Stellus Private Credit BDC Reports Results for its Third Fiscal Quarter Ended September 30, 2022

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Nov 04, 2022, 12:54 ET

HOUSTON, Nov. 4, 2022 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC" or the "Company") today announced financial results for its third fiscal quarter ended September 30, 2022.

Robert T. Ladd, Chief Executive Officer of Stellus Private Credit BDC, stated "We are pleased to report strong results for our third full quarter of operations. During the quarter we made seven new investments and three investments in existing portfolio companies totaling $56 million at fair value, bringing the total portfolio to $127 million at fair value. On November 3, 2022, we declared our second quarterly dividend of $0.33 per share representing an annualized dividend yield of 8.8%. We expect our dividend to grow as we continue to build out the portfolio."


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

	Three Months Ended		Nine Months Ended
	September 30, 2022		September 30, 2022
	Amount	Per Share	Amount	Per Share
Net investment income	$1.54	$0.37	$2.32	$0.70
Net unrealized depreciation included in earnings	(0.63)	(0.15)	(0.82)	(0.25)
Net increase in net assets resulting from operations	0.91	0.22	1.50	0.45
Distributions	(0.77)	(0.19)	(0.77)	(0.23)
Other weighted average share adjustments⁽¹⁾	—	(0.06)	—	(0.09)
Net asset value	$76.5	$14.90	$76.5	$14.90
Weighted average shares outstanding		4,165,010		3,311,178


(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
	September 30, 2022	December 31, 2021
Investments at fair value	$127.4	—
Total assets	$141.2	$0.2
Net assets	$76.5	($0.5)
Shares outstanding	5,138,740	—
Net asset value per share	$14.90	N/A

	Three Months Ended	Nine Months Ended
	September 30, 2022	September 30, 2022
New investments	$55.6	$135.0
Repayments of investments	(6.2)	(6.9)
Net activity	$49.3	$128.1

Results of Operations

Investment income for the three months ended September 30, 2022 totaled $2.6 million, most of which was interest income from portfolio investments.

Operating expenses for the three months ended September 30, 2022 totaled $1.6 million, net of $0.5 million in expenses reimbursed and fees waived by the Company's investment advisor, Stellus Private BDC Advisor, LLC (the "Advisor"). For the same period, base management fees totaled $0.4 million (which were waived by the Advisor), income incentive fees totaled $0.2 million, fees and expenses related to our borrowings totaled $0.7 million (including interest and amortization of deferred financing costs), administrative expenses totaled less than $0.1 million, and other expenses totaled $0.2 million.

Net investment income was $1.5 million, or $0.37 per common share of beneficial interest based on weighted average common shares of beneficial interest outstanding of 4,165,010 for the three months ended September 30, 2022.

The Company's investment portfolio had a net change in unrealized depreciation of $0.6 million for the three months ended September 30, 2022.

Net increase in net assets resulting from operations totaled $0.9 million or $0.22 per common share of beneficial interest, based on weighted average common shares of beneficial interest outstanding of 4,165,010 for the three months ended September 30, 2022.

Liquidity and Capital Resources

As of September 30, 2022, 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 $100.0 million on a committed basis. As of September 30, 2022 and December 31, 2021, we had $54.6 million and $0.0 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 provides for borrowings up to a maximum of $105.0 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 September 30, 2022 and December 31, 2021, we had $0.8 million and $0 in outstanding borrowings under the Credit Facility, respectively.

