UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,June 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
COMMISSION FILE NUMBER: 000-56378
STELLUS PRIVATE CREDIT BDC
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 87-6878660 |
4400 Post Oak Parkway, Suite 2200
Houston, Texas 77027
(Address of Principal Executive Offices) (Zip Code)
(713) 292-5400
(Registrant’s Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares of Beneficial Interest, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | |
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
Emerging growth company | ☒ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the issuer’s Common Shares of Beneficial Interest, $0.01 par value per share, outstanding as of MayAugust 11, 2023 was 6,182,924.6,267,498.
STELLUS PRIVATE CREDIT BDC
TABLE OF CONTENTS
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Item 1. |
| Financial Statements | | |
| | | 1 | |
| | | 2 | |
| | | 3 | |
| | | 4 | |
| | Consolidated Schedule of Investments as of | | 5 |
| | Consolidated Schedule of Investments as of December 31, 2022 | |
|
| | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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i
PART I — FINANCIAL INFORMATION
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
| | | | | | | | | | | | |
| | March 31, 2023 | | | | | June 30, 2023 | | | | ||
|
| (unaudited) |
| December 31, 2022 |
| (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 | ||||||
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 | |
| 7,690,197 | |
| 15,469,823 | |
| 750,437 | |
| 15,469,823 |
Other receivable | |
| 16,200 | |
| — | ||||||
Interest receivable | |
| 1,260,895 | |
| 1,030,274 | |
| 1,309,349 | |
| 1,030,274 |
Expense reimbursement receivable from the Advisor | |
| 364,274 | |
| 165,638 | ||||||
Expense reimbursement receivable from the Advisor (Note 2) | |
| 139,229 | |
| 165,638 | ||||||
Deferred offering costs | | | 93,643 | | | 54,394 | | | 86,760 | | | 54,394 |
Related party receivable | | | 59,271 | |
| 9,620 | | | 104,584 | |
| 9,620 |
Prepaid expenses | |
| 96,495 | |
| 133,004 | |
| 62,416 | |
| 133,004 |
Receivable for sales and repayments of investments | |
| 23,834 | |
| 26,996 | |
| 21,102 | |
| 26,996 |
Total Assets | | $ | 174,434,495 | | $ | 174,394,504 | | $ | 190,797,392 | | $ | 174,394,504 |
LIABILITIES | |
|
| |
|
| |
|
| |
|
|
Credit Facilities payable | | $ | 74,807,833 | | $ | 79,448,134 | | $ | 93,979,360 | | $ | 79,448,134 |
Short-term loan payable | | | 4,500,000 | | | 11,250,000 | | | — | | | 11,250,000 |
Related party payable | | | 5,000,000 | | | — | ||||||
Dividends payable | |
| 2,306,409 | |
| 1,809,533 | |
| 2,720,486 | |
| 1,809,533 |
Unearned revenue | |
| 535,226 | |
| 539,634 | |
| 607,975 | |
| 539,634 |
Income incentive fee payable | | | 621,306 | | | 328,196 | | | 359,033 | | | 328,196 |
Capital gains incentive fee payable | | | 124,892 | | | — | ||||||
Interest payable | |
| 669,021 | |
| 563,241 | |
| 173,329 | |
| 563,241 |
Administrative services payable | |
| 140,522 | |
| 66,064 | |
| 92,213 | |
| 66,064 |
Income tax payable | |
| 15,306 | |
| 7,471 | |
| 15,861 | |
| 7,471 |
Other accrued expenses and liabilities | |
| 187,202 | |
| 119,274 | |
| 127,045 | |
| 119,274 |
Total Liabilities | | $ | 88,782,825 | | $ | 94,131,547 | | $ | 98,200,194 | | $ | 94,131,547 |
Commitments and contingencies (Note 7) | |
| | |
|
| |
| | |
|
|
Net Assets | | $ | 85,651,670 | | $ | 80,262,957 | | $ | 92,597,198 | | $ | 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 | ||||||
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 | |
| 86,066,803 | |
| 80,950,845 | |
| 91,218,919 | |
| 80,950,845 |
Total distributable loss | |
| (473,463) | |
| (742,722) | ||||||
Total distributable earnings (loss) | |
| 1,316,450 | |
| (742,722) | ||||||
Net Assets | | $ | 85,651,670 | | $ | 80,262,957 | | $ | 92,597,198 | | $ | 80,262,957 |
Total Liabilities and Net Assets | | $ | 174,434,495 | | $ | 174,394,504 | | $ | 190,797,392 | | $ | 174,394,504 |
Net Asset Value Per Share | | $ | 14.68 | | $ | 14.64 | | $ | 14.98 | | $ | 14.64 |
1
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED STATEMENT 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 | | $ | — | |
| | | | | | | | | | | | |
| | 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 | | $ | — |
2
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED STATEMENT 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 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 |
| | | | | | | | | | | | | | |
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 |
| | | | | | | | | | | | | | |
| | 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 |
3
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | ||||||||
| March 31, 2023 |
| March 31, 2022 | | June 30, 2023 |
| June 30, 2022 | | ||||
Cash flows from Operating Activities | |
|
| |
| | ||||||
Net increase (decrease) in net assets resulting from operations | $ | 2,575,668 | | $ | (31,197) | | ||||||
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 |
| (17,104,559) | |
| (38,042,681) | |
| (41,418,778) | |
| (79,461,775) | |
Proceeds from sales and repayments of investments |
| 9,823,196 | |
| 457,829 | |
| 12,580,637 | |
| 690,802 | |
Net change in unrealized depreciation on investments |
| 72,026 | |
| 108,048 | | ||||||
Net change in unrealized (appreciation) depreciation on investments |
| (1,747,377) | |
| 190,610 | | ||||||
Net change in unrealized appreciation foreign currency translations |
| (6,220) | |
| — | |
| (6,193) | |
| (579) | |
Amortization of premium and accretion of discount, net |
| (106,212) | |
| (12,063) | |
| (221,155) | |
| (49,672) | |
Amortization of loan structure fees |
| 156,894 | |
| 47,368 | |
| 298,970 | |
| 144,559 | |
Amortization of deferred offering costs |
| 57,623 | |
| 34,877 | |
| 98,729 | |
| 97,831 | |
Changes in other assets and liabilities |
|
| |
| | |
|
| |
| | |
Increase in interest receivable |
| (230,621) | |
| (161,594) | |
| (279,075) | |
| (488,877) | |
Increase in other receivable |
| (16,200) | |
| (30) | |
| — | |
| (12,997) | |
Increase in related party receivable | | (49,651) | | | — | | | (94,964) | | | (383,465) | |
Increase in expense reimbursements receivable from the Advisor |
| (198,636) | |
| (157,933) | | ||||||
Decrease (increase) in expense reimbursements receivable from the Advisor |
| 26,409 | |
| (245,356) | | ||||||
Decrease in prepaid expenses |
| 36,509 | |
| 20,185 | |
| 70,588 | |
| 45,204 | |
Increase in related party payable | | 5,000,000 | | | — | | ||||||
Decrease in due to affiliate |
| — | |
| (460,085) | |
| — | |
| (460,085) | |
Increase in trustees' fees payable |
| — | |
| 38,000 | | ||||||
Decrease in trustees' fees payable |
| — | |
| (42,000) | | ||||||
Increase in administrative services payable |
| 74,458 | |
| 63,975 | |
| 26,149 | |
| 64,174 | |
Increase in interest payable |
| 105,780 | |
| 25,399 | | ||||||
(Decrease) increase in interest payable |
| (389,912) | |
| 92,113 | | ||||||
Increase in income incentive fees payable | | 293,110 | | | — | | | 30,837 | | | 77,677 | |
(Decrease) increase in unearned revenue |
| (4,408) | |
| 185,844 | | ||||||
Increase in capital gains incentive fees payable | | 124,892 | | | — | | ||||||
Increase in unearned revenue |
| 68,341 | |
| 365,612 | | ||||||
Increase in income tax payable |
| 7,835 | |
| — | |
| 8,390 | |
| — | |
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 |
|
| |
|
| | ||||||
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 | $ | 5,119,454 | | $ | 35,000,000 | | $ | 10,275,069 | | $ | 55,000,000 | |
Offering costs paid for common shares of beneficial interest issued |
| (96,872) | |
| (76,195) | |
| (131,095) | |
| (121,807) | |
Stockholder distributions paid | | (1,809,533) | | | — | | | (4,115,942) | | | — | |
Borrowings under Credit Facilities |
| 49,500,000 | |
| 34,000,000 | |
| 72,000,000 | |
| 59,950,000 | |
Repayments of Credit Facilities | | (54,115,000) | | | — | | | (57,415,000) | | | (13,500,000) | |
Financing costs paid on Credit Facilities |
| (182,195) | |
| (293,382) | |
| (352,744) | |
| (429,573) | |
Short-term loan repayments | | (6,750,000) | | | — | | | (11,250,000) | | | 25,000,000 | |
Net Cash (Used) Provided by Financing Activities | $ | (8,334,146) | | $ | 68,630,423 | | ||||||
Net Cash Provided by Financing Activities | $ | 9,010,288 | | $ | 125,898,620 | | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents | $ | (7,779,626) | | $ | 31,149,513 | | $ | (14,719,386) | | $ | 47,051,204 | |
Cash and Cash Equivalents Balance at Beginning of period | | 15,469,823 | | | — | | ||||||
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 | | $ | 750,437 | | $ | 47,051,204 | |
Supplemental and Non-Cash Activities |
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| |
|
| |
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| |
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Cash paid for interest expense | $ | 1,440,829 | | $ | — | | $ | 3,616,852 | | $ | 113,999 | |
Increase in deferred offering costs | | 39,249 | | | 41,319 | | | 32,366 | | | 23,976 | |
Income and excise tax paid | | 8,300 | | | — | | ||||||
Value of common shares of beneficial interest issued pursuant to Dividend Reinvestment Plan | | 119,453 | | | — | | | 155,615 | | | — | |
Increase in dividends payable | | 496,876 | | | — | | | 910,953 | | | — | |
4
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31,June 30, 2023
(unaudited)
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Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | ||||||
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2X LLC | | (4) | | | | | | | | | | | | | | Berwyn, PA | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 6/5/2023 | | 6/5/2028 | | Services: Business | | $ | 2,505,461 | | $ | 2,443,566 | | $ | 2,443,566 | | 2.64% | |||||||||||||||||||||||||||
2X Investors LP Class A Units | | | | Equity | | | | | | | | 6/5/2023 | | | | | | 50,361 | | | 503,611 | | | 503,610 | | 0.54% | ||||||||||||||||||||||||||||
Total | | | | | | | | | | | | | | | | | | | | $ | 2,947,177 | | $ | 2,947,176 | | 3.18% | ||||||||||||||||||||||||||||
American Refrigeration, LLC | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | ||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.50% | | 11.40% | | 3/31/2023 | | 3/31/2028 | | Services: Business | | $ | 3,736,348 | | $ | 3,642,939 | | $ | 3,642,939 | | 4.25% | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.50% | | 11.74% | | 3/31/2023 | | 3/31/2028 | | Services: Business | | $ | 3,727,007 | | $ | 3,637,283 | | $ | 3,727,007 | | 4.02% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.50% | | 11.73% | | 3/31/2023 | | 3/31/2028 | | | | | 124,339 | | $ | 124,339 | | $ | 124,339 | | 0.13% | |||||||||||||||||||||||||||
AR-USA Holdings, LLC Class A Units | | | | Equity | | | | | | | | 3/31/2023 | | | | | | 91 | | | 91,031 | | | 91,031 | | 0.11% | | | | Equity | | | | | | | | 3/31/2023 | | | | | | 91 | | | 91,031 | | | 147,616 | | 0.16% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 3,733,970 | | $ | 3,733,970 | | 4.36% | | | | | | | | | | | | | | | | | | | | $ | 3,852,653 | | $ | 3,998,962 | | 4.31% | ||
Archer Systems, LLC | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | ||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 11.05% | | 8/11/2022 | | 8/11/2027 | | Services: Business | | $ | 9,703,108 | | $ | 9,529,548 | | $ | 9,412,016 | | 10.99% | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 11.39% | | 8/11/2022 | | 8/11/2027 | | Services: Business | | $ | 9,191,138 | | $ | 9,034,335 | | $ | 9,191,138 | | 9.94% |
CF Arch Holdings LLC Class A Units | | | | Equity | | | | | | | | 8/10/2022 | | | | | | 496,967 | | | 496,967 | | | 514,680 | | 0.60% | | | | Equity | | | | | | | | 8/10/2022 | | | | | | 496,967 | | | 496,967 | | | 643,698 | | 0.70% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 10,026,515 | | $ | 9,926,696 | | 11.59% | | | | | | | | | | | | | | | | | | | | $ | 9,531,302 | | $ | 9,834,836 | | 10.64% | ||
Axis Portable Air, LLC | | (4) | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | (4) | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | ||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 11.14% | | 3/22/2022 | | 3/22/2028 | | Capital Equipment | | $ | 1,509,146 | | $ | 1,484,232 | | $ | 1,509,146 | | 1.63% | |||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 10.80% | | 3/22/2022 | | 3/22/2028 | | Capital Equipment | | $ | 1,509,146 | | $ | 1,483,140 | | $ | 1,501,600 | | 1.75% | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 11.14% | | 4/17/2023 | | 3/22/2028 | | | | $ | 854,937 | | $ | 838,275 | | $ | 854,937 | | 0.92% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 1.00% | | 10.80% | | 3/22/2022 | | 3/22/2028 | | | | 1,344,512 | | 1,332,213 | | 1,337,789 | | 1.56% | | (5) | | First Lien | | 3M SOFR+5.75% | | 1.00% | | 11.14% | | 3/22/2022 | | 3/22/2028 | | | | 1,344,512 | | 1,332,703 | | 1,344,512 | | 1.45% | ||||||
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 10.80% | | 11/3/2022 | | 3/22/2028 | | | | 3,567,073 | | 3,567,073 | | 3,549,238 | | 4.14% | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 11.14% | | 11/3/2022 | | 3/22/2028 | | | | 4,115,854 | | 4,115,854 | | 4,115,854 | | 4.44% | ||||||
Axis Air Parent, LLC Preferred Units | | | | Equity | | | | | | | | 3/22/2022 | | | | | | 1,527 | | | 152,661 | | | 234,732 | | 0.27% | | | | Equity | | | | | | | | 3/22/2022 | | | | | | 1,527 | | | 152,661 | | | 251,123 | | 0.27% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 6,535,087 | | $ | 6,623,359 | | 7.72% | | | | | | | | | | | | | | | | | | | | $ | 7,923,725 | | $ | 8,075,572 | | 8.71% | ||
Baker Manufacturing Company, LLC | | | | | | | | | | | | | | | | Evansville, IN | | | | | | | | | | | | | | | | | | | | | | | | Evansville, IN | | | | | | | | | ||||||
Term Loan | | (7)(8) | | First Lien | | 3M SOFR+5.25% | | 1.00% | | 11.04% | | 7/5/2022 | | 7/5/2027 | | Capital Equipment | | $ | 6,169,082 | | $ | 6,058,234 | | $ | 6,169,082 | | 7.20% | | (7)(8) | | First Lien | | 3M SOFR+5.25% | | 1.00% | | 11.36% | | 7/5/2022 | | 7/5/2027 | | Capital Equipment | | $ | 6,169,082 | | $ | 6,063,547 | | $ | 6,138,237 | | 6.63% |
BSC Blue Water Holdings, LLC Series A Units | | | | Equity | | | | | | | | 7/5/2022 | | | | | | 330,978 | | | 330,978 | | | 273,792 | | 0.32% | | | | Equity | | | | | | | | 7/5/2022 | | | | | | 330,978 | | | 330,978 | | | 352,257 | | 0.38% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 6,389,212 | | $ | 6,442,874 | | 7.52% | | | | | | | | | | | | | | | | | | | | $ | 6,394,525 | | $ | 6,490,494 | | 7.01% | ||
BDS Solutions Intermediateco, LLC | | (4) | | | | | | | | | | | | | | Tampa Bay, FL | | | | | | | | | ||||||||||||||||||||||||||||||
BLP Buyer, Inc. | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.08% | | 2/24/2022 | | 2/7/2027 | | Retail | | $ | 4,667,249 | | $ | 4,629,220 | | $ | 4,620,577 | | 5.39% | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.25% | | 11.44% | | 2/1/2022 | | 2/1/2027 | | Capital Equipment | | $ | 2,764,448 | | $ | 2,722,460 | | $ | 2,722,981 | | 2.94% |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.07% | | 6/24/2022 | | 2/7/2027 | | | | 454,678 | | 450,740 | | 450,131 | | 0.53% | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.14% | | 3/27/2023 | | 2/7/2027 | | | | 653,070 | | 646,539 | | 646,539 | | 0.75% | ||||||||||||||||||||||||||||||
Revolver | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.08% | | 2/24/2022 | | 2/7/2027 | | | | 236,828 | | | 236,828 | | | 234,460 | | 0.27% | ||||||||||||||||||||||||||||
Total | | | | | | | | | | | | | | | | | | | | $ | 5,963,327 | | $ | 5,951,707 | | 6.94% | ||||||||||||||||||||||||||||
BLP Buyer, Inc. | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.25% | | 11.08% | | 2/1/2022 | | 2/1/2027 | | Capital Equipment | | $ | 2,771,446 | | $ | 2,726,892 | | $ | 2,702,160 | | 3.15% | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.25% | | 11.69% | | 10/3/2022 | | 2/1/2027 | | | | | 1,272,317 | | | 1,244,972 | | | 1,253,232 | | 1.35% |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.25% | | 11.33% | | 10/3/2022 | | 2/1/2027 | | | | | 1,275,514 | | | 1,246,572 | | | 1,243,626 | | 1.45% | | (5) | | First Lien | | 3M SOFR+6.75% | | 2.00% | | 11.94% | | 12/8/2022 | | 2/1/2027 | | | | 4,840,631 | | 4,711,264 | | 4,768,022 | | 5.15% | |||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.75% | | 2.00% | | 11.58% | | 12/8/2022 | | 2/1/2027 | | | | 4,852,763 | | 4,716,126 | | 4,731,444 | | 5.52% | | (5) | | First Lien | | 1M SOFR+6.75% | | 2.00% | | 11.94% | | 4/14/2023 | | 2/1/2027 | | | | 781,051 | | 758,794 | | 769,335 | | 0.83% | ||||||
Revolver | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.25% | | 11.09% | | 2/1/2022 | | 2/1/2027 | | | | 139,482 | | 139,482 | | 135,995 | | 0.16% | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.25% | | 11.44% | | 2/1/2022 | | 2/1/2027 | | | | 292,061 | | 292,061 | | 287,680 | | 0.31% | ||||||
BL Products Parent, L.P. Class A Units | | | | Equity | | | | | | | | 2/1/2022 | | | | | | 339,326 | | | 339,326 | | | 342,729 | | 0.40% | | | | Equity | | | | | | | | 2/1/2022 | | | | | | 395,294 | | | 442,307 | | | 595,974 | | 0.64% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 9,168,398 | | $ | 9,155,954 | | 10.68% | | | | | | | | | | | | | | | | | | | | $ | 10,171,858 | | $ | 10,397,224 | | 11.22% | ||
