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
Good day, ladies and gentlemen. And thank you for standing by.
At this time. I would like to welcome everyone to Stella's Capital Investment Corporation's conference call to report financial results for its third fiscal quarter ended September 30, 2024 (Operator Instructions).
This conference is being recorded today, November 8, 2024.
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.
Thank you Ali and good morning everyone and thank you for joining the call. Welcome to our conference call covering the quarter ended September 30 of this year.
Joining me this morning is Todd Huskinson, our Chief Financial Officer who will cover important information about forward-looking statements as well as an overview of our financial information.
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 7132925400.
Now I'll cover our operating results for the quarter. I would like to start with our life to date activity since our IPO in November 2012, we've invested approximately $2.5 billion in over 195 companies and received approximately $1.6 billion of repayments while maintaining stable asset quality.
We've paid over $273 million of dividends to our investors, which represents $16.28 per share to an investor in our IPO in November 2012, which is offered at $15 per share.
Turning now to operating results in the third quarter. We generated $0.39 per share of GAAP net investment income and core net investment income was $0.40 per share which excludes estimated excise taxes.
Net asset value per share increased $0.19 during the quarter due to net unrealized appreciation on our investment portfolio primarily related to one equity investment.
Our ATM program was also active during the quarter. We issued $14.6 million in shares at an average gross price of $13.79.
All issuances were above net asset value with respect to portfolio and asset quality. We ended the quarter with an investment portfolio at fair value of $908.7 million across 99 portfolio companies up from $899.7 million across 100 companies as of June 30, 2024.
During the third quarter, we invested $9.4 million in one new portfolio company and had $8.4 million in other investment activity at par.
We also received one full repayment totalling $8.4 million and received $5.5 million of other repayments both at par.
We also received one equity realization that generated proceeds of $2.6 million and a realized gain of $2.2 million at September 30, 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 $19.6 million both at fair value all but one of our portfolio companies are backed by a private equity.
Overall our asset quality is slightly better than plan at fair value. 26% of our portfolio is rated a one or ahead of plan and 18% of the portfolio is marked at an investment category of three or below, meaning not meeting plan or expectations.
Currently, we have loans to six portfolio companies that are non-accrual which comprise 4.7% 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. Thank you, Todd. As we look ahead to the fourth quarter, I'll cover portfolio growth, equity realizations, capital management and dividends based on an active pipeline. We expect to end the fourth quarter with a portfolio between $930 million and $950 million.
We do expect some loan repayments approximately $29 million in the quarter and equity realization proceeds to total about $5.3 million which will result in realized gains of $4.3 million one which is disclosed in our subsequent events for [millions] of proceeds and a realized gain of over 600,000.
As Todd noted earlier, we had a good third quarter for equity issuance under our ATM program.
After quarter end, we increased our bank facility by $55 million from $260 million to $315 million and have a meaningful amount of capacity.
Given our current capitalization, we have the ability to grow the portfolio to a billion dollars plus.
Finally, regarding dividends, we did declare the dividend for the fourth quarter at a rate of $0.40 per quarter payable monthly and of which the record date for November and December are forthcoming.
And with that, I'll open it up for questions. And Ali if you'll please begin the question and answer session, please.
Operator
Thank you, ladies and gentlemen. At this time, we will be conducting our question-and-answer session.
(Operator Instructions)
Paul Johnson with KBW.
Paul Johnson
Good morning. Thanks for taking my question. With just NII a little light of our expectations and slightly below the dividend, this quarter activity was fairly light. Was there any kind of, I mean, was there any sort of temporary drivers there with, NII being below the dividend this quarter with the incentive fee waiver and the timing of investments or anything like that.
Robert Ladd
Yes, I'd say nothing unusual. We certainly one at a lower sofa rate for the quarter.
We did have a little bit of tick up and non-accrual.
But nothing unusual and, and as I recall in last quarter, we had a little bit more in other income. So, this would have driven last quarter to be a little bit higher.
But again, I think a reasonable quarter in terms of expectation, given the current interest rates.
But as you noted, Paul too, that our investment activity was lighter than expected, which again, as I mentioned, we expect to pick up in the fourth quarter, so that that would have been impacted a little bit too.
We thought we'd end the third quarter at 930 ended it closer to 900.
Paul Johnson
Got it. So this the, the, the kind of range that we're in the $0.39, you know, low 40s, I mean, is that if there's nothing unusual in there, is that a pretty good run rate going forward?
Robert Ladd
So we'll have to see how other income comes in the quarter and the fourth quarter. But just as a reminder that Sober did drop again, our loans would have repriced, most of them repriced again at $930 that drove the yield you'll see normally from [11 seven] in the prior quarter to [11 even] for the fourth quarter.
Paul Johnson
Got it. Okay. So it's mainly the base rates. That makes sense. Or driving the.
Robert Ladd
Correct. Yeah. Declining. So, yeah (Multiple Speakers)
Paul Johnson
Okay. And then, can you again just walk through maybe kind of the, what drove the, the write up in the portfolio this quarter, the sort of sort of the unrealized gains.