Recent Portfolio Activity

New and Add-On Investments


Activity Type	Date	Company Name	Company Description	Investment Amount	Instrument Type
New Investment	July 1, 2022	Heat Makes Sense Shared Services, LLC	Branded haircare platform	$7,498,862	First lien term loan
				1,477,049	Revolver commitment
				383,465	Equity investment
New Investment	July 5, 2022	Baker Manufacturing Company, LLC	Manufacturer of water well equipment, specialized	6,169,082	Last out term loan
			filtration pumps, and custom castings	330,978	Equity investment
New Investment	July 29, 2022	Curion Holdings, LLC	Provider of product testing and consumer insights	3,551,651	First lien term loan
				1,275,886	Revolver commitment
				3,879,736	Delayed draw term loan commitment
				343,529	Equity investment
Add-On Investment	August 2, 2022	Inoapps Holdings, LLC	Existing portfolio company	31,238	Equity investment
Add-On Investment	August 8, 2022	International Designs Holdings LLC	Existing portfolio company	227,671	Equity investment
New Investment	August 11, 2022	Archer Systems, LLC	Provider of mass tort settlement administrative	9,727,427	First lien term loan
			solutions	1,025,607	Revolver commitment
				496,967	Equity investment
New Investment	August 26, 2022	Heartland Business Systems, LLC	End-to-end IT solutions provider	3,210,687	First lien term loan
				6,632,305	Delayed draw term loan commitment
				157,008	Equity investment
New Investment	August 31, 2022	Pearl Media Holdings, LLC	Provider of street-level, out-of-home advertising	2,677,934	First lien term loan
				696,773	Revolver commitment
				3,594,043	Delayed draw term loan commitment
Add-On Investment	September 1, 2022	Sapphire Aggregator S.a r.l.	Existing portfolio company	€ 293,323	Equity investment
New Investment	September 2, 2022	MacKenzie-Childs Acquisition, Inc.	Lifestyle home décor brand	9,402,047	First lien term loan
				1,536,470	Revolver commitment
				311,482	Equity investment

Full Repayments and Realizations


Activity Type	Date	Company Name	Company Description	Proceeds Received	Instrument Type
Full Repayment	July 15, 2022	International Designs Group LLC	Existing portfolio company	$5,021,456	First lien term loan
				247,908	Revolver

Events Subsequent to September 30, 2022


Activity Type	Date	Company Name	Company Description	Investment Amount	Instrument Type
Add-On Investment	October 12, 2022	BLP Buyer, Inc.	Existing portfolio company	$1,278,711	First lien term loan

Credit Facilities

The outstanding balance under the Credit Facilities as of November 4, 2022 was $49.1 million.

Distributions Declared

On November 3, 2022, our board of trustees declared a regular distribution for the third quarter of 2022 of $0.33 per share, payable to shareholders of record as of November 10, 2022.

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, including statements about COVID-19 and its impacts, 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

	September 30, 2022
	(unaudited)		December 31, 2021
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of 128,200,252)	$	127,382,778	$	—
Cash and cash equivalents		11,133,994		—
Other receivable		1,246,743		—
Interest receivable		861,191		—
Expense reimbursement receivable from the Advisor		324,831		—
Deferred offering costs		114,130		139,570
Related party receivable		43,105		—
Prepaid expenses		42,998		93,648
Receivable for sales and repayments of investments		12,967		—
Total Assets	$	141,162,737	$	233,218
LIABILITIES
Credit Facilities payable	$	54,441,084	$	—
Short-term loan payable		9,000,000		—
Due to affiliate		—		460,085
Unearned revenue		498,153		—
Income incentive fee payable		246,156		—
Interest payable		233,971		—
Administrative services payable		106,190		—
Trustees' fees payable		—		42,000
Other accrued expenses and liabilities		90,123		263,978
Total Liabilities	$	64,615,677	$	766,063
Commitments and contingencies (Note 7)
Net Assets	$	76,547,060	$	(532,845)
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 5,138,740 issued and outstanding as of September 30, 2022)	$	51,387	$	—
Paid-in capital		76,302,940		—
Accumulated undistributed surplus (deficit)		192,733		(532,845)
Net Assets	$	76,547,060	$	(532,845)
Total Liabilities and Net Assets	$	141,162,737	$	233,218
Net Asset Value Per Share	$	14.90	$	N/A