Cerebro Buyer, LLC | | (4) | | | | | | | | | | | | | | Columbia, SC | | | | | | | | | | (4) | | | | | | | | | | | | | | Columbia, SC | | | | | | | | | ||||||
Term Loan | | (5) | | First Lien | | 1M SOFR+6.75% | | 1.00% | | 11.68% | | 3/15/2023 | | 3/15/2029 | | Healthcare & Pharmaceuticals | | $ | 2,114,000 | | $ | 2,061,644 | | $ | 2,061,641 | | 2.41% | | (5) | | First Lien | | 1M SOFR+6.75% | | 1.00% | | 11.95% | | 3/15/2023 | | 3/15/2029 | | Healthcare & Pharmaceuticals | | $ | 2,108,715 | | $ | 2,057,957 | | $ | 2,077,084 | | 2.24% |
Cerebro Holdings Partnership, L.P. Series A Partner Interests | | | | Equity | | | | | | | | 3/15/2023 | | | | | | | 34,135 | | | 34,135 | | | 34,135 | | 0.04% | | | | Equity | | | | | | | | 3/15/2023 | | | | | | 34,135 | | 34,135 | | 201,624 | | 0.22% | |||
Cerebro Holdings Partnership, L.P. Series B Partner Interests | | | | Equity | | | | | | | | 3/15/2023 | | | | | | 184,925 | | | 184,925 | | | 184,925 | | 0.22% | | | | Equity | | | | | | | | 3/15/2023 | | | | | | 184,925 | | | 184,925 | | | - | | 0.00% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 2,280,704 | | $ | 2,280,701 | | 2.67% | | | | | | | | | | | | | | | | | | | | $ | 2,277,017 | | $ | 2,278,708 | | 2.46% | ||
Channel Partners Intermediateco, LLC | | (4) | | | | | | | | | | | | | | Tampa Bay, FL | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.39% | | 2/24/2022 | | 2/7/2027 | | Retail | | $ | 4,652,269 | | $ | 4,616,454 | | $ | 4,605,746 | | 4.97% | |||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.39% | | 6/24/2022 | | 2/7/2027 | | | | 453,219 | | 449,505 | | 448,687 | | 0.48% | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.39% | | 3/27/2023 | | 2/7/2027 | | | | 650,974 | | 644,799 | | 644,464 | | 0.70% | ||||||||||||||||||||||||||||||
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.39% | | 2/24/2022 | | 2/7/2027 | | | | 499,402 | | | 499,402 | | | 494,408 | | 0.53% | ||||||||||||||||||||||||||||
Total | | | | | | | | | | | | | | | | | | | | $ | 6,210,160 | | $ | 6,193,305 | | 6.68% | ||||||||||||||||||||||||||||
COPILOT Provider Support Services, LLC | | (4) | | | | | | | | | | | | | | Maitland, FL | | | | | | | | | | (4) | | | | | | | | | | | | | | Maitland, FL | | | | | | | | | ||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.55% | | 11/22/2022 | | 11/22/2027 | | Healthcare & Pharmaceuticals | | $ | 9,485,968 | | $ | 9,305,355 | | $ | 9,343,678 | | 10.91% | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.89% | | 11/22/2022 | | 11/22/2027 | | Healthcare & Pharmaceuticals | | $ | 9,462,134 | | $ | 9,289,818 | | $ | 9,367,512 | | 10.13% |
QHP Project Captivate Blocker, Inc. Common Stock | | | | Equity | | | | | | | | 11/22/2022 | | | | | | 8 | | | 544,779 | | | 535,491 | | 0.63% | | | | Equity | | | | | | | | 11/22/2022 | | | | | | 8 | | | 544,779 | | | 546,847 | | 0.59% | ||
Total | | | | | | | | | | | | | | | | | | | | $ | 9,850,134 | | $ | 9,879,169 | | 11.54% | | | | | | | | | | | | | | | | | | | | $ | 9,834,597 | | $ | 9,914,359 | | 10.72% | ||
Curion Holdings, LLC | | (4) | | | | | | | | | | | | | | Chicago, IL | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.30% | | 7/29/2022 | | 7/29/2027 | | Services: Business | | $ | 3,533,893 | | $ | 3,470,832 | | $ | 3,410,207 | | 3.98% | |||||||||||||||||||||||||||
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.30% | | 7/29/2022 | | 7/29/2027 | | | | 893,121 | | 893,121 | | 861,862 | | 1.01% | ||||||||||||||||||||||||||||||
SP CS Holdings LLC Class A Units | | | | Equity | | | | | | | | 7/29/2022 | | | | | | 343,529 | | | 343,529 | | | 166,727 | | 0.19% | ||||||||||||||||||||||||||||
Total | | | | | | | | | | | | | | | | | | | | $ | 4,707,482 | | $ | 4,438,796 | | 5.18% | ||||||||||||||||||||||||||||
Exigo, LLC | | (4) | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | ||||||||||||||||||||||||||||||
Term Loan | | (5) | | First Lien | | 1M LIBOR+5.75% | | 1.00% | | 10.59% | | 3/16/2022 | | 3/16/2027 | | Software | | $ | 3,991,759 | | $ | 3,942,223 | | $ | 3,951,841 | | 4.61% | |||||||||||||||||||||||||||
Gauge Exigo Coinvest, LLC Common Units | | | | Equity | | | | | | | | 3/16/2022 | | | | | | 168,003 | | | 168,003 | | | 168,003 | | 0.20% | ||||||||||||||||||||||||||||
Total | | | | | | | | | | | | | | | | | | | | $ | 4,110,226 | | $ | 4,119,844 | | 4.81% | ||||||||||||||||||||||||||||
5
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31,June 30, 2023
(unaudited)
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Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Florachem Corporation | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+6.50% | | 1.00% | | 11.66% | | 4/29/2022 | | 4/29/2028 | | Chemicals, Plastics, & Rubber | | $ | 1,255,348 | | $ | 1,233,202 | | $ | 1,217,688 | | 1.42% |
Revolver | | (5) | | First Lien | | 3M LIBOR+6.50% | | 1.00% | | 11.66% | | 4/29/2022 | | 4/29/2028 | | | | | 1,310,369 | | | 1,310,369 | | | 1,271,058 | | 1.48% |
SK FC Holdings, L.P. Class A Units | | | | Equity | | | | | | | | 4/29/2022 | | | | | | | 161 | | | 161,283 | | | 182,011 | | 0.21% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,704,854 | | $ | 2,670,757 | | 3.11% |
Heartland Business Systems, LLC | | (4) | | | | | | | | | | | | | | Little Chute, WI | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.30% | | 8/26/2022 | | 8/26/2027 | | Services: Business | | $ | 3,194,634 | | $ | 3,137,587 | | $ | 3,162,688 | | 3.69% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.30% | | 8/26/2022 | | 8/26/2027 | | | | | 1,653,931 | | | 1,637,392 | | | 1,637,392 | | 1.91% |
AMCO HBS Holdings, LP Class A Units | | | | Equity | | | | | | | | 8/26/2022 | | | | | | | 1,570 | | | 157,008 | | | 271,520 | | 0.32% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,931,987 | | $ | 5,071,600 | | 5.92% |
Heat Makes Sense Shared Services, LLC | | (4) | | | | | | | | | | | | | | Brooklyn, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+5.25% | | 0.75% | | 10.26% | | 7/1/2022 | | 7/1/2029 | | Consumer Goods: Non-Durable | | $ | 7,461,368 | | $ | 7,320,781 | | $ | 7,312,141 | | 8.54% |
Revolver | | (5) | | First Lien | | 3M SOFR+5.25% | | 0.75% | | 9.99% | | 7/1/2022 | | 7/1/2028 | | | | | 675,222 | | | 675,222 | | | 661,718 | | 0.77% |
Ishtar Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 298,251 | | | 298,251 | | | 370,947 | | 0.43% |
Oshun Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 85,213 | | | 85,213 | | | 105,984 | | 0.12% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,379,467 | | $ | 8,450,790 | | 9.86% |
HV Watterson Holdings, LLC | | (4) | | | | | | | | | | | | | | Schaumburg, IL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.41% | | 2/1/2022 | | 12/17/2026 | | Services: Business | | $ | 8,139,256 | | $ | 8,074,648 | | $ | 7,935,775 | | 9.27% |
Revolver | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.41% | | 2/1/2022 | | 12/17/2026 | | | | | 1,042,869 | | | 1,042,869 | | | 1,016,797 | | 1.19% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.41% | | 2/1/2022 | | 12/17/2026 | | | | | 197,704 | | | 195,949 | | | 192,761 | | 0.23% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,313,466 | | $ | 9,145,333 | | 10.69% |
Inoapps Bidco, LLC | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 10.58% | | 2/15/2022 | | 2/15/2027 | | High Tech Industries | | $ | 5,649,905 | | $ | 5,558,607 | | $ | 5,536,907 | | 6.46% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 10.58% | | 2/15/2022 | | 2/15/2027 | | | | | 2,360,057 | | | 2,339,328 | | | 2,312,856 | | 2.70% |
Inoapps Holdings, LLC Series A-1 Preferred Units | | | | Equity | | | | | | | | 2/15/2022 | | | | | | | 512,365 | | | 543,572 | | | 577,888 | | 0.67% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,441,507 | | $ | 8,427,651 | | 9.83% |
International Designs Group LLC | | | | | | | | | | | | | | | | Farmingville, NY | | | | | | | | | | | |
International Designs Holdings LLC Common Units | | | | Equity | | | | | | | | 4/1/2022 | | | | Construction & Building | | $ | 455,341 | | $ | 455,341 | | $ | 478,642 | | 0.56% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 455,341 | | $ | 478,642 | | 0.56% |
Lightning Intermediate II, LLC | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+6.50% | | 1.00% | | 11.54% | | 6/6/2022 | | 6/6/2027 | | Consumer Goods: Non-Durable | | $ | 6,039,663 | | $ | 5,935,250 | | $ | 5,888,671 | | 6.88% |
Gauge Vimergy Coinvest, LLC Units | | | | Equity | | | | | | | | 6/6/2022 | | | | | | | 178 | | | 178,347 | | | 112,499 | | 0.13% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,113,597 | | $ | 6,001,170 | | 7.01% |
MacKenzie-Childs Acquisition, Inc. | | (4) | | | | | | | | | | | | | | Aurora, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 11.05% | | 9/2/2022 | | 9/2/2027 | | Consumer Goods: Durable | | $ | 9,355,037 | | $ | 9,227,604 | | $ | 9,167,936 | | 10.70% |
Revolver | | (5) | | First Lien | | 6M SOFR+6.00% | | 1.00% | | 11.11% | | 9/2/2022 | | 9/2/2027 | | | | | 1,434,039 | | | 1,434,039 | | | 1,405,358 | | 1.64% |
MacKenzie-Childs Investment, LP Partnership Interests | | | | Equity | | | | | | | | 9/2/2022 | | | | | | | 311,482 | | | 311,482 | | | 237,562 | | 0.28% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 10,973,125 | | $ | 10,810,856 | | 12.62% |
Madison Logic Holdings, Inc. | | (4) | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.00% | | 11.90% | | 12/30/2022 | | 12/30/2028 | | Media: Broadcasting & Subscription | | $ | 4,756,819 | | $ | 4,619,356 | | $ | 4,619,356 | | 5.39% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,619,356 | | $ | 4,619,356 | | 5.39% |
Microbe Formulas LLC | | (4) | | | | | | | | | | | | | | Meridian, ID | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.09% | | 4/4/2022 | | 4/3/2028 | | Consumer Goods: Non-Durable | | $ | 4,373,396 | | $ | 4,335,565 | | $ | 4,351,529 | | 5.08% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,335,565 | | $ | 4,351,529 | | 5.08% |
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| % of | |||
| | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | |||
Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Craftable Intermediate II Inc. | | (4) | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.50% | | 11.74% | | 6/30/2023 | | 6/30/2028 | | High Tech Industries | | $ | 4,735,553 | | $ | 4,640,842 | | $ | 4,640,842 | | 5.01% |
Gauge Craftable LP Partnership Interests | | | | Equity | | | | | | | | 6/30/2023 | | | | | | | 485,218 | | | 485,218 | | | 485,218 | | 0.52% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,126,060 | | $ | 5,126,060 | | 5.53% |
Curion Holdings, LLC | | (4) | | | | | | | | | | | | | | Chicago, IL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.75% | | 1.00% | | 12.14% | | 7/29/2022 | | 7/29/2027 | | Services: Business | | $ | 3,525,014 | | $ | 3,465,085 | | $ | 3,366,388 | | 3.64% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.75% | | 1.00% | | 12.14% | | 7/29/2022 | | 7/29/2027 | | | | | 1,275,886 | | | 1,275,886 | | | 1,218,471 | | 1.32% |
SP CS Holdings LLC Class A Units | | | | Equity | | | | | | | | 7/29/2022 | | | | | | | 343,529 | | | 343,529 | | | 105,946 | | 0.11% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,084,500 | | $ | 4,690,805 | | 5.07% |
Equine Network, LLC | | (4) | | | | | | | | | | | | | | Boulder, CO | | | | | | | | | | | |
Term A Loan | | (5) | | First Lien | | 1M SOFR+6.50% | | 1.00% | | 11.72% | | 5/22/2023 | | 5/22/2028 | | Services: Consumer | | $ | 2,261,138 | | $ | 2,205,295 | | $ | 2,205,295 | | 2.38% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,205,295 | | $ | 2,205,295 | | 2.38% |
Exigo, LLC | | (4) | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+5.75% | | 1.00% | | 10.95% | | 3/16/2022 | | 3/16/2027 | | Software | | $ | 3,941,358 | | $ | 3,895,115 | | $ | 3,941,358 | | 4.26% |
Gauge Exigo Coinvest, LLC Common Units | | | | Equity | | | | | | | | 3/16/2022 | | | | | | | 168,003 | | | 168,003 | | | 168,003 | | 0.18% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,063,118 | | $ | 4,109,361 | | 4.44% |
Florachem Corporation | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.00% | | 11.89% | | 4/29/2022 | | 4/29/2028 | | Chemicals, Plastics, & Rubber | | $ | 1,252,186 | | $ | 1,230,940 | | $ | 1,233,403 | | 1.33% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.00% | | 11.89% | | 4/29/2022 | | 4/29/2028 | | | | | 1,310,369 | | | 1,310,369 | | | 1,290,713 | | 1.39% |
SK FC Holdings, L.P. Class A Units | | | | Equity | | | | | | | | 4/29/2022 | | | | | | | 161 | | | 161,283 | | | 129,027 | | 0.14% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,702,592 | | $ | 2,653,143 | | 2.86% |
Heartland Business Systems, LLC | | (4) | | | | | | | | | | | | | | Little Chute, WI | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.64% | | 8/26/2022 | | 8/26/2027 | | Services: Business | | $ | 3,186,607 | | $ | 3,133,045 | | $ | 3,186,607 | | 3.44% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.64% | | 8/26/2022 | | 8/26/2027 | | | | | 3,307,862 | | | 3,274,783 | | | 3,307,862 | | 3.57% |
AMCO HBS Holdings, LP Class A Units | | (10) | | Equity | | | | | | | | 8/26/2022 | | | | | | | 1,570 | | | 143,455 | | | 334,380 | | 0.36% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,551,283 | | $ | 6,828,849 | | 7.37% |
Heat Makes Sense Shared Services, LLC | | (4) | | | | | | | | | | | | | | Brooklyn, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+5.25% | | 0.75% | | 10.26% | | 7/1/2022 | | 7/1/2029 | | Consumer Goods: Non-Durable | | $ | 7,442,620 | | $ | 7,306,669 | | $ | 7,442,620 | | 8.05% |
Ishtar Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 298,251 | | | 298,251 | | | 515,046 | | 0.56% |
Oshun Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 85,213 | | | 85,213 | | | 147,154 | | 0.16% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 7,690,133 | | $ | 8,104,820 | | 8.77% |
HV Watterson Holdings, LLC | | (4) | | | | | | | | | | | | | | Schaumburg, IL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.64% | | 2/1/2022 | | 12/17/2026 | | Services: Business | | $ | 8,118,651 | | $ | 8,057,827 | | $ | 7,996,871 | | 8.65% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.64% | | 2/1/2022 | | 12/17/2026 | | | | | 794,567 | | | 794,567 | | | 782,648 | | 0.85% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 11.64% | | 2/1/2022 | | 12/17/2026 | | | | | 197,208 | | | 195,552 | | | 194,250 | | 0.21% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,047,946 | | $ | 8,973,769 | | 9.71% |
Impact Home Services LLC | | (4) | | | | | | | | | | | | | | Tampa, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 4/28/2023 | | 4/28/2028 | | Services: Consumer | | $ | 2,680,423 | | $ | 2,615,052 | | $ | 2,615,052 | | 2.82% |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 6/30/2023 | | 4/28/2028 | | | | $ | 121,837 | | $ | 118,791 | | $ | 118,866 | | 0.13% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 4/28/2023 | | 4/28/2028 | | | | | 91,986 | | | 91,986 | | | 89,743 | | 0.10% |
Impact Holdings Georgia LLC Class A Units | | | | Equity | | | | | | | | 4/28/2023 | | | | | | | 176 | | | 175,908 | | | 175,908 | | 0.19% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 3,001,737 | | $ | 2,999,569 | | 3.24% |
Inoapps Bidco, LLC | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 11.02% | | 2/15/2022 | | 2/15/2027 | | High Tech Industries | | $ | 5,635,674 | | $ | 5,549,538 | | $ | 5,579,317 | | 6.03% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 11.02% | | 2/15/2022 | | 2/15/2027 | | | | | 2,354,127 | | | 2,334,569 | | | 2,330,586 | | 2.52% |
Inoapps Holdings, LLC Series A-1 Preferred Units | | | | Equity | | | | | | | | 2/15/2022 | | | | | | | 512,365 | | | 543,572 | | | 531,603 | | 0.57% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,427,679 | | $ | 8,441,506 | | 9.12% |
International Designs Group LLC | | | | | | | | | | | | | | | | Farmingville, NY | | | | | | | | | | | |
International Designs Holdings LLC Common Units | | | | Equity | | | | | | | | 4/1/2022 | | | | Construction & Building | | $ | 455,341 | | $ | 455,341 | | $ | 401,164 | | 0.43% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 455,341 | | $ | 401,164 | | 0.43% |
6
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31,June 30, 2023
(unaudited)
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| Principal |
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Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Monitorus Holding, LLC | | (4)(6) | | | | | | | | | | | | | | London, UK | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.16% | | 5/24/2022 | | 5/24/2027 | | Media: Diversified & Production | | $ | 6,119,464 | | $ | 6,066,709 | | $ | 6,058,269 | | 7.07% |
Revolver | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.16% | | 5/24/2022 | | 5/24/2027 | | | | € | 625,757 | | | 681,965 | | | 675,145 | | 0.79% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.16% | | 5/24/2022 | | 5/24/2027 | | | | € | 3,585,699 | | | 3,619,086 | | | 3,582,895 | | 4.18% |
Sapphire Aggregator S.a r.l. Class A Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,819 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class B Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class C Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class D Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class E Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class F Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class G Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class H Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Sapphire Aggregator S.a r.l. Class I Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 38,950 | | 0.05% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 10,662,258 | | $ | 10,666,859 | | 12.49% |
