190,797,392	$	174,394,504
LIABILITIES
Credit Facilities payable	$	93,979,360	$	79,448,134
Short-term loan payable		—		11,250,000
Dividends payable		2,720,486		1,809,533
Unearned revenue		607,975		539,634
Income incentive fee payable		359,033		328,196
Capital gains incentive fee payable		124,892		—
Interest payable		173,329		563,241
Administrative services payable		92,213		66,064
Income tax payable		15,861		7,471
Other accrued expenses and liabilities		127,045		119,274
Total Liabilities	$	98,200,194	$	94,131,547
Commitments and contingencies (Note 7)
Net Assets	$	92,597,198	$	80,262,957
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 6,182,924 and 5,483,433 issued and outstanding, respectively)	$	61,829	$	54,834
Paid-in capital		91,218,919		80,950,845
Total distributable earnings (loss)		1,316,450		(742,722)
Net Assets	$	92,597,198	$	80,262,957
Total Liabilities and Net Assets	$	190,797,392	$	174,394,504
Net Asset Value Per Share	$	14.98	$	14.64

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
INVESTMENT INCOME
Interest income	$	5,158,773	$	1,247,218	$	9,890,725	$	1,606,229
Other income		62,484		30,608		238,553		41,351
Total Investment Income	$	5,221,257	$	1,277,826	$	10,129,278	$	1,647,580
OPERATING EXPENSES
Management fees	$	666,721	$	299,076	$	1,268,560	$	391,365
Income incentive fees		468,011		77,677		907,677		77,677
Capital gains incentive fee		124,892		—		124,892		—
Professional fees		168,703		116,476		380,511		225,064
Organization costs		—		—		1,000		90,184
Amortization of deferred offering costs		41,106		62,954		98,729		97,831
Administrative services expenses		100,914		40,257		194,674		108,399
Trustees' fees		40,000		40,000		80,000		78,000
Insurance expense		20,307		20,495		40,391		40,796
Valuation fees		615		—		18,274		—
Interest expense and other fees		1,822,407		277,904		3,525,910		350,671
Income tax expense		8,855		—		16,690		—
Other general and administrative expenses		37,503		30,392		81,023		48,369
Total Operating Expenses	$	3,500,034	$	965,231	$	6,738,331	$	1,508,356
Expenses reimbursed/fees waived by Investment Advisor (Note 2)	$	(961,954)	$	(386,500)	$	(1,930,229)	$	(636,722)
Net Operating Expenses	$	2,538,080	$	578,731	$	4,808,102	$	871,634
Net Investment Income	$	2,683,177	$	699,095	$	5,321,176	$	775,946
Net realized gain on foreign currency translation	$	7,846	$	—	$	11,321	$	—
Net change in unrealized appreciation (depreciation) on non-controlled, non-affiliated investments		1,819,403		(82,562)		1,747,377		(190,610)
Net change in unrealized (depreciation) appreciation on foreign currency translations		(27)		579		6,193		579
Net Increase in Net Assets Resulting from Operations	$	4,510,399	$	617,112	$	7,086,067	$	585,915
Net Investment Income Per Share – basic and diluted	$	0.44	$	0.23	$	0.92	$	0.28
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.75	$	0.20	$	1.23	$	0.21
Weighted Average Common Shares of Beneficial Interest Outstanding – basic and diluted		6,037,036		3,092,695		5,770,879		2,790,962
Distributions Per Share – basic and diluted	$	0.45	$	—	$	0.87	$	—

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) gain		Net Assets
Balances at December 31, 2021	—	$	—	$	—	$	(532,845)	$	(532,845)
Net investment income	—		—		—		76,851		76,851
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(108,048)		(108,048)
Issuance of common shares of beneficial interest	2,333,334		23,333		34,976,667		—		35,000,000
Balances at March 31, 2022	2,333,334	$	23,333	$	34,976,667	$	(564,042)	$	34,435,958
Net investment income	—		—		—		699,095		699,095
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(82,562)		(82,562)
Net change in unrealized appreciation on foreign currency translation	—		—		—		579		579
Issuance of common shares of beneficial interest	1,355,013		13,550		19,986,450		—		20,000,000
Balances at June 30, 2022	3,688,347	$	36,883	$	54,963,117	$	53,070	$	55,053,070

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
Net investment income	—		—		—		2,683,177		2,683,177
Net realized gain on foreign currency translation	—		—		—		7,846		7,846
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,819,403		1,819,403
Net change in unrealized depreciation on foreign currency translations	—		—		—		(27)		(27)
Distributions from net investment income	—		—		—		(2,720,486)		(2,720,486)
Issuance of common shares of beneficial interest	349,945		3,499		5,152,116		—		5,155,615
Balances at June 30, 2023	6,182,924	$	61,829	$	91,218,919	$	1,316,450	$	92,597,198

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


	Six Months Ended
	June 30, 2023		June 30, 2022
Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	7,086,067	$	585,915
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(41,418,778)		(79,461,775)
Proceeds from sales and repayments of investments		12,580,637		690,802
Net change in unrealized (appreciation) depreciation on investments		(1,747,377)		190,610
Net change in unrealized appreciation foreign currency translations		(6,193)		(579)
Amortization of premium and accretion of discount, net		(221,155)		(49,672)
Amortization of loan structure fees		298,970		144,559
Amortization of deferred offering costs		98,729		97,831
Changes in other assets and liabilities
Increase in interest receivable		(279,075)		(488,877)
Increase in other receivable		—		(12,997)
Increase in related party receivable		(94,964)		(383,465)
Decrease (increase) in expense reimbursements receivable from the Advisor		26,409		(245,356)
Decrease in prepaid expenses		70,588		45,204
Decrease in due to affiliate		—		(460,085)
Decrease in trustees' fees payable		—		(42,000)
Increase in administrative services payable		26,149		64,174
(Decrease) increase in interest payable		(389,912)		92,113
Increase in income incentive fees payable		30,837		77,677
Increase in capital gains incentive fees payable		124,892		—
Increase in unearned revenue		68,341		365,612
Increase in income tax payable		8,390		—
Increase (decrease) in other accrued expenses and liabilities		7,771		(57,107)
Net Cash Used in Operating Activities	$	(23,729,674)	$	(78,847,416)
Cash Flows from Financing Activities
Proceeds from issuance of common shares of beneficial interest	$	10,275,069	$	55,000,000
Offering costs paid for common shares of beneficial interest issued		(131,095)		(121,807)
Stockholder distributions paid		(4,115,942)		—
Borrowings under Credit Facilities		72,000,000		59,950,000
Repayments of Credit Facilities		(57,415,000)		(13,500,000)
Financing costs paid on Credit Facilities		(352,744)		(429,573)
Short-term loan repayments		(11,250,000)		25,000,000
Net Cash Provided by Financing Activities	$	9,010,288	$	125,898,620
Net (Decrease) Increase in Cash and Cash Equivalents	$	(14,719,386)	$	47,051,204
Cash and Cash Equivalents Balance at Beginning of Period		15,469,823		—
Cash and Cash Equivalents Balance at End of Period	$	750,437	$	47,051,204
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	3,616,852	$	113,999
Increase in deferred offering costs		32,366		23,976
Income and excise tax paid		8,300		—
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		155,615		—
Increase in dividends payable		910,953		—