STELLUS PRIVATE CREDIT BDC CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	For the three		For the nine
	months ended		months ended
	September 30, 2022		September 30, 2022
INVESTMENT INCOME
Interest income	$	2,583,194	$	4,189,423
Other income		46,509		87,860
Total Investment Income	$	2,629,703	$	4,277,283
OPERATING EXPENSES
Management fees	$	396,989	$	788,354
Income incentive fees		168,479		246,156
Professional fees		92,630		317,694
Organization costs		—		90,184
Amortization of deferred offering costs		67,151		164,982
Administrative services expenses		48,843		157,242
Trustees' fees		40,000		118,000
Insurance expense		20,530		61,326
Interest expense and other fees		699,425		1,050,096
Other general and administrative expenses		32,607		80,976
Total Operating Expenses	$	1,566,654	$	3,075,010
Expenses reimbursed/waived by Investment Advisor (Note 2)	$	(476,464)	$	(1,113,186)
Net Operating Expenses	$	1,090,190	$	1,961,824
Net Investment Income	$	1,539,513	$	2,315,459
Net realized gain on foreign currency translation	$	2,146	$	2,146
Net change in unrealized depreciation on non-controlled, non-affiliated investments	$	(522,403)	$	(713,013)
Net change in unrealized depreciation on foreign currency translation	$	(105,040)	$	(104,461)
Net Increase in Net Assets Resulting from Operations	$	914,216	$	1,500,131
Net Investment Income Per Share – basic and diluted	$	0.37	$	0.70
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.22	$	0.45
Weighted Average Shares of Common Shares of Beneficial Interest Outstanding – basic and diluted		4,165,010		3,311,178

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

	Common Shares of
	Beneficial Interest					Accumulated
	Number of	Par		Paid-in		undistributed
	shares	value		capital		(deficit) surplus		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 translations	—		—		—		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
Net investment income	—		—		—		1,539,513		1,539,513
Net realized gain on foreign currency translation	—		—		—		2,146		2,146
Net change in unrealized depreciation on non-controlled, non-affiliated investments	—		—		—		(522,403)		(522,403)
Net change in unrealized depreciation on foreign currency translations	—		—		—		(105,040)		(105,040)
Distributions from net investment income	—		—		—		(774,553)		(774,553)
Issuance of common shares of beneficial interest	1,450,393		14,504		21,339,823		—		21,354,327
Balances at September 30, 2022	5,138,740	$	51,387	$	76,302,940	$	192,733	$	76,547,060

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

	For the nine
	months ended
	September 30, 2022
Cash flows from operating activities
Net increase in net assets resulting from operations	$	1,500,131
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(135,023,930)
Proceeds from sales and repayments of investments		6,925,278
Net change in unrealized depreciation on investments		713,013
Net change in unrealized depreciation on foreign currency translations		104,461
Amortization of premium and accretion of discount, net		(114,567)
Amortization of loan structure fees		277,541
Amortization of deferred offering costs		164,982
Changes in other assets and liabilities
Increase in interest receivable		(861,191)
Increase in other receivable		(1,246,743)
Increase in related party receivable		(43,105)
Increase in expense reimbursements receivable from the Advisor		(324,831)
Increase in prepaid expenses		50,650
Decrease in due to affiliate		(460,085)
Decrease in trustees' fees payable		(42,000)
Increase in administrative services payable		106,190
Increase in interest payable		233,971
Increase in income incentive fees payable		246,156
Increase in unearned revenue		498,153
Increase in other accrued expenses and liabilities		(173,855)
Net Cash Used In Operating Activities	$	(127,469,781)
Cash flows from Financing Activities
Proceeds from the issuance of common shares of beneficial interest	$	76,354,327
Offering costs paid for common shares of beneficial interest issued		(139,542)
Stockholder distributions paid		(774,553)
Borrowings under Credit Facilities		90,290,000
Repayments of Credit Facilities		(34,890,000)
Financing costs paid on Credit Facilities		(1,236,457)
Short-term loan borrowings		9,000,000
Net Cash Provided by Financing Activities	$	138,603,775
Net Increase in Cash and Cash Equivalents	$	11,133,994
Cash and Cash Equivalents Balance at Beginning of period		—
Cash and Cash Equivalents Balance at End of Period	$	11,133,994
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	539,122
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		4,328