Onpoint Industrial Services, LLC | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.75% | | 11.90% | | 11/16/2022 | | 11/16/2027 | | Services: Business | | $ | 6,788,015 | | $ | 6,659,047 | | $ | 6,686,195 | | 7.81% |
Spearhead TopCo, LLC Class A Units | | | | Equity | | | | | | | | 11/16/2022 | | | | | | | 335,499 | | | 335,499 | | | 372,060 | | 0.43% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,994,546 | | $ | 7,058,255 | | 8.24% |
Pearl Media Holdings, LLC | | (4) | | | | | | | | | | | | | | Garland, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.50% | | 11.30% | | 8/31/2022 | | 8/31/2027 | | Consumer Goods: Durable | | $ | 2,664,545 | | $ | 2,616,216 | | $ | 2,624,577 | | 3.06% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,616,216 | | $ | 2,624,577 | | 3.06% |
Peltram Plumbing Holdings, LLC | | (4) | | | | | | | | | | | | | | Auburn, WA | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.40% | | 2/1/2022 | | 12/30/2026 | | Construction & Building | | $ | 6,978,148 | | $ | 6,881,121 | | $ | 6,838,585 | | 7.98% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,881,121 | | $ | 6,838,585 | | 7.98% |
Red's All Natural, LLC | | | | | | | | | | | | | | | | Franklin, TN | | | | | | | | | | | |
Term Loan | | (7)(8) | | First Lien | | 3M SOFR+6.00% | | 1.50% | | 11.88% | | 1/31/2023 | | 1/31/2029 | | Beverage, Food, & Tobacco | | $ | 4,900,742 | | $ | 4,804,587 | | $ | 4,804,587 | | 5.61% |
Centeotl Co-Invest B, LP Common Units | | | | Equity | | | | | | | | 1/31/2023 | | | | | | | 318,998 | | | 318,998 | | | 318,998 | | 0.37% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,123,585 | | $ | 5,123,585 | | 5.61% |
Service Minds Company, LLC | | (4) | | | | | | | | | | | | | | Bradenton, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M LIBOR+5.00% | | 1.00% | | 10.18% | | 2/7/2022 | | 2/7/2028 | | Services: Consumer | | $ | 2,403,241 | | $ | 2,362,904 | | $ | 2,355,176 | | 2.75% |
Revolver | | (5) | | First Lien | | 6M LIBOR+5.00% | | 1.00% | | 10.18% | | 2/7/2022 | | 2/7/2028 | | | | | 193,976 | | | 193,976 | | | 190,096 | | 0.22% |
Delayed Draw Term Loan | | (5) | | First Lien | | 6M LIBOR+5.00% | | 1.00% | | 10.18% | | 2/7/2022 | | 2/7/2028 | | | | | 1,649,176 | | | 1,633,792 | | | 1,616,192 | | 1.89% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,190,672 | | $ | 4,161,464 | | 4.86% |
Tilley Distribution, Inc. | | (4) | | | | | | | | | | | | | | Baltimore, MD | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+5.50% | | 1.00% | | 10.76% | | 4/1/2022 | | 12/31/2026 | | Chemicals, Plastics, & Rubber | | $ | 5,985,085 | | $ | 5,911,696 | | $ | 5,775,607 | | 6.75% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,911,696 | | $ | 5,775,607 | | 6.75% |
Total Non-controlled, non-affiliated investments | | | | | | | | | | | | | | | | | | | | | $ | 165,413,414 | | $ | 164,829,686 | | 192.44% |
Net Investments | | | | | | | | | | | | | | | | | | | | | $ | 165,413,414 | | $ | 164,829,686 | | 192.44% |
LIABILITIES IN EXCESS OF OTHER ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | (79,178,016) | | (92.44)% |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | 85,651,670 | | 100.00% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| |
| | | | | |
| |
| |
| Principal |
| |
| |
| % of | |||
| | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | |||
Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Lightning Intermediate II, LLC | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+6.50% | | 1.00% | | 12.09% | | 6/6/2022 | | 6/6/2027 | | Consumer Goods: Non-Durable | | $ | 6,001,194 | | $ | 5,902,560 | | $ | 5,911,176 | | 6.38% |
Gauge Vimergy Coinvest, LLC Units | | | | Equity | | | | | | | | 6/6/2022 | | | | | | | 178 | | | 178,347 | | | 112,858 | | 0.12% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,080,907 | | $ | 6,024,034 | | 6.50% |
MacKenzie-Childs Acquisition, Inc. | | (4) | | | | | | | | | | | | | | Aurora, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+6.00% | | 1.00% | | 11.11% | | 9/2/2022 | | 9/2/2027 | | Consumer Goods: Durable | | $ | 9,331,532 | | $ | 9,210,151 | | $ | 9,238,216 | | 9.99% |
Revolver | | (5) | | First Lien | | 6M SOFR+6.00% | | 1.00% | | 11.11% | | 9/2/2022 | | 9/2/2027 | | | | | 1,331,608 | | | 1,331,608 | | | 1,318,292 | | 1.42% |
MacKenzie-Childs Investment, LP Partnership Interests | | | | Equity | | | | | | | | 9/2/2022 | | | | | | | 311,482 | | | 311,482 | | | 286,305 | | 0.31% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 10,853,241 | | $ | 10,842,813 | | 11.72% |
Madison Logic Holdings, Inc. | | (4)(9) | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.00% | | 12.24% | | 12/30/2022 | | 12/30/2028 | | Media: Broadcasting & Subscription | | $ | 4,744,927 | | $ | 4,613,200 | | $ | 4,673,753 | | 5.05% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,613,200 | | $ | 4,673,753 | | 5.05% |
Microbe Formulas LLC | | (4) | | | | | | | | | | | | | | Meridian, ID | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 11.44% | | 4/4/2022 | | 4/3/2028 | | Consumer Goods: Non-Durable | | $ | 4,101,522 | | $ | 4,067,492 | | $ | 4,101,522 | | 4.43% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,067,492 | | $ | 4,101,522 | | 4.43% |
Monitorus Holding, LLC | | (4)(6) | | | | | | | | | | | | | | London, UK | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.54% | | 5/24/2022 | | 5/24/2027 | | Media: Diversified & Production | | $ | 6,119,464 | | $ | 6,069,362 | | $ | 6,088,867 | | 6.58% |
Revolver | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.54% | | 5/24/2022 | | 5/24/2027 | | | | € | 1,251,514 | | | 1,360,599 | | | 1,353,796 | | 1.46% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 12.54% | | 5/24/2022 | | 5/24/2027 | | | | € | 3,585,699 | | | 3,619,086 | | | 3,600,991 | | 3.89% |
Sapphire Aggregator S.a r.l. Class A Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,819 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class B Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class C Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class D Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class E Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class F Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class G Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class H Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Sapphire Aggregator S.a r.l. Class I Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 40,202 | | 0.04% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 11,343,545 | | $ | 11,405,472 | | 12.29% |
Onpoint Industrial Services, LLC | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.75% | | 12.24% | | 11/16/2022 | | 11/16/2027 | | Services: Business | | $ | 6,771,002 | | $ | 6,647,614 | | $ | 6,703,292 | | 7.24% |
Spearhead TopCo, LLC Class A Units | | | | Equity | | | | | | | | 11/16/2022 | | | | | | | 335,499 | | | 335,499 | | | 380,592 | | 0.41% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,983,113 | | $ | 7,083,884 | | 7.65% |
Pearl Media Holdings, LLC | | (4) | | | | | | | | | | | | | | Garland, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.50% | | 11.64% | | 8/31/2022 | | 8/31/2027 | | Consumer Goods: Durable | | $ | 2,657,850 | | $ | 2,611,851 | | $ | 2,591,404 | | 2.80% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,611,851 | | $ | 2,591,404 | | 2.80% |
Peltram Plumbing Holdings, LLC | | (4) | | | | | | | | | | | | | | Auburn, WA | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 2/1/2022 | | 12/30/2026 | | Construction & Building | | $ | 6,853,489 | | $ | 6,763,758 | | $ | 6,784,954 | | 7.33% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.74% | | 2/1/2022 | | 12/30/2026 | | | | | 375,407 | | | 375,407 | | | 371,653 | | 0.40% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 7,139,165 | | $ | 7,156,607 | | 7.73% |
Red's All Natural, LLC | | | | | | | | | | | | | | | | Franklin, TN | | | | | | | | | | | |
Term Loan | | (7)(8) | | First Lien | | 3M SOFR+6.00% | | 1.50% | | 12.25% | | 1/31/2023 | | 1/31/2029 | | Beverage, Food, & Tobacco | | $ | 4,900,742 | | $ | 4,807,450 | | $ | 4,851,735 | | 5.24% |
Centeotl Co-Invest B, LP Common Units | | | | Equity | | | | | | | | 1/31/2023 | | | | | | | 318,998 | | | 318,998 | | | 314,254 | | 0.34% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,126,448 | | $ | 5,165,989 | | 5.58% |
RIA Advisory Borrower, LLC | | (4) | | | | | | | | | | | | | | Coral Gables, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.50% | | 2.00% | | 11.69% | | 5/1/2023 | | 8/2/2027 | | Services: Business | | $ | 4,163,519 | | $ | 4,082,702 | | $ | 4,082,702 | | 4.41% |
Revolver | | (5) | | First Lien | | 1M SOFR+6.50% | | 2.00% | | 11.69% | | 5/1/2023 | | 8/2/2027 | | | | | 151,105 | | | 151,105 | | | 148,172 | | 0.16% |
RIA Advisory Aggregator, LLC Class A Units | | | | Equity | | | | | | | | 5/1/2023 | | | | | | | 113,911 | | | 131,446 | | | 99,798 | | 0.11% |
RIA Products Aggregator, LLC Class A Units | | | | Equity | | | | | | | | 5/1/2023 | | | | | | | 107,370 | | | 62,419 | | | 94,068 | | 0.10% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,427,672 | | $ | 4,424,740 | | 4.78% |
7
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31,June 30, 2023
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| |
| | | | | |
| |
| |
| Principal |
| |
| |
| % of | |||
| | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | |||
Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Service Minds Company, LLC | | (4) | | | | | | | | | | | | | | Bradenton, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M LIBOR+5.50% | | 1.00% | | 10.68% | | 2/7/2022 | | 2/7/2028 | | Services: Consumer | | $ | 2,397,157 | | $ | 2,358,657 | | $ | 2,361,200 | | 2.55% |
Revolver | | (5) | | First Lien | | 3M LIBOR+5.50% | | 1.00% | | 10.70% | | 2/7/2022 | | 2/7/2028 | | | | | 452,611 | | | 452,611 | | | 445,822 | | 0.48% |
Delayed Draw Term Loan | | (5) | | First Lien | | 6M LIBOR+5.50% | | 1.00% | | 10.68% | | 2/7/2022 | | 2/7/2028 | | | | | 1,645,033 | | | 1,630,307 | | | 1,620,358 | | 1.75% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,441,575 | | $ | 4,427,380 | | 4.78% |
Tilley Distribution, Inc. | | (4) | | | | | | | | | | | | | | Baltimore, MD | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 11.39% | | 4/1/2022 | | 12/31/2026 | | Chemicals, Plastics, & Rubber | | $ | 5,969,886 | | $ | 5,900,960 | | $ | 5,760,940 | | 6.22% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,900,960 | | $ | 5,760,940 | | 6.22% |
Total Non-controlled, non-affiliated investments | | | | | | | | | | | | | | | | | | | | | $ | 187,087,867 | | $ | 188,323,515 | | 203.38% |
Net Investments | | | | | | | | | | | | | | | | | | | | | $ | 187,087,867 | | $ | 188,323,515 | | 203.38% |
LIABILITIES IN EXCESS OF OTHER ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | (95,726,317) | | (103.38)% |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | 92,597,198 | | 100.00% |
8
STELLUS PRIVATE CREDIT BDC
CONSOLIDATED SCHEDULE OF INVESTMENTS
June 30, 2023
(unaudited)
| (1) | See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio. |
| (2) | Debt investments are income producing and equity securities are non-income producing, unless otherwise noted. |
| (3) | Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted Euro (“€”). |
| (4) | At |
| | | | | | | | | |
|
| |
| | | Unused |
| | |
| | | | Unfunded | | Commitment | | | |
Investments | | Security | | Commitment |
| Fee | | Maturity | |
American Refrigeration, LLC | | Revolver | | $ | 1,243,392 | | 0.50 | % | March 31, 2028 |
American Refrigeration, LLC | | Delayed Draw Term Loan | | | 482,132 | | 1.00 | % | March 31, 2028 |
Archer Systems, LLC | | Revolver | | | 1,025,607 | | 0.50 | % | August 11, 2027 |
Axis Portable Air, LLC | | Revolver | | | 1,344,512 | | 0.50 | % | March 22, 2028 |
Axis Portable Air, LLC | | Delayed Draw Term Loan | | | 548,780 | | 0.50 | % | March 22, 2028 |
BDS Solutions Intermediateco, LLC | | Revolver | | | 550,893 | | 0.50 | % | February 7, 2027 |
BLP Buyer, Inc. | | Revolver | | | 241,966 | | 0.50 | % | February 1, 2027 |
Cerebro Buyer, LLC | | Revolver | | | 478,771 | | 0.50 | % | March 15, 2029 |
COPILOT Provider Support Services, LLC | | Revolver | | | 921,585 | | 0.50 | % | November 22, 2027 |
Curion Holdings, LLC | | Revolver | | | 382,766 | | 0.50 | % | July 29, 2027 |
Curion Holdings, LLC | | Delayed Draw Term Loan | | | 3,879,736 | | 0.50 | % | July 29, 2027 |
Exigo, LLC | | Revolver | | | 238,210 | | 0.50 | % | March 16, 2027 |
Exigo, LLC | | Delayed Draw Term Loan | | | 1,028,732 | | 0.50 | % | March 16, 2027 |
Florachem Corporation | | Revolver | | | 561,587 | | 0.50 | % | April 29, 2028 |
Florachem Corporation | | Delayed Draw Term Loan | | | 986,571 | | 0.50 | % | April 29, 2028 |
Heartland Business Systems, LLC | | Delayed Draw Term Loan | | | 4,974,229 | | 0.50 | % | August 26, 2027 |
Heat Makes Sense Shared Services, LLC | | Revolver | | | 801,826 | | 0.50 | % | July 1, 2028 |
HV Watterson Holdings, LLC | | Revolver | | | 198,642 | | 0.50 | % | December 17, 2026 |
HV Watterson Holdings, LLC | | Delayed Draw Term Loan | | | 1,567,506 | | 1.00 | % | December 17, 2026 |
Inoapps Bidco, LLC | | Revolver | | | 948,767 | | 0.50 | % | February 15, 2027 |
Inoapps Bidco, LLC | | Delayed Draw Term Loan | | | 474,383 | | 0.50 | % | February 15, 2027 |
Lightning Intermediate II, LLC | | Revolver | | | 746,891 | | 0.50 | % | June 6, 2027 |
MacKenzie-Childs Acquisition, Inc. | | Revolver | | | 102,431 | | 0.50 | % | September 2, 2027 |
Madison Logic Holdings, Inc. | | Revolver | | | 388,726 | | 0.50 | % | December 30, 2027 |
Microbe Formulas LLC | | Revolver | | | 934,990 | | 0.50 | % | April 3, 2028 |
Monitorus Holding, LLC | | Revolver | | € | 625,757 | | 0.50 | % | May 24, 2027 |
Pearl Media Holdings, LLC | | Revolver | | | 696,773 | | 0.50 | % | August 31, 2027 |
Pearl Media Holdings, LLC | | Delayed Draw Term Loan | | | 3,594,043 | | 0.50 | % | August 31, 2027 |
Peltram Plumbing Holdings, LLC | | Revolver | | | 883,310 | | 0.50 | % | December 30, 2026 |
Service Minds Company, LLC | | Revolver | | | 452,611 | | 0.50 | % | February 7, 2028 |
Tilley Distribution, Inc. | | Revolver | | | 986,571 | | 0.50 | % | December 31, 2026 |
| | | | | | | | | |
|
| |
| | | Unused |
| | |
| | | | Unfunded | | Commitment | | | |
Investments | | Security | | Commitment |
| Fee | | Maturity | |
2X LLC | | Revolver | | $ | 2,278,843 | | 0.50 | % | June 5, 2028 |
American Refrigeration, LLC | | Revolver | | | 1,119,053 | | 0.50 | % | March 31, 2028 |
American Refrigeration, LLC | | Delayed Draw Term Loan | | | 482,132 | | 1.00 | % | March 31, 2028 |
Archer Systems, LLC | | Revolver | | | 1,025,607 | | 0.50 | % | August 11, 2027 |
Axis Portable Air, LLC | | Revolver | | | 1,344,512 | | 0.50 | % | March 22, 2028 |
BLP Buyer, Inc. | | Revolver | | | 89,387 | | 0.50 | % | February 1, 2027 |
Cerebro Buyer, LLC | | Revolver | | | 478,771 | | 0.50 | % | March 15, 2029 |
Channel Partners Intermediateco, LLC | | Revolver | | | 288,320 | | 0.50 | % | February 7, 2027 |
COPILOT Provider Support Services, LLC | | Revolver | | | 921,585 | | 0.50 | % | November 22, 2027 |
Craftable Intermediate II Inc. | | Revolver | | | 3,149,231 | | 0.50 | % | June 30, 2028 |
Equine Network, LLC | | Revolver | | | 211,919 | | 0.50 | % | May 22, 2028 |
Equine Network, LLC | | Delayed Draw Term Loan | | | 371,545 | | 1.00 | % | May 22, 2028 |
Exigo, LLC | | Revolver | | | 238,210 | | 0.50 | % | March 16, 2027 |
Exigo, LLC | | Delayed Draw Term Loan | | | 1,028,732 | | 0.50 | % | March 16, 2027 |
Florachem Corporation | | Revolver | | | 561,587 | | 0.50 | % | April 29, 2028 |
Florachem Corporation | | Delayed Draw Term Loan | | | 986,571 | | 0.50 | % | April 29, 2028 |
Heartland Business Systems, LLC | | Delayed Draw Term Loan | | | 3,316,153 | | 0.50 | % | August 26, 2027 |
Heat Makes Sense Shared Services, LLC | | Revolver | | | 1,477,049 | | 0.50 | % | July 1, 2028 |
HV Watterson Holdings, LLC | | Revolver | | | 446,944 | | 0.50 | % | December 17, 2026 |
HV Watterson Holdings, LLC | | Delayed Draw Term Loan | | | 1,567,506 | | 1.00 | % | December 17, 2026 |
Impact Home Services LLC | | Revolver | | | 643,899 | | 0.50 | % | April 28, 2028 |
Inoapps Bidco, LLC | | Revolver | | | 948,767 | | 0.50 | % | February 15, 2027 |
Inoapps Bidco, LLC | | Delayed Draw Term Loan | | | 474,383 | | 0.50 | % | February 15, 2027 |
Lightning Intermediate II, LLC | | Revolver | | | 746,891 | | 0.50 | % | June 6, 2027 |
MacKenzie-Childs Acquisition, Inc. | | Revolver | | | 204,863 | | 0.50 | % | September 2, 2027 |
Madison Logic Holdings, Inc. | | Revolver | | | 388,726 | | 0.50 | % | December 30, 2027 |
Microbe Formulas LLC | | Revolver | | | 934,990 | | 0.50 | % | April 3, 2028 |
Pearl Media Holdings, LLC | | Revolver | | | 696,773 | | 0.50 | % | August 31, 2027 |
Pearl Media Holdings, LLC | | Delayed Draw Term Loan | | | 3,594,043 | | 0.50 | % | August 31, 2027 |
Peltram Plumbing Holdings, LLC | | Revolver | | | 507,903 | | 0.50 | % | December 30, 2026 |
RIA Advisory Borrower, LLC | | Revolver | | | 532,183 | | 0.50 | % | August 2, 2027 |