Robert Ladd
Yes. So, so there are a number of 99 companies. So a number of movements up and down, we did have one portfolio company that had some meaningful appreciation, that's tied to a potential transaction, but just increased value in a one of our equity co-invest.
Paul Johnson
Got it. So it was just the one company that kind of drove most of the appreciation this quarter, then.
Robert Ladd
That's correct, Paul.
Paul Johnson
Okay.
Okay, that, that's all the questions for me. Thank you.
Robert Ladd
Yeah, thank you, Paul.
Operator
Christopher Nolan with Ladenburg Thalman nearly is' life.
Christopher Nolan
Hey, just to follow up on Paul's questions on the EPS run rate.
So given the recent fed action on lowering rates, you know, that would be a downward bias on es together with the higher non-accruals, I just want a little clarification.
Robert Ladd
Yes, that's right. It should have a little bit of impact. Again as we move down in the quarter, The interesting, it looked like the Fed's announcement yesterday hadn't changed the forward curve.
But again, we did have a lower so far in the fourth quarter or we will have a lower. So in the fourth quarter versus the third.
Christopher Nolan
Got it. And then the lack of a fee waiver, should we expect the fee waiver to be a recurring item or just a sort of a one timer?
Go ahead to?
W. Todd Huskinson
Yeah. So, Chris, thanks for the question. So, it kind of depends on, on, on what happens in the quarter, of course, which we can't predict, but with respect to, you know, gains and losses at the moment, we don't expect one this quarter, but we do.
If nothing else changes, we expect to see, you know, a waiver maybe in the second quarter of 25.
So in the future but that's, and then nothing after that, but that's if nothing changes so that, you know, if there's a change up or down that could affect the waiver.
Robert Ladd
And as you know, Chris, all just a function of the 12 quarter test.
W. Todd Huskinson
Exactly.
Christopher Nolan
Absolutely. And then I guess final question, what's the spill over income?
Stands at $42 million right now?
Okay, thanks.
Bye.
Operator
Robert Dodd with Raymond James.
Robert Dodd
Hi guys. I think you'd probably prefer to hear the music than me. But on, on the appreciation you mentioned, you know, it's tied to a potential transaction.
Is that one of the ones that you think might occur in, in Q4 or is it a longer term?
Robert Ladd
Expect. Yeah, it's a good question.
It's expected to occur in Q4.
Robert Dodd
Got it. Well, that spillover income that $42 million, does that include the real, the perspective realized games that are going to come in in Q4 or is that just as of the end of Q3?
Robert Ladd
It says at the end of Q3, but the realized gains expected in Q4 are regular way if you will and we'll be able to distribute them, there will not be a tax impact.
Robert Dodd
Okay. Got it. Thank you.
On so, he yield level. I mean, as you said, most of it base rates. It does look like there has been, you know, versus, you know a little bit of spread compression, which obviously is, industry like thematic.
What's your being? Is that levelled out in terms of in terms of where new onboarding spreads are today, is it stabilized or are we going to continue to see a little bit of that flow through as we go into Q4 to early next year.
Robert Ladd
Yes. Good question. So, so we're certainly seeing spreads come down from what we're in the sixes to now in the fives.
So the impact of that is rolling through. So, so you're not seeing if everything repriced, that would be a different number. But so we're seeing that in the fourth quarter. So newer opportunities are coming on in the five versus the Sixes, whereas the average yield currently is probably in the Sixes.
Yeah, average spread in the Sixes.
So just be a question if that continues, we certainly have seen it stabilize, certainly not seeing it go down further.
And it's one thing that we've seen historically as when you get lower, what used to be live or, or so forth, you can see spreads actually stop compressing because I think people are also solving for an absolute yield.
But in any event, the baked into the quarter would be things that are being booked more in the five and the.
Robert Dodd
Sixes got it, got it. Thank you. And then on the, just the obviously Q3 came in a little in terms of portfolio. Overall size came in a little bit below where you were thinking, you know, a quarter ago.
So how, how confident would you say you are in that 930 to 950 by year end? I mean, it sounds like some things during the quarter by the slipped. But what's the risk of that happening?
Robert Ladd
Yeah. No, that's a good question based on last quarter. So, so if it's helpful, we have 10 to 15 active deals and we would be, you know, pretty confident to get to the 930 could be higher. So, if it's helpful, our activity is picked up quite meaningfully.
Robert Dodd
Got it. Thank you.
Operator
Thank you. As we have no further questions in the queue at this time, I would like to hand it back to Mr Ladd for his closing remarks.
Robert Ladd
Okay. Thank you Ellie and thank everyone for being on and your support of our company. And we look forward to speaking with you in the spring as we report on the whole year, take care. Now.
Operator
Thank you, ladies and gentlemen, this does conclude today's call and you may disconnect your lines at this time and we thank you for your participation.
