Stellus Private Credit BDC Reports Results for its Third Fiscal Quarter Ended September 30, 2023

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Nov 09, 2023, 14:55 ET

HOUSTON, Nov. 9, 2023 /PRNewswire/ -- Stellus Private Credit BDC ("Stellus PBDC" or the "Company") today announced financial results for its third fiscal quarter ended September 30, 2023.

Robert T. Ladd, Chief Executive Officer of Stellus Private Credit BDC, stated "We are pleased to report strong results in the second quarter in which we generated $0.47 per share of net investment income and increased net asset value. During the quarter we made six new investments resulting in portfolio growth of $23 million at fair value, bringing the total portfolio to $212 million at fair value. On September 27, 2023, we declared our third quarter dividend of $0.46 per share which represents an annualized dividend yield of 12.2%."

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

	Three Months Ended		Nine Months Ended
	September 30, 2023		September 30, 2023
	Amount	Per Share	Amount	Per Share
Net investment income	$3.08	$0.47	$8.41	$1.39
Net unrealized gain included in earnings	1.05	0.16	2.81	0.47
Provision for taxes on net unrealized appreciation on investments	(0.05)	(0.01)	(0.06)	(0.01)
Net increase in net assets resulting from operations	$4.08	$0.62	11.16	1.85
Distributions	(3.19)	(0.48)	(8.22)	(1.36)
Other weighted average share adjustments⁽¹⁾	—	(0.02)	—	(0.03)
Net asset value	104.7	$15.10	104.7	$15.10
Weighted average shares outstanding		6,584,179		6,044,958
__________________________________

(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, 2023	December 31, 2022
Investments at fair value	$211.8	$157.5
Total assets	$214.7	$174.4
Net assets	$104.7	$80.3
Shares outstanding	6,935,054	5,483,433
Net asset value per share	$15.10	$14.64

	Three Months Ended	Nine Months Ended
	September 30, 2023	September 30, 2023
New investments	$27.1	$68.5
Repayments of investments	(4.8)	(17.4)
Net activity	$22.3	$51.1

	As of	As of
	September 30, 2023	December 31, 2022
Number of portfolio company investments	37	25
Number of debt investments	36	24

Weight average yield of debt and other income producing investments ⁽²⁾
Cash	12.0 %	11.0 %
Fee amortization	0.5 %	0.4 %
Total	12.5 %	11.4 %

Weighted average yield on total investments ⁽³⁾
Cash	11.5 %	10.7 %
Fee amortization	0.5 %	0.4 %
Total	12.0 %	11.1 %
_________________________

(2)

The dollar-weighted average annualized effective yield is computed using the effective interest rate for our debt investments and other
income producing investments, including cash and PIK interest, as well as the accretion of deferred fees. The individual investment
yields are then weighted by the respective cost of the investments (as of the date presented) in calculating the weighted average effective
yield of the portfolio. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be
higher than what investors of our common stock would realize in a return over the same period because the dollar-weighted average
annualized yield does not reflect the Company's expense or any sales load that may be paid by investors.

(3)

The dollar weighted average yield on total investments takes the same yields as calculated in the footnote above, but weights them to
determine the weighted average effective yield as a percentage of the Company's total investments, including non-income producing
loans and equity.

Results of Operations

Investment income for the three and nine months ended September 30, 2023 totaled $6.1 million and $16.3 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three and nine months ended September 30, 2023 totaled $3.1 million and $7.9 million, respectively, net of $1.0 million and $3.0 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 $0.8 million and $2.0 million (all of which were waived by the Advisor), income incentive fees totaled $0.4 million and $1.0 million (net of $0.2 million and $0.5 million which were waived as our shares were not listed on a national exchange), capital gains incentive fees of $0.1 million and $0.2 million, which are not currently payable, fees and expenses related to our borrowings totaled $2.3 million and $5.8 million, respectively (including interest and amortization of deferred financing costs), administrative expenses totaled $0.1 million and $0.3 million, other expenses totaled $0.4 million and $1.0 million, and expense support and conditional reimbursements from the Advisor of ($0.1) and ($0.4), respectively.

For the three and nine months ended September 30, 2023, net investment income was $3.1 million and $8.4 million, or $0.47 and $1.39 per common share based on weighted average common shares outstanding of 6,584,179 and 6,044,958, respectively.

The Company's investment portfolio had a net change in unrealized appreciation of $1.0 million and $2.7 million for the three and nine months ended September 30, 2023, respectively.

For the three and nine months ended September 30, 2023, net increase in net assets resulting from operations totaled $4.1 million and $11.2 million, or $0.62 and $1.85 per common share, based on weighted average common shares outstanding of 6,584,179 and 6,044,958, respectively.