Service Minds Company, LLC | | Revolver | | | 193,976 | | 0.50 | % | February 7, 2028 |
Tilley Distribution, Inc. | | Revolver | | | 986,571 | | 0.50 | % | December 31, 2026 |
| (5) | These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floor is not in effect. |
| (6) | The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 93.9% of the Company’s total assets as of |
| (7) | This loan is a unitranche investment. |
| (8) | These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floor is not in effect. |
| (9) | Excluded from the investment is an uncalled capital commitment in an amount not to exceed $461,351. |
| (10) | Security is income producing through dividends or distributions. |
89
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| % of | |||
| | | | | | | | | | | | Investment | | | | Headquarters/ | | Amount/ | | Amortized | | Fair | | Net | |||
Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Non-controlled, non-affiliated investments | | | | | | | | | | | | | | | |
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AIP ATCO Buyer, LLC | | (4) | | | | | | | | | | | | | | Sterling Heights, MI | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+6.50% | | 1.00% | | 11.31% | | 5/17/2022 | | 5/17/2028 | | Automotive | | $ | 8,845,526 | | $ | 8,682,015 | | $ | 8,801,298 | | 10.97% |
Revolver | | (5) | | First Lien | | 1M SOFR+6.50% | | 1.00% | | 10.93% | | 5/17/2022 | | 5/17/2028 | | | | | 810,347 | | | 810,347 | | | 806,295 | | 1.00% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,492,362 | | $ | 9,607,593 | | 11.97% |
Archer Systems, LLC | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.50% | | 1.00% | | 10.92% | | 8/11/2022 | | 8/11/2027 | | Services: Business | | $ | 9,727,427 | | $ | 9,545,572 | | $ | 9,581,515 | | 11.94% |
CF Arch Holdings LLC Class A Units | | | | Equity | | | | | | | | 8/10/2022 | | | | | | | 496,967 | | | 496,967 | | | 527,885 | | 0.66% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 10,042,539 | | $ | 10,109,400 | | 12.60% |
Axis Portable Air, LLC | | (4) | | | | | | | | | | | | | | Phoenix, AZ | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 1.00% | | 10.48% | | 3/22/2022 | | 3/22/2028 | | Capital Equipment | | $ | 1,509,146 | | $ | 1,482,068 | | $ | 1,501,600 | | 1.87% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 1.00% | | 10.48% | | 3/22/2022 | | 3/22/2028 | | | | | 1,344,512 | | | 1,331,735 | | | 1,337,789 | | 1.67% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+5.75% | | 2.00% | | 10.48% | | 11/3/2022 | | 3/22/2028 | | | | | 2,195,122 | | | 2,195,122 | | | 2,184,146 | | 2.72% |
Axis Air Parent, LLC Preferred Units | | | | Equity | | | | | | | | 3/22/2022 | | | | | | | 1,527 | | | 152,661 | | | 236,215 | | 0.29% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,161,586 | | $ | 5,259,750 | | 6.55% |
Baker Manufacturing Company, LLC | | | | | | | | | | | | | | | | Evansville, IN | | | | | | | | | | | |
Term Loan | | (7)(8) | | First Lien | | 3M SOFR+5.25% | | 1.00% | | 10.75% | | 7/5/2022 | | 7/5/2027 | | Capital Equipment | | $ | 6,169,082 | | $ | 6,053,037 | | $ | 6,076,546 | | 7.57% |
BSC Blue Water Holdings, LLC Series A Units | | | | Equity | | | | | | | | 7/5/2022 | | | | | | | 330,978 | | | 330,978 | | | 262,680 | | 0.33% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,384,015 | | $ | 6,339,226 | | 7.90% |
BDS Solutions Intermediateco, LLC | | (4) | | | | | | | | | | | | | | Tampa Bay, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.71% | | 2/24/2022 | | 2/7/2027 | | Retail | | $ | 4,679,065 | | $ | 4,638,875 | | $ | 4,608,879 | | 5.74% |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.71% | | 6/24/2022 | | 2/7/2027 | | | | | 455,829 | | | 451,673 | | | 448,992 | | 0.56% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.55% | | 2/24/2022 | | 2/7/2027 | | | | | 236,828 | | | 236,828 | | | 233,276 | | 0.29% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 5,327,376 | | $ | 5,291,147 | | 6.59% |
BLP Buyer, Inc. | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.49% | | 2/1/2022 | | 2/1/2027 | | Capital Equipment | | $ | 2,778,445 | | $ | 2,731,359 | | $ | 2,708,984 | | 3.38% |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 1.00% | | 10.21% | | 10/3/2022 | | 2/1/2027 | | | | | 1,278,711 | | | 1,248,201 | | | 1,246,743 | | 1.55% |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.75% | | 2.00% | | 11.08% | | 12/8/2022 | | 2/1/2027 | | | | | 4,852,763 | | | 4,709,383 | | | 4,731,444 | | 5.89% |
Revolver | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 10.67% | | 2/1/2022 | | 2/1/2027 | | | | | 139,482 | | | 139,482 | | | 135,995 | | 0.17% |
BL Products Parent, L.P. Class A Units | | | | Equity | | | | | | | | 2/1/2022 | | | | | | | 339,326 | | | 339,326 | | | 346,544 | | 0.43% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,167,751 | | $ | 9,169,710 | | 11.42% |
COPILOT Provider Support Services, LLC | | (4) | | | | | | | | | | | | | | Maitland, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.50% | | 2.00% | | 11.23% | | 11/22/2022 | | 11/22/2027 | | Healthcare & Pharmaceuticals | | $ | 9,509,802 | | $ | 9,321,496 | | $ | 9,321,496 | | 11.61% |
QHP Project Captivate Blocker, Inc. Common Stock | | | | Equity | | | | | | | | 11/22/2022 | | | | | | | 8 | | | 544,779 | | | 544,779 | | 0.68% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,866,275 | | $ | 9,866,275 | | 12.29% |
Curion Holdings, LLC | | (4) | | | | | | | | | | | | | | Chicago, IL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.98% | | 7/29/2022 | | 7/29/2027 | | Services: Business | | $ | 3,542,772 | | $ | 3,476,632 | | $ | 3,454,203 | | 4.30% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.98% | | 7/29/2022 | | 7/29/2027 | | | | | 893,121 | | | 893,121 | | | 870,793 | | 1.08% |
SP CS Holdings LLC Class A Units | | | | Equity | | | | | | | | 7/29/2022 | | | | | | | 343,529 | | | 343,529 | | | 274,144 | | 0.34% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,713,282 | | $ | 4,599,140 | | 5.72% |
Exigo, LLC | | (4) | | | | | | | | | | | | | | Dallas, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M LIBOR+5.75% | | 1.00% | | 10.13% | | 3/16/2022 | | 3/16/2027 | | Software | | $ | 4,001,839 | | $ | 3,949,517 | | $ | 3,941,811 | | 4.91% |
Revolver | | (5) | | First Lien | | 1M LIBOR+5.75% | | 1.00% | | 10.13% | | 3/16/2022 | | 3/16/2027 | | | | | 47,642 | | | 47,642 | | | 46,927 | | 0.06% |
Gauge Exigo Coinvest, LLC Common Units | | | | Equity | | | | | | | | 3/16/2022 | | | | | | | 168,003 | | | 168,003 | | | 151,768 | | 0.19% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,165,162 | | $ | 4,140,506 | | 5.16% |
Florachem Corporation | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+6.50% | | 1.00% | | 11.23% | | 4/29/2022 | | 4/29/2028 | | Chemicals, Plastics, & Rubber | | $ | 1,258,510 | | $ | 1,235,422 | | $ | 1,233,340 | | 1.54% |
SK FC Holdings, L.P. Class A Units | | | | Equity | | | | | | | | 4/29/2022 | | | | | | | 161 | | | 161,283 | | | 162,513 | | 0.20% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 1,396,705 | | $ | 1,395,853 | | 1.74% |
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Investments | | Footnotes | | Security (2) | | Coupon | | Floor | | Cash | | Date | | Maturity | | Industry | | Shares (3) | | Cost | | Value (1) | | Assets | |||
Heartland Business Systems, LLC | | (4) | | | | | | | | | | | | | | Little Chute, WI | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.79% | | 8/26/2022 | | 8/26/2027 | | Services: Business | | $ | 3,202,660 | | $ | 3,142,195 | | $ | 3,154,620 | | 3.93% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.00% | | 10.91% | | 8/26/2022 | | 8/26/2027 | | | | | 1,658,076 | | | 1,641,495 | | | 1,633,205 | | 2.03% |
AMCO HBS Holdings, LP Class A Units | | | | Equity | | | | | | | | 8/26/2022 | | | | | | | 1,570 | | | 157,008 | | | 243,972 | | 0.30% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,940,698 | | $ | 5,031,797 | | 6.26% |
Heat Makes Sense Shared Services, LLC | | (4) | | | | | | | | | | | | | | Brooklyn, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+5.50% | | 0.75% | | 9.63% | | 7/1/2022 | | 7/1/2029 | | Consumer Goods: Non-Durable | | $ | 7,480,115 | | $ | 7,334,957 | | $ | 7,367,913 | | 9.18% |
Revolver | | (5) | | First Lien | | 6M SOFR+5.50% | | 0.75% | | 10.37% | | 7/1/2022 | | 7/1/2028 | | | | | 295,410 | | | 295,410 | | | 290,979 | | 0.36% |
Ishtar Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 298,251 | | | 298,251 | | | 340,070 | | 0.42% |
Oshun Co-Invest-B LP Partnership Interests | | | | Equity | | | | | | | | 7/1/2022 | | | | | | | 85,213 | | | 85,213 | | | 97,162 | | 0.12% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,013,831 | | $ | 8,096,124 | | 10.08% |
HV Watterson Holdings, LLC | | (4) | | | | | | | | | | | | | | Schaumburg, IL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.18% | | 2/1/2022 | | 12/17/2026 | | Services: Business | | $ | 8,159,862 | | $ | 8,091,364 | | $ | 7,915,066 | | 9.86% |
Revolver | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.18% | | 2/1/2022 | | 12/17/2026 | | | | | 198,642 | | | 198,642 | | | 192,683 | | 0.24% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 11.18% | | 2/1/2022 | | 12/17/2026 | | | | | 198,201 | | | 196,345 | | | 192,255 | | 0.24% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,486,351 | | $ | 8,300,004 | | 10.34% |
Inoapps Bidco, LLC | | (4) | | | | | | | | | | | | | | Houston, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 10.19% | | 2/15/2022 | | 2/15/2027 | | High Tech Industries | | $ | 5,664,137 | | $ | 5,567,760 | | $ | 5,550,854 | | 6.92% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+5.75% | | 1.00% | | 10.19% | | 2/15/2022 | | 2/15/2027 | | | | | 2,365,987 | | | 2,344,107 | | | 2,318,667 | | 2.89% |
Inoapps Holdings, LLC Series A-1 Preferred Units | | | | Equity | | | | | | | | 2/15/2022 | | | | | | | 512,365 | | | 543,572 | | | 529,959 | | 0.66% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 8,455,439 | | $ | 8,399,480 | | 10.47% |
International Designs Group LLC | | | | | | | | | | | | | | | | Farmingville, NY | | | | | | | | | | | |
International Designs Holdings LLC Common Units | | | | Equity | | | | | | | | 4/1/2022 | | | | Construction & Building | | $ | 455,341 | | $ | 455,341 | | $ | 444,895 | | 0.55% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 455,341 | | $ | 444,895 | | 0.55% |
Lightning Intermediate II, LLC | | (4) | | | | | | | | | | | | | | Jacksonville, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 6M SOFR+6.50% | | 1.00% | | 11.54% | | 6/6/2022 | | 6/6/2027 | | Consumer Goods: Non-Durable | | $ | 6,078,133 | | $ | 5,967,985 | | $ | 5,895,789 | | 7.35% |
Gauge Vimergy Coinvest, LLC Units | | | | Equity | | | | | | | | 6/6/2022 | | | | | | | 178 | | | 178,347 | | | 133,477 | | 0.17% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,146,332 | | $ | 6,029,266 | | 7.52% |
MacKenzie-Childs Acquisition, Inc. | | (4) | | | | | | | | | | | | | | Aurora, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 10.73% | | 9/2/2022 | | 9/2/2027 | | Consumer Goods: Durable | | $ | 9,378,542 | | $ | 9,245,162 | | $ | 9,237,863 | | 11.51% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.00% | | 1.00% | | 10.73% | | 9/2/2022 | | 9/2/2027 | | | | | 1,331,608 | | | 1,331,608 | | | 1,311,634 | | 1.63% |
MacKenzie-Childs Investment, LP Partnership Interests | | | | Equity | | | | | | | | 9/2/2022 | | | | | | | 311,482 | | | 311,482 | | | 285,502 | | 0.36% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 10,888,252 | | $ | 10,834,999 | | 13.50% |
Madison Logic Holdings, Inc. | | (4) | | | | | | | | | | | | | | New York, NY | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.00% | | 11.58% | | 12/30/2022 | | 12/30/2027 | | Media: Broadcasting & Subscription | | $ | 4,756,819 | | $ | 4,614,114 | | $ | 4,614,114 | | 5.75% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,614,114 | | $ | 4,614,114 | | 5.75% |
Microbe Formulas LLC | | (4) | | | | | | | | | | | | | | Meridian, ID | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M SOFR+6.25% | | 1.00% | | 10.67% | | 4/4/2022 | | 4/3/2028 | | Consumer Goods: Non-Durable | | $ | 4,433,420 | | $ | 4,393,532 | | $ | 4,389,086 | | 5.47% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 4,393,532 | | $ | 4,389,086 | | 5.47% |
Monitorus Holding, LLC | | (4)(6) | | | | | | | | | | | | | | London, UK | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 11.73% | | 5/24/2022 | | 5/24/2027 | | Media: Diversified & Production | | $ | 6,119,464 | | $ | 6,064,112 | | $ | 6,058,269 | | 7.54% |
Delayed Draw Term Loan | | (5) | | First Lien | | 3M LIBOR+7.00% | | 1.00% | | 11.73% | | 5/24/2022 | | 5/24/2027 | | | | € | 3,585,699 | | | 3,619,085 | | | 3,582,895 | | 4.45% |
Sapphire Aggregator S.a r.l. Class A Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,819 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class B Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class C Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class D Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class E Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class F Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class G Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class H Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Sapphire Aggregator S.a r.l. Class I Shares | | | | Equity | | | | | | | | 9/1/2022 | | | | | | | 1,635,814 | | | 32,722 | | | 36,697 | | 0.05% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 9,977,695 | | $ | 9,971,437 | | 12.44% |
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Onpoint Industrial Services, LLC | | | | | | | | | | | | | | | | Deer Park, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+7.00% | | 1.75% | | 11.58% | | 11/16/2022 | | 11/16/2027 | | Services: Business | | $ | 6,805,027 | | $ | 6,670,604 | | $ | 6,670,604 | | 8.31% |
Spearhead TopCo, LLC Class A Units | | | | Equity | | | | | | | | 11/16/2022 | | | | | | | 335,499 | | | 335,499 | | | 335,499 | | 0.42% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 7,006,103 | | $ | 7,006,103 | | 8.73% |
Pearl Media Holdings, LLC | | (4) | | | | | | | | | | | | | | Garland, TX | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.50% | | 10.98% | | 8/31/2022 | | 8/31/2027 | | Consumer Goods: Durable | | $ | 2,671,239 | | $ | 2,620,622 | | $ | 2,617,814 | | 3.26% |
Revolver | | (5) | | First Lien | | 3M SOFR+6.25% | | 1.50% | | 10.93% | | 8/31/2022 | | 8/31/2027 | | | | | 232,258 | | | 232,258 | | | 227,613 | | 0.28% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 2,852,880 | | $ | 2,845,427 | | 3.54% |
Peltram Plumbing Holdings, LLC | | (4) | | | | | | | | | | | | | | Auburn, WA | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M LIBOR+6.25% | | 1.00% | | 10.98% | | 2/1/2022 | | 12/30/2026 | | Construction & Building | | $ | 6,995,815 | | $ | 6,892,968 | | $ | 6,750,961 | | 8.41% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,892,968 | | $ | 6,750,961 | | 8.41% |
Service Minds Company, LLC | | (4) | | | | | | | | | | | | | | Bradenton, FL | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 1M LIBOR+5.00% | | 1.00% | | 9.29% | | 2/7/2022 | | 2/7/2028 | | Services: Consumer | | $ | 2,409,325 | | $ | 2,367,173 | | $ | 2,349,092 | | 2.93% |
Revolver | | (5) | | First Lien | | 1M SOFR+5.00% | | 1.00% | | 9.44% | | 2/7/2022 | | 2/7/2028 | | | | | 193,976 | | | 193,976 | | | 189,127 | | 0.24% |
Delayed Draw Term Loan | | (5) | | First Lien | | 1M LIBOR+5.00% | | 1.00% | | 9.29% | | 2/7/2022 | | 2/7/2028 | | | | | 531,687 | | | 526,873 | | | 518,395 | | 0.65% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 3,088,022 | | $ | 3,056,614 | | 3.82% |
Tilley Distribution, Inc. | | (4) | | | | | | | | | | | | | | Baltimore, MD | | | | | | | | | | | |
Term Loan | | (5) | | First Lien | | 3M SOFR+5.50% | | 1.00% | | 10.14% | | 4/1/2022 | | 12/31/2026 | | Chemicals, Plastics, & Rubber | | $ | 6,000,285 | | $ | 5,922,488 | | $ | 5,790,275 | | 7.21% |
Revolver | | (5) | | First Lien | | 3M SOFR+5.50% | | 1.00% | | 10.14% | | 4/1/2022 | | 12/31/2026 | | | | | 171,578 | | | 171,578 | | | 165,573 | | 0.21% |
Total | | | | | | | | | | | | | | | | | | | | | $ | 6,094,066 | | $ | 5,955,848 | | 7.42% |
Total Non-controlled, non-affiliated investments | | | | | | | | | | | | | | | | | | | | | $ | 158,022,677 | | $ | 157,504,755 | | 196.24% |
Net Investments | | | | | | | | | | | | | | | | | | | | | $ | 158,022,677 | | $ | 157,504,755 | | 196.24% |
LIABILITIES IN EXCESS OF OTHER ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | (77,241,798) | | (96.24)% |
NET ASSETS | | | | | | | | | | | | | | | | | | | | | | | | $ | 80,262,957 | | 100.00% |
1112
| (1) | See Note 1 of the Notes to the Consolidated Financial Statements for a discussion of the methodologies used to value securities in the portfolio. |
| (2) | Debt investments are income producing and equity securities are non-income producing, unless otherwise noted. |
| (3) | Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars (“$”) unless otherwise noted Euro (“€”). |
| (4) | At |
| | | | | | | | | |
|
| |
| | | Unused |
| | |
| | | | Unfunded | | Commitment | | | |
Investments | | Security | | Commitment |
| Fee | | Maturity | |
AIP ATCO Buyer, LLC | | Revolver | | $ | 810,347 | | 0.50 | % | May 17, 2028 |
Archer Systems, LLC | | Revolver | | | 1,025,607 | | 0.50 | % | August 11, 2027 |
Axis Portable Air, LLC | | Revolver | | | 1,344,512 | | 0.50 | % | March 22, 2028 |