Liquidity and Capital Resources

As of September 30, 2023, the Company's 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 September 30, 2023 and December 31, 2022, the Company 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"). 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 September 30, 2023 and December 31, 2022, the Company had $60.8 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 September 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

Events Subsequent to September 30, 2023

The Company's management has evaluated subsequent events through November 9, 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 September 30, 2023:

Activity Type	Date	Company Name	Company Description	Investment Amount		Instrument Type
Add-On Investment	October 11, 2023	Impact Home Services LLC*	Provides of garage door, electrical, and plumbing residential services	$	237,583	Senior Secured – First Lien
				$	7,582	Equity
Add-On Investment	October 16, 2023	Equine Network, LLC*	Provider of content, information, tech-enabled services, and hosts competitions for the U.S. equine industry	$	420,616	Senior Secured – First Lien
Add-On Investment	October 31, 2023	2X LLC*	Provider of outsourced digital B2B marketing- as-a-service	$	659,771	Senior Secured – First Lien
__________________________

*	Existing portfolio company

Credit Facility

On February 1, 2022, the Company entered into a revolving credit and security agreement with Signature Bank as subsequently amended (the "Commitment Facility"). On March 10, 2023, Signature Bank was placed into receivership by the FDIC and on March 12, 2023, the FDIC created Signature Bridge Bank, N.A. ("Signature Bridge") to take over the operations of Signature Bank. Signature Bridge serviced the Commitment Facility until October 23, 2023. On October 23, 2023, Goldman Sachs Bank USA ("Goldman Sachs") became the servicer under the Commitment Facility. As of November 9, 2023, the Commitment Facility remained in full force and effect and is now serviced by Goldman Sachs. Any amounts borrowed under the Commitment Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on December 31, 2023.

The outstanding balance under the Commitment Facility as of November 9, 2023 was $45.0 million and the outstanding balance under the Credit Facility was $64.2 million.

Sale of Unregistered Securities

Since September 30, 2023, the Company also issued 12,050 common shares of beneficial interest for aggregate proceeds of $0.2 million under the Company's dividend reinvestment plan.

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)


	September 30, 2023
	(unaudited)		December 31, 2022
ASSETS
Non-controlled, non-affiliated investments, at fair value (amortized cost of $209,482,572 and $158,022,677, respectively)	$	211,762,646	$	157,504,755
Cash and cash equivalents		1,089,671		15,469,823
Interest receivable		1,502,820		1,030,274
Expense reimbursement receivable from the Advisor (Note 2)		82,743		165,638
Deferred offering costs		65,439		54,394
Related party receivable		136,566		9,620
Prepaid expenses		25,423		133,004
Receivable for sales and repayments of investments		28,108		26,996
Total Assets	$	214,693,416	$	174,394,504
LIABILITIES
Credit Facilities payable	$	104,722,903	$	79,448,134
Short-term loan payable		—		11,250,000
Dividends payable		3,190,125		1,809,533
Unearned revenue		864,150		539,634
Income incentive fee payable		353,142		328,196
Capital gains incentive fee payable		224,532		—
Interest payable		286,594		563,241
Administrative services payable		101,331		66,064
Income tax payable		19,814		7,471
Deferred tax liability		56,622		—
Other accrued expenses and liabilities		124,552		119,274
Total Liabilities	$	109,943,765	$	94,131,547
Commitments and contingencies (Note 7)
Net Assets	$	104,749,651	$	80,262,957
NET ASSETS
Common shares of beneficial interest, par value $0.01 per share (unlimited shares authorized; 6,935,054 and 5,483,433 issued and outstanding, respectively)	$	69,351	$	54,834
Paid-in capital		102,478,935		80,950,845
Total distributable earnings (loss)		2,201,365		(742,722)
Net Assets	$	104,749,651	$	80,262,957
Total Liabilities and Net Assets	$	214,693,416	$	174,394,504
Net Asset Value Per Share	$	15.10	$	14.64

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

	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
INVESTMENT INCOME
Interest income	$	6,042,784	$	2,583,194	$	15,933,509	$	4,189,423
Other income		96,972		46,509		335,525		87,860
Total Investment Income	$	6,139,756	$	2,629,703	$	16,269,034	$	4,277,283
OPERATING EXPENSES
Management fees	$	763,066	$	396,989	$	2,031,626	$	788,354
Income incentive fees		529,714		168,479		1,437,391		246,156
Capital gains incentive fee		99,640		—		224,532		—
Professional fees		142,356		92,630		522,867		317,694
Organization costs		—		—		1,000		90,184
Amortization of deferred offering costs		25,108		67,151		123,837		164,982
Administrative services expenses		103,415		48,843		298,089		157,242
Trustees' fees		40,000		40,000		120,000		118,000
Insurance expense		20,530		20,530		60,921		61,326
Valuation fees		20,572		—		38,846		—
Interest expense and other fees		2,312,758		699,425		5,838,668		1,050,096
Income tax expense		3,953		—		20,643		—
Other general and administrative expenses		22,386		32,607		103,409		80,976
Total Operating Expenses	$	4,083,498	$	1,566,654	$	10,821,829	$	3,075,010
Expenses reimbursed/fees waived by Investment Advisor (Note 2)	$	(1,022,379)	$	(476,464)	$	(2,952,608)	$	(1,113,186)
Net Operating Expenses	$	3,061,119	$	1,090,190	$	7,869,221	$	1,961,824
Net Investment Income	$	3,078,637	$	1,539,513	$	8,399,813	$	2,315,459
Net realized gain on foreign currency translation	$	8,599	$	2,146	$	19,920	$	2,146
Net change in unrealized appreciation (depreciation) on non-controlled, non-affiliated investments		1,054,344		(522,403)		2,801,721		(713,013)
Net change in unrealized depreciation on foreign currency translations		(9,918)		(105,040)		(3,725)		(104,461)
Provision for taxes on net unrealized gain on investments		(56,622)	$	—	$	(56,622)	$	—
Net Increase in Net Assets Resulting from Operations	$	4,075,040	$	914,216	$	11,161,107	$	1,500,131
Net Investment Income Per Share – basic and diluted	$	0.47	$	0.37	$	1.39	$	0.70
Net Increase in Net Assets Resulting from Operations Per Share – basic and diluted	$	0.62	$	0.22	$	1.85	$	0.45
Weighted Average Common Shares of Beneficial Interest Outstanding – basic and diluted		6,584,179		4,165,010		6,044,958		3,311,178
Distributions Per Share – basic and diluted	$	0.48	$	0.19	$	1.36	$	0.23