Axis Portable Air, LLC | | Delayed Draw Term Loan | | | 1,920,732 | | 0.50 | % | March 22, 2028 |
BDS Solutions Intermediateco, LLC | | Revolver | | | 550,893 | | 0.50 | % | February 7, 2027 |
BLP Buyer, Inc. | | Revolver | | | 241,966 | | 0.50 | % | February 1, 2027 |
COPILOT Provider Support Services, LLC | | Revolver | | | 921,585 | | 0.50 | % | November 22, 2027 |
Curion Holdings, LLC | | Revolver | | | 382,766 | | 0.50 | % | July 29, 2027 |
Curion Holdings, LLC | | Delayed Draw Term Loan | | | 3,879,736 | | 0.50 | % | July 29, 2027 |
Exigo, LLC | | Revolver | | | 190,568 | | 0.50 | % | March 16, 2027 |
Exigo, LLC | | Delayed Draw Term Loan | | | 1,028,732 | | 0.50 | % | March 16, 2027 |
Florachem Corporation | | Revolver | | | 1,871,955 | | 0.50 | % | April 29, 2028 |
Florachem Corporation | | Delayed Draw Term Loan | | | 986,571 | | 0.50 | % | April 29, 2028 |
Heartland Business Systems, LLC | | Delayed Draw Term Loan | | | 4,974,229 | | 0.50 | % | August 26, 2027 |
Heat Makes Sense Shared Services, LLC | | Revolver | | | 1,181,639 | | 0.50 | % | July 1, 2028 |
HV Watterson Holdings, LLC | | Revolver | | | 1,042,869 | | 0.50 | % | December 17, 2026 |
HV Watterson Holdings, LLC | | Delayed Draw Term Loan | | | 1,567,506 | | 1.00 | % | December 17, 2026 |
Inoapps Bidco, LLC | | Revolver | | | 948,767 | | 0.50 | % | February 15, 2027 |
Inoapps Bidco, LLC | | Delayed Draw Term Loan | | | 474,383 | | 0.50 | % | February 15, 2027 |
Lightning Intermediate II, LLC | | Revolver | | | 746,891 | | 0.50 | % | June 6, 2027 |
MacKenzie-Childs Acquisition, Inc. | | Revolver | | | 204,863 | | 0.50 | % | September 2, 2027 |
Madison Logic Holdings, Inc. | | Revolver | | | 388,726 | | 0.50 | % | December 30, 2027 |
Microbe Formulas LLC | | Revolver | | | 934,990 | | 0.50 | % | April 3, 2028 |
Monitorus Holding, LLC | | Revolver | | € | 1,251,514 | | 0.50 | % | May 24, 2027 |
Pearl Media Holdings, LLC | | Revolver | | | 464,515 | | 0.50 | % | August 31, 2027 |
Pearl Media Holdings, LLC | | Delayed Draw Term Loan | | | 3,594,043 | | 0.50 | % | August 31, 2027 |
Peltram Plumbing Holdings, LLC | | Revolver | | | 883,310 | | 0.50 | % | December 30, 2026 |
Service Minds Company, LLC | | Revolver | | | 452,611 | | 0.50 | % | February 7, 2028 |
Service Minds Company, LLC | | Delayed Draw Term Loan | | | 1,121,632 | | 1.00 | % | February 7, 2028 |
Tilley Distribution, Inc. | | Revolver | | | 814,993 | | 0.50 | % | December 31, 2026 |
| (5) | These loans include an interest rate floor feature which is lower than the applicable rates; therefore, the floor is not in effect. |
| (6) | The investment is not a “qualifying asset” under the Investment Company Act of 1940, as amended. The Company may not acquire any non-qualifying assets unless, at the time of the acquisition, qualifying assets represent at least 70% of the Company’s total assets. Qualifying assets represent approximately 94.3% of the Company’s total assets as of December 31, 2022. |
| (7) | This loan is a unitranche investment. |
| (8) | These loans are last-out term loans with contractual rates higher than the applicable rates; therefore, the floor is not in effect. |
1213
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
NOTE 1 — NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Stellus Private Credit BDC (“we”, “us”, “our” and the “Company”) was formed on December 7, 2021 (“Inception”) as a Delaware statutory trust and is an externally managed, closed-end, non-diversified investment management company. Prior to February 1, 2022 (“Commencement of Operations”), the Company was devoting substantially all of its efforts to establishing the business and conducting organizational and marketing efforts. The Company is applying the guidance of Accounting Standards Codification Topic 946, Financial Services Investment Companies ("ASC Topic 946"). The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company qualifies and intends to elect to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes. Subject to the supervision of the Company’s Board of Trustees (the “Board”), a majority of which is made up of trustees who are not interested persons as defined in Section 2(a)(19) of the 1940 Act (the “Independent Trustees”), the Advisor (as defined below) manages the Company’s day-to-day operations and provides the Company with investment advisory and management services. Trustees who are interested persons as defined in Section 2(a)(19) of the 1940 Act are referred to herein as Interested Trustees. The Company is externally managed by Stellus Private BDC Advisor, LLC (the “Advisor”), a Delaware limited liability company, that is a majority-owned subsidiary of Stellus Capital Management, LLC (“Stellus Capital”), an investment adviser that is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. Stellus Capital serves as the Company’s administrator (the “Administrator”) pursuant to an administration agreement (the “Administration Agreement”). The Administrator may retain a sub-administrator to perform any or all of its obligations under the Administration Agreement.
As of March 31,June 30, 2023, the Company has issued a total of 5,832,9796,182,924 common shares of beneficial interest in connection withpursuant to draw downs of $80,000,000 of capital commitments, andimmediate share purchases of $6,350,000$11,350,000 from investors through an immediate share issuancepursuant to subscription agreementagreements, and $318,962 from dividend reinvestments for total for total contributed capital of $86,350,000. Additionally, as$91,668,962. As of March 31,June 30, 2023, the Company had $5,000,000 payable$151,687,500 in uncalled capital commitments pursuant to a related party, included as a related party payable in the Statement of Assets and Liabilities, which related to capital contributions received in advance of the issuance of shares. See Note 10 – Subsequent Events for further details.draw down subscription agreements.
On February 11, 2022, the Company formed PBDC Consolidated Blocker, LLC (the “Taxable Subsidiary”), which is structured as a Delaware entity, to hold equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). The Taxable Subsidiary is consolidated for U.S. generally accepted accounting principles (“U.S. GAAP”) reporting purposes, and the portfolio investments held by the Taxable Subsidiary are included in the consolidated financial statements.
As a BDC, the Company is required to comply with certain regulatory requirements. In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities (including any preferred stock that we may issue in the future) of at least 150%. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. As of March 31,June 30, 2023, our asset coverage ratio was 213%197%.
The Company’s investment objective is to maximize the total return to its shareholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies. The Company seeks to achieve its investment objective by originating and investing primarily in private U.S. middle-market companies (typically those with $5,000,000 to $50,000,000 of EBITDA (earnings before interest, taxes, depreciation, and amortization)) through first lien, second lien, unitranche and unsecured debt financing, with corresponding equity co-investments. The Company sources investments primarily through the extensive network of relationships that the principals of Stellus Capital have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.
1314
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
principals of Stellus Capital have developed with financial sponsor firms, financial institutions, middle-market companies, management teams and other professional intermediaries.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with U.S. GAAP are omitted. The unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of the financial statements for the interim periods included herein. The results of operations for the three and six months ended March 31,June 30, 2023 and 2022 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022.
In accordance with Regulation S-X under the Exchange Act, the Company does not consolidate portfolio company investments. The accounting records of the Company are maintained in U.S. dollars.
Economic Developments
Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and may continue to observe supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, economic sanctions in response to international conflicts and instances of geopolitical, economic, and financial market instability in the United States and abroad. One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial markets.
Portfolio Investment Classification
The Company classifies its portfolio investments in accordance with the requirements of the 1940 Act as follows: (a) “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation, (b) “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% of the voting securities and does not have rights to maintain greater than 50% of the board representation, and (c) “Non-controlled, non-affiliate investments” are defined as investments that are neither Control Investments or Affiliate Investments.
Cash and Cash Equivalents
As of March 31,June 30, 2023, cash balances totaling $2,331$9,490 did not exceed Federal Deposit Insurance Corporation (“FDIC”) insurance protection levels of $250,000.
As of MarchDecember 31, 2023,2022, the Company held $5,000,000$12,500,000 of cash equivalents in U.S. Treasury Bills that matured on AprilJanuary 4, 2023. The U.S. Treasury Bills were purchased using $500,000$1,000,000 margin cash and proceeds from a $4,500,000$11,500,000 short-term loan from Raymond James Financial Inc., accruing interest at an annual rate of approximately 7.00%6.50%. As of June 30, 2023, no U.S. Treasury Bills were held. For the three and six months ended March 31,June 30, 2023, the Company incurred interest expense of $1,739$448 and paid $3,288$2,187 related to the short-term loan, respectively. For the three and six months ended June 30, 2022, the Company accrued interest expense of $2,603 related to the short-term loan. For the six months ended June 30, 2023, the Company paid $6,359 related to the short-term loan.
1415
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
In addition, at March 31,June 30, 2023, the Company held $2,687,866$740,947 in cash equivalents, which are carried at cost, which approximates fair value.
Cash consists of bank demand deposits. We deem certain U.S. Treasury Bills and other high-quality, short-term debt securities as cash equivalents. All of the Company's cash deposits are held at large established high credit quality financial institutions and management believes that risk of loss associated with any uninsured balances is remote.
Fair Value Measurements
We account for all of our financial instruments at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. We believe that the carrying amounts of our financial instruments such as cash, receivables and payables approximate the fair value of these items due to the short maturity of these instruments. This is considered a Level 1 valuation technique. The carrying values of our Credit Facilities (defined below) approximates fair value because the interest rates adjusts to the market interest rates (Level 3 input). See Note 6 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.
Consolidation
As permitted under Regulation S-X under the Exchange Act and ASC Topic 946, we generally do not consolidate our investment in a portfolio company other than an investment company subsidiary. Accordingly, we consolidated the results of the Taxable Subsidiary. All intercompany balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the Consolidated Statements of Assets and Liabilities in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.
Deferred Financing Costs
Deferred financing costs consists of prepaid loan structure fees and expenses paid in connection with the closing of our Credit Facilities and are capitalized at the time of payment. These costs are amortized using the straight line method over the term of the respective instrument and presented as an offset to the corresponding debt on the Consolidated Statements of Assets and Liabilities.
Organizational Costs
Organizational costs include costs relating to the formation and incorporation of the Company, which generally include legal fees. These costs are expensed as incurred.
16
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
Deferred Offering Costs
Costs associated with the offering of common shares of beneficial interest of the Company are capitalized as deferred offering costs, included on the Statements of Assets and Liabilities and amortized over a twelve-month period from Commencement of Operations. These expenses include legal, accounting, printing fees and other related expenses
15
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
and costs incurred in connection with preparing the offering documents relating to the Private Offering. As of March 31,June 30, 2023 and December 31, 2022, $93,643$86,760 and $54,394 of such offering costs had yet to be amortized, respectively.
Investments
In December 2020, the SEC adopted a new rule providing a framework for fund valuation practices. Rule 2a-5 under the 1940 Act (“Rule 2a-5”) establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Rule 2a-5 permits boards, subject to board oversight and certain other conditions, to designate certain parties to perform fair value determinations. Rule 2a-5 also defines when market quotations are “readily available” for purposes of the 1940 Act and the threshold for determining whether a fund must determine the fair value of a security. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. Finally, the SEC is rescinding previously issued guidance on related issues, including the role of the board in determining fair value and the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, and had a compliance date of September 8, 2022. While our Board has not elected to designate the Advisor as the valuation designee, the Company has adopted certain revisions to its valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
As a BDC, the Company will generally invest in illiquid loans and securities including debt and equity securities of private middle-market companies. Section 2(a)(41)of the 1940 Act requires that a BDC value its assets as follows: (i) the third party price for securities for which a quotation is readily available; and (ii) for all other securities and assets, fair value, as determined in good faith by a BDC's Board of Trustees. Under procedures established by our Board, the Company intends to value investments for which market quotations are readily available at such market quotations. The Company will obtain these market values from an independent pricing service or at the midpoint of the bid and ask prices obtained from at least two brokers or dealers (if available, otherwise by a principal market maker or a primary market dealer). Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and estimates. The Company also engages independent valuation providers to review the valuation of each portfolio investment that does not have a readily available market quotation at least twice annually.
Debt and equity investments purchased within approximately 90 days of the valuation date will be valued at cost, plus accreted discount, or minus amortized premium, which approximates fair value. With respect to unquoted securities, our Board will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board will use the pricing indicated by the external event to corroborate and/or assist us in its valuation. Because the Company expects that there will not be a readily available market quotation for many of the investments in its portfolio, the Company expects to value most of our portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
In following these approaches, the types of factors that will be taken into account in fair value pricing investments will include, as relevant, but not be limited to:
| ● | available current market data, including relevant and applicable market trading and transaction comparables; |
1617
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
| ● | applicable market yields and multiples; |
| ● | financial covenants; |
| ● | call protection provisions; |
| ● | information rights; |
| ● | the nature and realizable value of any collateral; |
| ● | the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; |
| ● | comparisons of financial ratios of peer companies that are public; |
| ● | comparable merger and acquisition transactions; and |
| ● | the principal market and enterprise values. |
Revenue Recognition
We record interest income on an accrual basis to the extent such interest is deemed collectible. Payment-in-kind (“PIK”) interest represents contractual interest accrued and added to the loan balance that generally becomes due at maturity. We will not accrue any form of interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium are capitalized, and we then accrete or amortize such amounts using the effective interest method as interest income. Upon the prepayment of a loan or debt security, any unamortized loan origination fee is recorded as interest income. We record prepayment premiums on loans and debt securities as other income. Dividend income, if any, will be recognized on the declaration date.