STELLUS PRIVATE CREDITBDC 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
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 translation	—		—		—		(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

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
Net investment income	—		—		—		3,078,637		3,078,637
Net realized gain on foreign currency translation	—		—		—		8,599		8,599
Net change in unrealized appreciation on non-controlled, non-affiliated investments	—		—		—		1,054,344		1,054,344
Net change in unrealized depreciation on foreign currency translations	—		—		—		(9,918)		(9,918)
Provision for taxes on net unrealized gain on investments							(56,622)		(56,622)
Distributions from net investment income	—		—		—		(3,190,125)		(3,190,125)
Issuance of common shares of beneficial interest	752,130		7,522		11,260,016		—		11,267,538
Balances at September 30, 2023	6,935,054	$	69,351	$	102,478,935	$	2,201,365	$	104,749,651

STELLUS PRIVATE CREDITBDC CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine Months Ended
	September 30, 2023		September 30, 2022
Cash Flows from Operating Activities
Net increase in net assets resulting from operations	$	11,161,107	$	1,500,131
Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities:
Purchases of investments		(68,472,583)		(135,023,930)
Proceeds from sales and repayments of investments		17,370,805		6,925,278
Net change in unrealized (appreciation) depreciation on investments		(2,801,721)		713,013
Net change in unrealized depreciation foreign currency translations		3,725		104,461
Increase in investments due to PIK		(217)		—
Amortization of premium and accretion of discount, net		(359,012)		(114,567)
Deferred tax provision		56,622		—
Amortization of loan structure fees		442,513		277,541
Amortization of deferred offering costs		123,837		164,982
Changes in other assets and liabilities
Increase in interest receivable		(472,546)		(861,191)
Increase in other receivable		—		(1,246,743)
Increase in related party receivable		(126,946)		(43,105)
Decrease (increase) in expense reimbursements receivable from the Advisor		82,895		(324,831)
Decrease in prepaid expenses		107,581		50,650
Decrease in due to affiliate		—		(460,085)
Decrease in trustees' fees payable		—		(42,000)
Increase in administrative services payable		35,267		106,190
(Decrease) increase in interest payable		(276,647)		233,971
Increase in income incentive fees payable		24,946		246,156
Increase in capital gains incentive fees payable		224,532		—
Increase in unearned revenue		324,516		498,153
Increase in income tax payable		12,343		—
Increase (decrease) in other accrued expenses and liabilities		5,278		(173,855)
Net Cash Used in Operating Activities	$	(42,533,705)	$	(127,469,781)
Cash Flows from Financing Activities
Proceeds from issuance of common shares of beneficial interest	$	21,542,607	$	76,354,327
Offering costs paid for common shares of beneficial interest issued		(134,882)		(139,542)
Stockholder distributions paid		(6,836,428)		(774,553)
Borrowings under Credit Facilities		96,600,000		90,290,000
Repayments of Credit Facilities		(71,415,000)		(34,890,000)
Financing costs paid on Credit Facilities		(352,744)		(1,236,457)
Short-term loan (repayments) borrowings		(11,250,000)		9,000,000
Net Cash Provided by Financing Activities	$	28,153,553	$	138,603,775
Net (Decrease) Increase in Cash and Cash Equivalents	$	(14,380,152)	$	11,133,994
Cash and Cash Equivalents Balance at Beginning of Period		15,469,823		—
Cash and Cash Equivalents Balance at End of Period	$	1,089,671	$	11,133,994
Supplemental and Non-Cash Activities
Cash paid for interest expense	$	5,672,802	$	539,122
Increase in deferred offering costs		11,045		4,328
Income and excise tax paid		8,300		—
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan		442,606		—
Increase in dividends payable		1,380,592		—