A presentation of the interest income we have received from portfolio companies for the three and six months ended March 31,June 30, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Six Months Ended | ||||||||||||
|
| March 31, 2023 |
| March 31, 2022 |
|
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2023 |
| June 30, 2022 | ||||||
Loan interest | | $ | 4,409,449 |
| $ | 342,446 | | | $ | 4,931,471 |
| $ | 1,193,400 | | $ | 9,340,920 | | $ | 1,535,846 |
Fee amortization income(1) | |
| 159,829 | |
| 15,829 | | |
| 208,690 | |
| 52,477 | |
| 368,519 | |
| 68,306 |
Fee income acceleration(2) | |
| 162,674 | |
| 736 | | |
| 18,612 | |
| 1,341 | |
| 181,286 | |
| 2,077 |
Total Interest Income | | $ | 4,731,952 | | $ | 359,011 | | | $ | 5,158,773 | | $ | 1,247,218 | | $ | 9,890,725 | | $ | 1,606,229 |
| (1) | Includes amortization of fees on unfunded commitments. |
| (2) | Unamortized loan origination fees recognized upon full or partial realization of investment. |
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the repayment, sale or disposition and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
18
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
Investment Transaction Costs
Costs that are material associated with an investment transaction, including legal expenses, are included in the cost basis of purchases, and deducted from the proceeds of sales unless such costs are reimbursed by the borrower.
17
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
Receivables and Payables for Unsettled Securities Transaction
The Company records all investments on a trade date basis.
U.S. Federal Income Taxes
The Company qualifies and intends to elect to be treated as a RIC under Subchapter M of the Code, and to operate in a manner to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, among other things, the Company is required to timely distribute to its shareholders at least 90% of investment company taxable income, as defined by the Code, for each year. So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its shareholders as dividends. Rather, any tax liability related to income earned by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company.
To avoid a 4% U.S federal excise tax on undistributed earnings, the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year, (ii) 98.2% of its net capital gains for the one-year period ending December 31, and (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no federal income tax or the Excise(the “Excise Tax Avoidance Requirement.Requirement”). For this purpose, however, any net ordinary income or capital gain net income retained by us that is subject to corporate income tax for the tax year ending in that calendar year will be considered to have been distributed by year end (or earlier if estimated taxes are paid). The Company, at its discretion, may choose not to distribute all its taxable income for the calendar year and pay a non-deductible 4% excise tax on this income. If the Company chooses to do so, all other things being equal, this would increase expenses and reduce the amount of cash available to be distributed to shareholders. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, the Company accrues excise taxes on estimated excess taxable income as taxable income is earned. As of December 31, 2022, the Company estimates that it had $277,935 of undistributed taxable income that was carried forward toward distributions to be paid in 2023. All of the undistributed ordinary income as of December 31, 2022 will have been distributed within the required period of time such that the Company will not have to pay corporate-level U.S. federal income tax related to the year ended December 31, 2022.
Current income tax expense estimates for the three and six months ended March 31,June 30, 2023 of $7,835$8,855 and $16,690, respectively, is related to federal excise taxes. There was no such expense for the three and six months ended March 31,June 30, 2022.
The Company evaluates tax positions taken or expected to be taken while preparing its tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions deemed to meet a “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the applicable period. As of March 31June 30, 2023, the Company had not recorded a liability for any uncertain tax positions. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. The Company’s policy is to include interest and penalties related to income taxes, if applicable, in general and administrative expenses. There were no such expenses for the three and six months ended March 31,June 30, 2023 and 2022.
The Taxable Subsidiary is a direct wholly-owned subsidiary of the Company that has elected to be a taxable entity. The Taxable Subsidiary permits the Company to hold equity investments in portfolio companies that are “pass through” entities for U.S. federal income tax purposes and continue to comply with the “source-of-income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with the Company for U.S.
19
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
federal income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in the Company’s consolidated financial statements.
The Taxable Subsidiary uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the
18
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
For the three and six months ended March 31,June 30, 2023 and 2022, the Company had no deferred tax assets or liabilities.liabilities.
Earnings per Share
Basic per share calculations are computed utilizing the weighted average number of common shares of beneficial interest outstanding for the period. The Company has no common share of beneficial interest equivalents. As a result, there is no difference between diluted earnings per share and basic per share amounts.
Paid In Capital
The Company records the proceeds from the sale of its common shares of beneficial interest on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions and marketing support fees.
Distributable Earnings
The components that make up total distributable lossgain (loss) on the Statements of Assets and Liabilities as of March 31,June 30, 2023 and December 31, 2022 is as follows:
| | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | June 30, 2023 | | December 31, 2022 | ||||
Accumulated net realized gain from investments | $ | 5,425 | | $ | 1,950 | $ | 13,271 | | $ | 1,950 |
Net unrealized depreciation on non-controlled non-affiliated investments and cash equivalents | | (610,909) | | | (538,883) | |||||
Net unrealized appreciation (depreciation) on non-controlled non-affiliated investments and cash equivalents | | 1,208,494 | | | (538,883) | |||||
Net unrealized appreciation on foreign currency translations | | 27,181 | | | 20,961 | | 27,154 | | | 20,961 |
Accumulated undistributed net investment income (loss) |
| 104,840 | |
| (226,750) |
| 67,531 | |
| (226,750) |
Total distributable loss | $ | (473,463) | | $ | (742,722) | |||||
Total distributable gain (loss) | $ | 1,316,450 | | $ | (742,722) | |||||
Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is effective as of March 12, 2020 through December 31, 2022. The Company has agreements that have the London Interbank Offered Rate (“LIBOR”) as a reference rate with certain portfolio companies and with certain lenders. Many of these agreements include language for choosing an alternative successor rate, such as SOFR (as defined below)the Secured Overnigh Financing Rate (“SOFR”), if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The Company adopted this amendment in February 2022 and plans to
20
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
apply the amendments in this update to account for contract modifications as contracts are amended to include a new reference rate or when LIBOR reference is no longer used. The Company did not utilize the optional expedients and exceptions provided by ASU 2020-04 during the three and six months ended March 31,June 30, 2023.
19
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. We believe the impact of the recently issued standards and any that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.
NOTE 2 — RELATED PARTY ARRANGEMENTS
Investment Advisory Agreement
The Company has entered into an investment advisory agreement with the Advisor pursuant to which the Advisor serves as its investment adviser (the “Advisory Agreement”). Pursuant to this agreement and a related fee waiver letter agreement, the Company has agreed to pay the Advisor an annual base management fee (the “Base Management Fee”) of 1.50% of gross assets, including assets purchased with borrowed funds or other forms of leverage (including preferred stock, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) and excluding cash and cash equivalents, and an incentive fee.fee (the “Incentive Fee”). In addition, pursuant to the fee waiver letter agreement, the Advisor has agreed to waive the base management feeBase Management Fee in its entirety until the first fiscal quarter immediately following the two-year anniversary of the initial closing of capital commitments by the Company. For periods thereafter, ending on or prior to the date of the quotation or listing of the Company’s common shares of beneficial interest on a national securities exchange, the Advisor has agreed to waive the base management feeBase Management Fee in excess of 1.00%. For the three months ended March 31,June 30, 2023 and 2022, the Company accrued management fees of $601,839$666,721 and $92,289,$299,076, respectively, all of which have been waived. For the six months ended June 30, 2023 and 2022, the Company accrued management fees of $1,268,560 and $391,365, respectively, all of which have been waived. The base management feesBase Management Fees that have been waived by the Advisor are not subject to recoupment. The base management feeBase Management Fee will be payable quarterly in arrears and be appropriately prorated for any partial quarter.
Incentive Fee
The incentive feeIncentive Fee will consist of two components, an income-based incentive fee and a capital gains-based incentive fee, that are independent of each other, with the result that one component may be payable even if the other is not.
Income-Based Incentive Fee. The portion of the Incentive Fee based on income (the “Income Incentive Fee”) is determined and paid quarterly in arrears commencing with the first calendar quarter following the initial closing date. It will equal (i) prior to any listing of our shares on a national securities exchange, 100% of the Pre-Incentive Fee Net Investment Income (as defined below) in excess of a 1.5% quarterly “hurdle rate,” until the Advisor has received 10% of the total Pre-Incentive Fee Net Investment Income for that calendar quarter and, for Pre-Incentive Fee Net Investment Income in excess of 1.6667% quarterly, 10% of all remaining Pre- IncentivePre-Incentive Fee Net Investment Income for that calendar quarter, and (ii) subsequent to any listing of our shares on a national securities exchange, 100% of the Pre- IncentivePre-Incentive Fee Net Investment Income in excess of a 1.5% quarterly “hurdle rate,” until the Advisor has received 15.0% of the total Pre-Incentive Fee Net Investment Income for that calendar quarter and, for Pre-Incentive Fee Net Investment Income in excess of 1.7647% quarterly, 15.0% of all remaining Pre-Incentive Fee Net Investment Income for that calendar quarter. The 100% “catch-up” provision for Pre-Incentive Fee Net Investment Income in excess of the 1.5% “hurdle rate” is intended to provide the Advisor with an incentive fee of (i) prior to any listing of our shares on a national securities exchange, 10% on all Pre-Incentive Fee Net Investment Income when that amount equals 1.6667% in a calendar quarter (6.6667% annualized), and (ii) subsequent to any listing of our shares on a national securities exchange, 15.0% on all Pre-Incentive Fee Net Investment Income when that amount equals 1.7647% in a calendar quarter (7.00588% annualized), which, in each case, is the rate at which catch-up is achieved. Once the “hurdle rate” is reached and catch-up is achieved, (i) prior to any listing of our shares on a national securities exchange, 10% of any Pre-Incentive Fee Net Investment Income in excess of 1.6667% in any calendar quarter is payable to the Advisor, and (ii) subsequent to any
21
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
listing of our shares on a national securities exchange, 15.0% of any Pre-Incentive Fee Net Investment Income in excess of 1.7647% in any calendar quarter is payable to the Advisor.
Pre-Incentive Fee Net Investment Income means interest income, fee income, distribution/dividend income and any other income accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Base Management Fee and expenses payable under the Administration Agreement but excluding any Incentive Fee).
20
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature, accrued income that the Company has not yet received in cash. The Advisor is not obligated to return the incentive fee based on incomeIncome Incentive Fee it receives on deferred interest that is later determined to be uncollectible in cash.
Notwithstanding the foregoing, an income-based incentive feeIncome Incentive Fee shall be paid to the Advisor for any quarter only to the extent that, after such payment, the cumulative income-based incentive feesIncome Incentive Fees paid to the Advisor for the period that includes the then-current fiscal quarter and the three full preceding fiscal quarters (the “Income Incentive Fee Look-Back Period”) is less than or equal to, prior to any listing of our shares on a national securities exchange, 10% and, subsequent to any listing of our shares on a national securities exchange, 15% of the Company’s Cumulative Pre-Incentive Fee Net Return (as defined below) during the Income Incentive Fee Look-Back Period (the “Income Incentive Fee Cap”).
“Cumulative Pre-Incentive Fee Net Return” during the Income Incentive Fee Look-Back Period means the sum of (a) Pre-Incentive Fee Net Investment Income for each period during the relevant Income Incentive Fee Look-Back Period and (b) the sum of realized capital gains and unrealized capital appreciation during the applicable Income Incentive Fee Look-Back Period less the sum of realized capital losses and unrealized capital depreciation during the applicable Income Incentive Fee Look-Back Period.
For the three months ended March 31,June 30, 2023 and 2022, the Company accrued income incentive feesIncome Incentive Fees of $439,666. As$468,011 and $77,677, respectively. For the six months ended June 30, 2023 and 2022, the Company accrued Income Incentive Fees of March 31,$907,677 and $77,677, respectively. For the three months ended June 30, 2023 $146,556and 2022, $156,004 and $0 of Income Incentive Fees accrued were waived, pursuant to the 5% waiver prior to any listing of our shares on a national securities exchange,exchange. For the six months ended June 30, 2023 and $47,0252022, $302,559 and $38,839 of Income Incentive Fees accrued were waived, pursuant to the 5% waiver prior to any listing of our shares on a national securities exchange. No Income Incentive Fees accrued but not paid by the Company were deferred, pursuant to the Cumulative Pre-Incentive Fee Net Return limitation, and are not currently payable. The income-based incentive feesIncome Incentive Fees that have been waived by the Advisor are not subject to recoupment. For the three months ended March 31, 2022, the Company did not accrue any Income-Based Incentive Fee.
Capital Gains Incentive Fee. The capital gains component of the incentive feeIncentive Fee (the “Capital Gains Incentive Fee”) is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement,Advisory Agreement, as of the termination date), and is equal to, prior to any listing of our shares on a national securities exchange, 10.0% and, subsequent to an listing of our shares on a national securities exchange, 15% of our cumulative aggregate realized capital gains from inception through the end of that calendar year, computed net of the cumulative aggregate realized capital losses and cumulative aggregate unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees.Incentive Fees. If such amount is negative, then no capital gains incentive feeCapital Gains Incentive Fee will be accrued or payable for such year. Additionally, if the Advisory Agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes of calculating and paying the capital gains incentive fee.Capital Gains Incentive Fee. Any capital gains based incentive feesCapital Gains Incentive Fees that have been waived prior to any listing of our shares on a national securities exchange by the Advisor are not subject to recoupment.
U.S. GAAP requires that the accrual considers the cumulative aggregate realized gains and losses and unrealized capital appreciation or depreciation of investments and other financial instruments in the calculation, as an incentive feeIncentive Fee would be payable if such realized gains and losses and unrealized capital appreciation or depreciation were realized, even though such realized gains and losses and unrealized capital appreciation or depreciation is not permitted to be considered in calculating the fee actually payable under the investment advisory agreement.Advisory Agreement. There can be no assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, such fees, as calculated and accrued,
22
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
may not necessarily be payable under the investment advisory agreement,Advisory Agreement, and may never be paid based upon the computation of incentive feesIncentive Fees in subsequent periods.
For both the three and six months ended March 31,June 30, 2023, the Company accrued $124,892 of Capital Gains Incentive Fee. For the three and six months ended June 30, 2022, the Company did not accrue any Capital Gains Incentive Fee. As of July 31, 2023 and December 31, 2022, $124,892 and $0, respectively, of Capital Gains Incentive Fees were accrued but not currently payable to the Advisor.
Expense Support and Conditional Reimbursement
The Advisor has contractually agreed to reimburse expenses, beginning with the Commencement of Operations, to keep annual operating expenses to be no more than an amount equal to 12.5 basis points of the Company’s total assets per quarter (50 basis points of its total assets per annum), pro-rated for partial periods, for the covered operating
21
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
expenses (as defined below). The contractual fee reimbursements may be modified or terminated only with the approval of the Board, including a majority of the Independent Trustees. For purposes of the reimbursed expense calculations, covered operating expenses do not include organizational and offering expenses; costs relating to the offerings of the Company’s common shares of beneficial interest and other securities (including underwriting, placement agent and similar fees and commissions); interest payable on debt, if any, incurred to finance the Company’s investments and other fees and expenses related to the Company’s borrowings; federal, state and local taxes; all costs of registration and listing the Company’s shares on any securities exchange; investment advisory and management fees payable to the Advisor; and third-party investor hosting and similar platforms and service providers. For the three months ended March 31,June 30, 2023 and 2022, the Company recorded expense reimbursements of $219,880$139,229 and $157,933,$87,423, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded expense reimbursements of $359,109 and $245,356, respectively.
Reimbursements made by the Advisor with respect to the Company, pursuant to the Expense Support and Conditional Reimbursement Agreement, are subject to recoupment from the Company within a three year time period, provided that the Company is able to effect such payment to the Advisor without exceeding the applicable expense limitations in effect at the time such reimbursements occurred.
For the three and six months ended March 31,June 30, 2023 and 2022, expenses reimbursed by the Advisor included in the Consolidated Statement of Operations, subject to recoupment by the Company over three years is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
For the Three | | Amount Subject | | Amount | | Balance Subject | | Date of | | Amount Subject | | Amount | | Balance Subject | | Date of | ||||||
Months Ended |
| to Recoupment |
| Recouped |
| to Recoupment |
| Expiration |
| to Recoupment |
| Recouped |
| to Recoupment |
| Expiration | ||||||
March 31, 2022 | | $ | 157,933 |
| $ | — |
| $ | 157,933 |
| March 31, 2025 | | $ | 157,933 |
| $ | — |
| $ | 157,933 |
| March 31, 2025 |
June 30, 2022 | | | 87,423 | | | — | | | 87,423 | | June 30, 2025 | | | 87,423 | | | — | | | 87,423 | | June 30, 2025 |
September 30, 2022 | | | 79,475 | | | — | | | 79,475 | | September 30, 2025 | | | 79,475 | | | — | | | 79,475 | | September 30, 2025 |
December 31, 2022 | | | 63,511 | | | — | | | 63,511 | | December 31, 2025 | | | 63,511 | | | — | | | 63,511 | | December 31, 2025 |
March 31, 2023 | | | 219,880 | | | — | | | 219,880 | | March 31, 2026 | | | 219,880 | | | — | | | 219,880 | | March 31, 2026 |
June 30, 2023 | | | 139,229 | | | — | | | 139,229 | | June 30, 2026 | |||||||||||
Trustees’ Fees
Each Independent Trustee of the Board is paid an annual board retainer of $50,000, payable in quarterly installments. The Company reimburses Independent Trustees for any out-of-pocket expenses related to their service as members of the Board. The Independent Trustees of the Board do not receive any stock-based compensation for their service as members of the Board. The Company’s trustees who are employed by Stellus Capital do not receive any compensation for their service as members of the Board. In addition, the Audit Committee Chairman is paid an additional annual retainer of $10,000.
For both the three months ended March 31,June 30, 2023 and 2022, the Company recorded an expense relating to trustees’ fees of $40,000$40,000. For the six months ended June 30, 2023 and $38,000,2022, the Company recorded an expense relating to
23
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
trustees’ fees of $80,000 and $78,000, respectively. As of both March 31,June 30, 2023 and December 31, 2022, no trustees’ fees were payable to the Company’s trustees.
Co-Investment Pursuant to SEC Order
On May 9, 2022, the Company received an exemptive order (the “Order”) from the SEC that permits it to co-invest with investment funds managed by the Advisor and its affiliates where doing so is consistent with the Company’s investment strategy as well as applicable law (including the terms and conditions of the exemptive order issued by the SEC). Under the terms of the relief permitting the Company to co-invest with other funds managed by the Advisor and its affiliates, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Independent Trustees must make certain conclusions in connection with a co-investment transaction, including (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to the Company and its and do not involve overreaching of the Company or its shareholders on the part of any person concerned and (2) the transaction is consistent with the interests of its shareholders and is consistent with the Company’s investment objectives and strategies. The Company co-invests, subject to the conditions in the Order, with private credit funds and a BDC managed by Stellus Capital or its affiliate that have an investment strategy that is similar or identical to the Company's investment strategy, and the Company may co-invest with other BDCs, and registered investment companies managed by Stellus Capital or an adviser that is controlled, controlling, or under common control with Stellus Capital in the future. The Company believes that such co-investments may afford it additional investment opportunities and an ability to achieve greater diversification.
22
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
License Agreement
The Company has entered into a license agreement with Stellus Capital under which Stellus Capital has agreed to grant the Company a non-exclusive, royalty-free license to use the name “Stellus Capital.” Under this agreement, the Company has a right to use the “Stellus Capital” name for so long as the Advisor, Stellus Capital or one of their affiliates remains the Company’s investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Stellus Capital” name. This license agreement will remain in effect for so long as the Advisory Agreement with the Advisor is in effect.
Administration Agreement
Under the Administration Agreement, Stellus Capital furnishes the Company with office facilities and equipment and will provide the Company with clerical, bookkeeping, recordkeeping, and other administrative services at such facilities. Stellus Capital also performs, or oversees the performance of, the Company’s required administrative services, which include being responsible for the financial and other records that the Company is required to maintain and preparing reports to its shareholders and reports and other materials filed with the SEC. In addition, Stellus Capital assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing and dissemination of reports and other materials to its shareholders, and generally oversees the payment of its expenses and the performance of administrative and professional services rendered to the Company by others. Under the Administration Agreement, Stellus Capital also provides managerial assistance on the Company’s behalf to those portfolio companies that have accepted the Company’s offer to provide such assistance.
24
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
Payments under the Administration Agreement are equal to an amount based upon the Company’s allocable portion (subject to the review of the Board) of Stellus Capital’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the cost of the Company’s Chief Financial Officer and Chief Compliance Officer and his staff. In addition, if requested to provide significant managerial assistance to the Company’s portfolio companies, Stellus Capital will be paid an additional amount based on the services provided, which shall not exceed the amount that the Company receives from such portfolio companies for providing this assistance. The Administration Agreement has an initial term of two years and may be renewed with the approval of the Board. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that Stellus Capital outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without any incremental profit to Stellus Capital.
The Board, including a majority of the Independent Trustees, will review the reimbursement payments made by the Company to the Administrator to determine if the provisions of the Administration Agreement are carried out satisfactorily and to determine, among other things, whether the reimbursement payments under the Administration Agreement are reasonable in light of the services provided. For the three months ended March 31,June 30, 2023 and 2022, the Company recorded expenses of $72,501$75,124 and $26,642,$14,574, respectively, relating to the Administration Agreement. For the six months ended June 30, 2023 and 2022, the Company recorded expenses of $147,625 and $41,216, respectively, relating to the Administration Agreement. As of March 31,June 30, 2023 and December 31, 2022, $124,238$75,124 and $51,737, respectively, remained payable to Stellus Capital under the Administration Agreement.
Indemnifications
Under the Advisory Agreement, the Advisor has not assumed any responsibility to the Company other than to render the services called for under that agreement. It will not be responsible for any action of the Board in following or declining to follow the Advisor’s advice or recommendations. Under the Advisory Agreement, the Advisor, its officers, members and personnel, and any person controlling or controlled by the Advisor will not be liable to the Company, any of its subsidiaries, its trustees, its shareholders or any subsidiary’s shareholders or partners for acts or omissions performed in accordance with and pursuant to the Advisory Agreement, except those resulting from acts constituting gross negligence, willful misfeasance, bad faith or reckless disregard of the duties that the Advisor owes to the Company under the Advisory Agreement. In addition, as part of the Advisory Agreement, the Company has agreed to indemnify
23
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
the Advisor and each of its officers, trustees, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with the Advisor, from and against any claims, damages, liabilities, costs and expenses, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with the Company’s business and operations or any action taken or omitted on the Company’s behalf pursuant to authority granted by the Advisory Agreement or otherwise as the Company's investment adviser, except where attributable to gross negligence, willful misfeasance, bad faith or reckless disregard of such person’s duties under the Advisory Agreement. These protections may lead the Advisor to act in a riskier manner when acting on the Company’s behalf than it would when acting for its own account.
NOTE 3 — DISTRIBUTIONS
Distributions are generally declared by the Company’s Board each calendar quarter and recognized as distribution liabilities on the declaration date. The stockholder distributions, if any, will be determined by the Board. Any distribution to stockholders will be declared out of assets legally available for distribution.
25
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
For the three and six months ended March 31,June 30, 2023, the Company declared aggregate distributions of $0.42$0.44 and $0.86 per share on its common stock.stock, respectively. No distributions were declared for the three and six months ended June 30, 2022. The Company has declared distributions of $1.29$1.73 per share on its common stock since Inception:
| | | | | | | | | | | | | | |
Date Declared |
| Record Date |
| Payment Date |
| Per Share(1) |
| Record Date |
| Payment Date |
| Per Share(1) | ||
Fiscal 2022 | | Various | | $ | 0.87 | | Various | | $ | 0.87 | ||||
Fiscal 2023 | |
|
|
| |
| | |
|
|
| |
| |
March 14, 2023 | | March 17, 2023 | | April 5, 2023 | | $ | 0.42 | | March 17, 2023 | | April 5, 2023 | | $ | 0.42 |
June 27, 2023 | | June 30, 2023 | | July 5, 2023 | | $ | 0.44 | |||||||
Total | | | |
| | $ | 1.29 | | | |
| | $ | 1.73 |
| (1) | Distributions for the year ended 2022 are shown in aggregate amounts. |
In addition, the Company has adopted a dividend reinvestment plan (“DRIP”), pursuant to which each shareholder will receive dividends in the form of additional common shares of beneficial interest unless they notify the Plan Administrator and the Company's transfer agent and registrar in writing that they instead desire to receive cash. If a shareholder receives dividends in the form of shares, dividend proceeds that otherwise would have been distributed in cash will be retained by the Company for reinvestment. Shareholders who receive dividends and other distributions in the form of common shares of beneficial interest generally are subject to the same U.S. federal tax consequences as investors who elect to receive their distributions in cash; however, since their cash dividends will be reinvested, those investors will not receive cash with which to pay any applicable taxes on re-invested dividends. A shareholder may elect to receive dividends and other distributions in cash by notifying the Plan Administrator and the Company's transfer agent and registrar in writing so that such notice is received by the Plan Administrator no later than the record date fixed by the Board for such distribution. If such notice is not received by the record date fixed by the Board for such distribution, then that dividend will be paid in the form of common shares of beneficial interest and any subsequent dividends will be paid in cash. The Company issued 8,01710,629 and 18,646 shares through the DRIP for the three and six months ended March 31, 2023.June 30, 2023, respectively. No DRIP shares were issued for the three and six months ended March 31,June 30, 2022.
NOTE 4 — EQUITY OFFERINGS AND RELATED EXPENSES
On January 31, 2022, the Company completed an initial closing of capital commitments and received an aggregate capital commitment of $226,687,500. On this same date, pursuant to this capital commitment, the Company issued 2,333,334 common shares of beneficial interest at a price of $15.00 for total aggregate proceeds of $35,000,000.
2426
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
As of March 31,June 30, 2023, the Company has issued a total of 5,832,9796,182,924 common shares of beneficial interest in connection with draw downs of $80,000,000 of capital commitments and immediate share purchases of $6,350,000$11,350,000 from investors through an immediate share issuancepursuant to subscription agreementagreements and $163,347$318,962 from dividend reinvestments for total contributed capital of $86,513,347.$91,668,962.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| |
| |
| | |
| | Organizational |
| | |
| Offering |
| |
| |
| | |
| | Organizational |
| | |
| Offering | ||
| | Common Shares | | Number of |
| Gross |
| Expense |
| Net |
| Price | | Common Shares | | Number of |
| Gross |
| Expense |
| Net |
| Price | ||||||||
Type of Common Shares Issuance |
| Issuance Date |
| Shares |
| Proceeds |
| Allocation(1) |
| Proceeds(2) |
| Per Share |
| Issuance Date |
| Shares |
| Proceeds |
| Allocation(1) |
| Proceeds(2) |
| Per Share | ||||||||
Capital draw down |
| January 31, 2022 |
| 2,333,334 | | $ | 35,000,000 | | $ | — | | $ | 35,000,000 | | $ | 15.00 |
| January 31, 2022 |
| 2,333,334 | | $ | 35,000,000 | | $ | — | | $ | 35,000,000 | | $ | 15.00 |
Capital draw down |
| May 11, 2022 |
| 1,355,013 | |
| 20,000,000 | |
| — | |
| 20,000,000 | | | 14.76 |
| May 11, 2022 |
| 1,355,013 | |
| 20,000,000 | |
| — | |
| 20,000,000 | | | 14.76 |
Capital draw down |
| August 30, 2022 |
| 1,358,696 | |
| 20,000,000 | |
| — | |
| 20,000,000 | | | 14.72 |
| August 30, 2022 |
| 1,358,696 | |
| 20,000,000 | |
| — | |
| 20,000,000 | | | 14.72 |
Dividend reinvestment | | August 31, 2022 | | 294 | | | 4,328 | | | — | | | 4,328 | | | 14.72 | | August 31, 2022 | | 294 | | | 4,328 | | | — | | | 4,328 | | | 14.72 |
Immediate share issuance |
| September 27, 2022 |
| 91,403 | |
| 1,345,451 | |
| 4,549 | |
| 1,350,000 | | | 14.72 |
| September 27, 2022 |
| 91,403 | |
| 1,345,451 | |
| 4,549 | |
| 1,350,000 | | | 14.72 |
Immediate share issuance |
| November 7, 2022 |
| 342,037 | |
| 4,983,487 | |
| 16,513 | |
| 5,000,000 | | | 14.57 |
| November 7, 2022 |
| 342,037 | |
| 4,983,487 | |
| 16,513 | |
| 5,000,000 | | | 14.57 |
Dividend reinvestment | | November 10, 2022 | | 2,656 | | | 39,566 | | | — | | | 39,566 | | | 14.90 | | November 10, 2022 | | 2,656 | | | 39,566 | | | — | | | 39,566 | | | 14.90 |
Dividend reinvestment | | January 13, 2023 | | 8,017 | | | 119,453 | | | — | | | 119,453 | | | 14.90 | | January 13, 2023 | | 8,017 | | | 119,453 | | | — | | | 119,453 | | | 14.90 |
Capital draw down |
| March 29, 2023 |
| 341,529 | |
| 5,000,000 | |
| — | |
| 5,000,000 | | | 14.64 |
| March 29, 2023 |
| 341,529 | |
| 5,000,000 | |
| — | |
| 5,000,000 | | | 14.64 |
Dividend reinvestment | | April 5, 2023 | | 10,629 | | | 155,615 | | | — | | | 155,615 | | | 14.64 | ||||||||||||||||
Immediate share issuance |
| May 10, 2023 |
| 339,316 | |
| 4,981,160 | |
| 18,840 | |
| 5,000,000 | | | 14.68 | ||||||||||||||||
Total |
| |
| 5,832,979 | | $ | 86,492,285 | | $ | 21,062 | | $ | 86,513,347 | |
|
|
| |
| 6,182,924 | | $ | 91,629,060 | | $ | 39,902 | | $ | 91,668,962 | |
|
|
| (1) | Pro rata expense of organizational and offering costs incurred by the Company in connection with the Company’s formation and offerings. The Organizational Expense Allocation represents a reduction to capital commitments to investors subsequent to the initial closing. |
| (2) | Net Proceeds per this equity table will differ from the Statement of Assets and Liabilities as of |
NOTE 5 — NET INCREASE (DECREASE) IN NET ASSETS PER COMMON SHARE OF BENEFICIAL INTEREST
The following information sets forth the computation of net increase (decrease) in net assets resulting from operations per common share of beneficial interest for the three and six months ended March 31,June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||
| | March 31, 2023 | | March 31, 2022 | | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | ||||||
Net increase (decrease) in net assets resulting from operations | | $ | 2,575,668 | | $ | (31,197) | ||||||||||||
Net increase in net assets resulting from operations | | $ | 4,510,399 | | $ | 617,112 | | $ | 7,086,067 | | $ | 585,915 | ||||||
Weighted average common shares of beneficial interest | |
| 5,501,765 | |
| 2,333,334 | |
| 6,037,036 | |
| 3,092,695 | |
| 5,770,879 | |
| 2,790,962 |
Net increase (decrease) from operations per share | | $ | 0.47 | | $ | (0.01) | ||||||||||||
Net increase in net assets from operations per share | | $ | 0.75 | | $ | 0.20 | | $ | 1.23 | | $ | 0.21 | ||||||
NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE
In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;
2527
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.
The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.
At March 31,June 30, 2023, the Company had investments in 2732 portfolio companies. The composition of our investments as of March 31,June 30, 2023 is as follows:
| | | | | | | | | | | | |
|
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
Senior Secured – First Lien(1) | | $ | 159,587,588 | | $ | 158,904,780 | | $ | 179,814,011 | | $ | 180,437,624 |
Equity | |
| 5,825,826 | | | 5,924,906 | |
| 7,273,856 | | | 7,885,891 |
Total Investments | | $ | 165,413,414 | | $ | 164,829,686 | | $ | 187,087,867 | | $ | 188,323,515 |
| (1) | Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for |
At December 31, 2022, the Company had investments in 25 portfolio companies. The composition of our investments as of December 31, 2022 is as follows:
| | | | | | |
|
| Cost |
| Fair Value | ||
Senior Secured – First Lien(1) | | $ | 152,825,940 | | $ | 152,257,418 |
Equity | |
| 5,196,737 | | | 5,247,337 |
Total Investments | | $ | 158,022,677 | | $ | 157,504,755 |
| (1) | Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for 3.9% of our portfolio at fair value. |
The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of March 31,June 30, 2023 and December 31, 2022, the Company had 2326 and 22 of such investments with aggregate unfunded commitments of $32,348,000$32,698,976 and $36,293,611, respectively. The Company maintains sufficient liquidity (through cash on hand, its ability to drawdown capital from investors, and/or available borrowings under the Credit Facilities) to fund such unfunded commitments should the need arise.
2628
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
The aggregate gross unrealized depreciationappreciation (depreciation) and the aggregate cost and fair value of the Company’s portfolio company securities as March 31,June 30, 2023 and December 31, 2022 was as follows:
| | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | ||||
Aggregate cost of portfolio company securities | | $ | 165,413,414 | | $ | 158,022,677 | | $ | 187,087,867 | | $ | 158,022,677 |
Gross unrealized appreciation of portfolio company securities | | | 729,661 | | | 550,229 | | | 2,355,976 | | | 550,229 |
Gross unrealized depreciation of portfolio company securities | | | (1,340,570) | | | (1,089,112) | | | (1,147,482) | | | (1,089,112) |
Gross unrealized appreciation on foreign currency translation | | | 27,181 | | | 20,961 | | | 27,154 | | | 20,961 |
Aggregate fair value of portfolio company securities | | $ | 164,829,686 | | $ | 157,504,755 | | $ | 188,323,515 | | $ | 157,504,755 |
The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of March 31,June 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Quoted Prices |
| |
| |
| |
| Quoted Prices |
| |
| |
| | ||||||||
| | in Active | | | | | | | | in Active | | | | | | | ||||||||
| | Markets | | Significant Other | | Significant | | | | Markets | | Significant Other | | Significant | | | ||||||||
| | for Identical | | Observable | | Unobservable | | | | for Identical | | Observable | | Unobservable | | | ||||||||
| | Securities | | Inputs | | Inputs | | | | Securities | | Inputs | | Inputs | | | ||||||||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||||||
Senior Secured – First Lien | | $ | — | | $ | — | | $ | 158,904,780 | | $ | 158,904,780 | | $ | — | | $ | — | | $ | 180,437,624 | | $ | 180,437,624 |
Equity | |
| — | |
| — | |
| 5,924,906 | |
| 5,924,906 | |
| — | |
| — | |
| 7,885,891 | |
| 7,885,891 |
Total Investments | | $ | — | | $ | — | | $ | 164,829,686 | | $ | 164,829,686 | | $ | — | | $ | — | | $ | 188,323,515 | | $ | 188,323,515 |
The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| Quoted Prices |
| |
| |
| |
| Quoted Prices |
| |
| |
| | ||||||||
| | in Active | | | | | | | | in Active | | | | | | | ||||||||
| | Markets | | Significant Other | | Significant | | | | Markets | | Significant Other | | Significant | | | ||||||||
| | for Identical | | Observable | | Unobservable | | | | for Identical | | Observable | | Unobservable | | | ||||||||
| | Securities | | Inputs | | Inputs | | | | Securities | | Inputs | | Inputs | | | ||||||||
| | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | ||||||||
Senior Secured – First Lien | | $ | — | | $ | — | | $ | 152,257,418 | | $ | 152,257,418 | | $ | — | | $ | — | | $ | 152,257,418 | | $ | 152,257,418 |
Equity | |
| — | |
| — | |
| 5,247,337 | |
| 5,247,337 | |
| — | |
| — | |
| 5,247,337 | |
| 5,247,337 |
Total Investments | | $ | — | | $ | — | | $ | 157,504,755 | | $ | 157,504,755 | | $ | — | | $ | — | | $ | 157,504,755 | | $ | 157,504,755 |
The aggregate values of Level 3 portfolio investments change during the threesix months ended March 31,June 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | |
|
| Senior Secured |
| |
| |
| Senior Secured |
| |
| | ||||||
| | Loans-First | | | | | | Loans-First | | | | | ||||||
| | Lien | | Equity | | Total | | Lien | | Equity | | Total | ||||||
Fair value at beginning of period | | $ | 152,257,418 | | $ | 5,247,337 | | $ | 157,504,755 | |||||||||
Fair value at December 31, 2022 | | $ | 152,257,418 | | $ | 5,247,337 | | $ | 157,504,755 | |||||||||
Purchases of investments | |
| 16,475,471 | |
| 629,088 | |
| 17,104,559 | |
| 39,328,107 | |
| 2,090,671 | |
| 41,418,778 |
Sales and Redemptions | |
| (9,820,034) | |
| — | |
| (9,820,034) | |
| (12,561,190) | |
| (13,553) | |
| (12,574,743) |
Change in unrealized (depreciation) appreciation on investments included in earnings | |
| (114,287) | |
| 42,261 | |
| (72,026) | |||||||||
Change in unrealized appreciation on investments included in earnings | |
| 1,192,134 | |
| 555,243 | |
| 1,747,377 | |||||||||
Change in unrealized appreciation on foreign currency translation included in earnings | |
| — | |
| 6,220 | |
| 6,220 | |
| — | |
| 6,193 | |
| 6,193 |
Amortization of premium and accretion of discount, net | |
| 106,212 | |
| — | |
| 106,212 | |
| 221,155 | |
| — | |
| 221,155 |
Fair value at end of period | | $ | 158,904,780 | | $ | 5,924,906 | | $ | 164,829,686 | |||||||||
Fair value at June 30, 2023 | | $ | 180,437,624 | | $ | 7,885,891 | | $ | 188,323,515 | |||||||||
There were no Level 3 transfers during the threesix months ended March 31,June 30, 2023.
2729
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
The aggregate values of Level 3 portfolio investments change during the year ended December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | |
|
| Senior Secured |
| |
| |
| Senior Secured |
| |
| | ||||||
| | Loans-First | | | | | | Loans-First | | | | | ||||||
| | Lien | | Equity | | Total | | Lien | | Equity | | Total | ||||||
Fair value at beginning of period | | $ | — | | $ | — | | $ | — | |||||||||
Fair value at December 31, 2021 | | $ | — | | $ | — | | $ | — | |||||||||
Purchases of investments | |
| 163,129,279 | |
| 5,196,737 | |
| 168,326,016 | |
| 163,129,279 | |
| 5,196,737 | |
| 168,326,016 |
Sales and Redemptions | |
| (10,501,404) | |
| — | |
| (10,501,404) | |
| (10,501,404) | |
| — | |
| (10,501,404) |
Change in unrealized (depreciation) appreciation on investments included in earnings | |
| (568,522) | |
| 29,639 | |
| (538,883) | |
| (568,522) | |
| 29,639 | |
| (538,883) |
Change in unrealized appreciation on foreign currency translation included in earnings | |
| — | |
| 20,961 | |
| 20,961 | |
| — | |
| 20,961 | |
| 20,961 |
Amortization of premium and accretion of discount, net | |
| 198,065 | |
| — | |
| 198,065 | |
| 198,065 | |
| — | |
| 198,065 |
Fair value at end of period | | $ | 152,257,418 | | $ | 5,247,337 | | $ | 157,504,755 | |||||||||
Fair value at December 31, 2022 | | $ | 152,257,418 | | $ | 5,247,337 | | $ | 157,504,755 | |||||||||
There were no Level 3 transfers during the year ended December 31, 2022.
The following is a summary of geographical concentration of our investment portfolio as of March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | |
|
| |
| |
| % of Total |
|
| |
| |
| % of Total |
| ||||
| | Cost | | Fair Value | | Investments |
| | Cost | | Fair Value | | Investments |
| ||||
Texas | | $ | 41,357,408 | | $ | 41,312,977 |
| 25.06 | % | | $ | 46,914,981 | | $ | 47,584,275 |
| 25.26 | % |
Florida | | | 32,556,554 | | | 32,398,237 |
| 19.66 | % | | | 40,551,893 | | | 40,635,492 |
| 21.57 | % |
New York | | | 24,427,289 | | | 24,359,644 |
| 14.78 | % | | | 23,611,915 | | | 24,022,550 |
| 12.76 | % |
Illinois | | | 14,020,948 | | | 13,584,129 |
| 8.24 | % | | | 14,132,446 | | | 13,664,574 |
| 7.26 | % |
United Kingdom | | | 10,662,258 | | | 10,666,859 |
| 6.47 | % | | | 11,343,545 | | | 11,405,472 |
| 6.06 | % |
Arizona | | | 7,923,725 | | | 8,075,572 |
| 4.29 | % | |||||||||
Washington | | | 6,881,121 | | | 6,838,585 |
| 4.15 | % | | | 7,139,165 | | | 7,156,607 |
| 3.80 | % |
Arizona | | | 6,535,087 | | | 6,623,359 |
| 4.02 | % | |||||||||
Wisconsin | | | 6,551,283 | | | 6,828,849 |
| 3.63 | % | |||||||||
Indiana | | | 6,389,212 | | | 6,442,874 |
| 3.91 | % | | | 6,394,525 | | | 6,490,494 |
| 3.45 | % |
Maryland | | | 5,911,696 | | | 5,775,607 |
| 3.50 | % | | | 5,900,960 | | | 5,760,940 |
| 3.06 | % |
Tennessee | | | 5,123,585 | | | 5,123,585 |
| 3.11 | % | | | 5,126,448 | | | 5,165,989 |
| 2.74 | % |
Wisconsin | | | 4,931,987 | | | 5,071,600 |
| 3.08 | % | |||||||||
Idaho | | | 4,335,565 | | | 4,351,529 |
| 2.64 | % | | | 4,067,492 | | | 4,101,522 |
| 2.18 | % |
Pennsylvania | | | 2,947,177 | | | 2,947,176 |
| 1.56 | % | |||||||||
South Carolina | | | 2,280,704 | | | 2,280,701 |
| 1.38 | % | | | 2,277,017 | | | 2,278,708 |
| 1.21 | % |
Colorado | | | 2,205,295 | | | 2,205,295 |
| 1.17 | % | |||||||||
| | $ | 165,413,414 | | $ | 164,829,686 |
| 100.00 | % | | $ | 187,087,867 | | $ | 188,323,515 |
| 100.00 | % |
2830
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
The following is a summary of geographical concentration of our investment portfolio as of December 31, 2022:
| | | | | | | | | |
|
| |
| |
| % of Total |
| ||
| | Cost | | Fair Value | | Investments |
| ||
Texas | | $ | 41,689,874 | | $ | 41,670,626 |
| 26.46 | % |
Florida | | | 25,824,710 | | | 25,639,155 |
| 16.28 | % |
New York | | | 23,971,538 | | | 23,990,132 |
| 15.23 | % |
Illinois | | | 13,199,633 | | | 12,899,144 |
| 8.19 | % |
United Kingdom | | | 9,977,695 | | | 9,971,437 |
| 6.33 | % |
Michigan | | | 9,492,362 | | | 9,607,593 |
| 6.10 | % |
Washington | | | 6,892,968 | | | 6,750,961 |
| 4.29 | % |
Indiana | | | 6,384,015 | | | 6,339,226 |
| 4.02 | % |
Maryland | | | 6,094,066 | | | 5,955,848 |
| 3.78 | % |
Arizona | | | 5,161,586 | | | 5,259,750 |
| 3.34 | % |
Wisconsin | | | 4,940,698 | | | 5,031,797 |
| 3.19 | % |
Idaho | | | 4,393,532 | | | 4,389,086 |
| 2.79 | % |
| | $ | 158,022,677 | | $ | 157,504,755 |
| 100.00 | % |
The following is a summary of industry concentration of our investment portfolio as of March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | |
|
| |
| |
| % of Total |
|
| |
| |
| % of Total |
| ||||
| | Cost | | Fair Value | | Investments |
| | Cost | | Fair Value | | Investments |
| ||||
Services: Business | | $ | 39,707,966 | | $ | 39,374,650 |
| 23.89 | % | | $ | 48,425,646 | | $ | 48,783,021 |
| 25.91 | % |
Capital Equipment | | | 22,092,697 | | | 22,222,187 |
| 13.48 | % | | | 24,490,108 | | | 24,963,290 |
| 13.26 | % |
Consumer Goods: Non-Durable | | | 18,828,629 | | | 18,803,489 |
| 11.41 | % | | | 17,838,532 | | | 18,230,376 |
| 9.68 | % |
High Tech Industries | | | 13,553,739 | | | 13,567,566 |
| 7.20 | % | |||||||||
Consumer Goods: Durable | | | 13,589,341 | | | 13,435,433 |
| 8.15 | % | | | 13,465,092 | | | 13,434,217 |
| 7.13 | % |
Healthcare & Pharmaceuticals | | | 12,130,838 | | | 12,159,870 |
| 7.38 | % | | | 12,111,614 | | | 12,193,067 |
| 6.47 | % |
Media: Diversified & Production | | | 10,662,258 | | | 10,666,859 |
| 6.47 | % | | | 11,343,545 | | | 11,405,472 |
| 6.07 | % |
Services: Consumer | | | 9,648,607 | | | 9,632,244 |
| 5.11 | % | |||||||||
Chemicals, Plastics, & Rubber | | | 8,616,550 | | | 8,446,364 |
| 5.13 | % | | | 8,603,552 | | | 8,414,083 |
| 4.47 | % |
High Tech Industries | | | 8,441,507 | | | 8,427,651 |
| 5.11 | % | |||||||||
Construction & Building | | | 7,336,462 | | | 7,317,227 |
| 4.44 | % | | | 7,594,506 | | | 7,557,771 |
| 4.01 | % |
Retail | | | 5,963,327 | | | 5,951,707 |
| 3.61 | % | | | 6,210,160 | | | 6,193,305 |
| 3.29 | % |
Beverage, Food, & Tobacco | | | 5,123,585 | | | 5,123,585 |
| 3.11 | % | | | 5,126,448 | | | 5,165,989 |
| 2.74 | % |
Media: Broadcasting & Subscription | | | 4,619,356 | | | 4,619,356 |
| 2.80 | % | | | 4,613,200 | | | 4,673,753 |
| 2.48 | % |
Services: Consumer | | | 4,190,672 | | | 4,161,464 |
| 2.52 | % | |||||||||
Software | | | 4,110,226 | | | 4,119,844 |
| 2.50 | % | | | 4,063,118 | | | 4,109,361 |
| 2.18 | % |
| | $ | 165,413,414 | | $ | 164,829,686 |
| 100.00 | % | | $ | 187,087,867 | | $ | 188,323,515 |
| 100.00 | % |
2931
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
The following is a summary of industry concentration of our investment portfolio as of December 31, 2022:
| | | | | | | | | |
|
| |
| |
| % of Total |
| ||
| | Cost | | Fair Value | | Investments |
| ||
Services: Business | | $ | 35,188,973 | | $ | 35,046,444 |
| 22.25 | % |
Capital Equipment | | | 20,713,352 | | | 20,768,686 |
| 13.19 | % |
Consumer Goods: Non-Durable | | | 18,553,695 | | | 18,514,476 |
| 11.75 | % |
Consumer Goods: Durable | | | 13,741,132 | | | 13,680,426 |
| 8.69 | % |
Media: Diversified & Production | | | 9,977,695 | | | 9,971,437 |
| 6.33 | % |
Healthcare & Pharmaceuticals | | | 9,866,275 | | | 9,866,275 |
| 6.26 | % |
Automotive | | | 9,492,362 | | | 9,607,593 |
| 6.10 | % |
High Tech Industries | | | 8,455,439 | | | 8,399,480 |
| 5.33 | % |
Chemicals, Plastics, & Rubber | | | 7,490,771 | | | 7,351,701 |
| 4.67 | % |
Construction & Building | | | 7,348,309 | | | 7,195,856 |
| 4.57 | % |
Retail | | | 5,327,376 | | | 5,291,147 |
| 3.36 | % |
Media: Broadcasting & Subscription | | | 4,614,114 | | | 4,614,114 |
| 2.93 | % |
Software | | | 4,165,162 | | | 4,140,506 |
| 2.63 | % |
Services: Consumer | | | 3,088,022 | | | 3,056,614 |
| 1.94 | % |
| | $ | 158,022,677 | | $ | 157,504,755 |
| 100.00 | % |
The following provides quantitative information about Level 3 fair value measurements as of March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | |
Description: |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| Range (Average)(1)(3) |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| Range (Average)(1)(3) | ||
First lien debt | | $ | 158,904,780 | | Income/Market |
| HY credit spreads, | | -0.51% to 1.30% (0.48%) | | $ | 180,437,624 | | Income/Market |
| HY credit spreads, | | -0.88% to 0.92% (-0.09%) |
| | | |
| approach(2) |
| Risk free rates | | -0.66% to 2.54% (0.84%) | | | |
| approach(2) |
| Risk free rates | | 0.00% to 2.54% (1.09%) |
| | | | | |
| Market multiples | | 5.2x to 15.1x (10.1x)(4) | | | | | |
| Market multiples | | 5.0x to 17.0x (10.3x)(4) |
| | | | | | | | | | | | | | | | | | |
Equity investments | | $ | 5,924,906 |
| Market approach(5) |
| Underwriting multiple/ | | | | $ | 7,885,891 |
| Market approach(5) |
| Underwriting multiple/ | | |
| | | | | |
| EBITDA Multiple | | 5.5x to 22.4x (11.1x) | | | | | |
| EBITDA Multiple | | 5.7x to 22.5x (11.2x) |
| | $ | 164,829,686 | | | | | | | | $ | 188,323,515 | | | | | | |
| (1) | Weighted average based on fair value as of |
| (2) | Income approach is based on discounting future cash flows using an appropriate market yield. |
| (3) | The Company calculates the price of the loan by discounting future cash flows, which include forecasted future rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from |
| (4) | Median of LTM (last twelve months) EBITDA multiples of comparable companies. |
| (5) | The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation could result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach. |
3032
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
The following provides quantitative information about Level 3 fair value measurements as of December 31, 2022:
| | | | | | | | | |
Description: |
| Fair Value |
| Valuation Technique |
| Unobservable Inputs |
| Range (Average)(1)(3) | |
First lien debt | | $ | 152,257,418 | | Income/Market |
| HY credit spreads, | | -0.09% to 1.72% (1.06%) |
| | | |
| approach(2) |
| Risk free rates | | 0.63% to 2.87% (1.47%) |
| | | | | |
| Market multiples | | 5.2x to 15.1x (10.0x)(4) |
| | | | | | | | | |
Equity investments | | $ | 5,247,337 |
| Market approach(5) |
| Underwriting multiple/ | | |
| | | | | |
| EBITDA Multiple | | 5.5x to 22.1x (10.4x) |
| | $ | 157,504,755 | | | | | | |
| (1) | Weighted average based on fair value as of December 31, 2022. |
| (2) | Income approach is based on discounting future cash flows using an appropriate market yield. |
| (3) | The Company calculates the price of the loan by discounting future cash flows, which include forecasted future rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -0.09% (-9 basis points) to 1.72% (172 basis points). The average of all changes was 1.06% (106 basis points). |
| (4) | Median of LTM (last twelve months) EBITDA multiples of comparable companies. |
| (5) | The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation could result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach. |
NOTE 7 — COMMITMENTS AND CONTINGENCIES
The Company is currently not subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our business, financial condition, or results of operations.
As of March 31,June 30, 2023, the Company had $32,348,000$32,698,976 in unfunded debt commitments to 2326 existing portfolio companies. As of December 31, 2022, the Company had $36,293,611 in unfunded debt commitments to 22 existing portfolio companies. As of March 31,June 30, 2023, the Company had sufficient liquidity (through cash on hand, its ability to drawdown capital from investors, and/or available borrowings under the Credit Facilities)Facilities (as defined below)) to fund such unfunded commitments should the need arise.
3133
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
NOTE 8 — FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | |
|
| | | For the Period from | |
| | | For the Period from | | ||||
| | | | Commencement of | | | | | Commencement of | | ||||
| | Three Months Ended | | Operations through | | | Six Months Ended | | Operations through | | ||||
| | March 31, 2023 | | | March 31, 2022 | | | June 30, 2023 | | | June 30, 2022 | | ||
| | (unaudited) | | (unaudited) | | | (unaudited) | | (unaudited) | | ||||
Per Share Data:(1) | |
| | |
| | | |
| | |
| | |
Net asset value at beginning of period | | $ | 14.64 | | $ | 14.77 | (2) | | $ | 14.64 | | $ | 14.77 | (2) |
Net investment income | | | 0.48 | | | 0.03 | | | | 0.92 | | | 0.28 | |
Change in unrealized depreciation on investments | | | (0.01) | | | (0.04) | | |||||||
Change in unrealized appreciation (depreciation) on investments | | | 0.31 | | | (0.07) | | |||||||
Total from operations | | $ | 0.47 | | $ | (0.01) | | | $ | 1.23 | | $ | 0.21 | |
Stockholder distributions from: | | | | | | | | | | | | | | |
Net investment income | | | (0.42) | | | — | | | | (0.87) | | | — | |
Other(3) | | | (0.01) | | | — | | | | (0.02) | | | (0.05) | |
Net asset value at end of period | | $ | 14.68 | | $ | 14.76 | | | $ | 14.98 | | $ | 14.93 | |
Total return based on market value(4) | |
| 3.17 | % |
| (0.10) | % | |
| 8.24 | % |
| 2.64 | % |
Weighted average shares outstanding | |
| 5,501,765 | |
| 2,333,334 | | |
| 5,770,879 | |
| 2,790,962 | |
Ratio/Supplemental Data: | | |
| | |
| | | |
| | |
| |
Net assets at end of period | | $ | 85,651,670 | | $ | 34,435,958 | | | $ | 92,597,198 | | $ | 55,053,070 | |
Weighted average net assets | | $ | 80,433,943 | | $ | 34,466,626 | | | $ | 84,578,371 | | $ | 41,432,778 | |
Annualized ratio of net operating expenses to weighted average net assets(5)(6) | |
| 11.45 | % |
| 2.93 | % | |
| 11.46 | % |
| 4.36 | % |
Annualized ratio of interest expense and other fees to weighted average net assets(6) | |
| 8.59 | % |
| 1.31 | % | |
| 8.41 | % |
| 2.06 | % |
Annualized ratio of net investment income to weighted average net assets(5)(6) | |
| 8.42 | % |
| 3.70 | % | |
| 8.08 | % |
| 5.32 | % |
Portfolio turnover(7) | |
| 24.72 | % |
| 2.44 | % | |
| 14.90 | % |
| 3.95 | % |
Credit Facilities payable | | $ | 76,000,000 | | $ | 34,000,000 | | | $ | 95,200,000 | | $ | 46,450,000 | |
Short-term loan payable | | $ | 4,500,000 | | $ | — | | | $ | — | | $ | 25,000,000 | |
Asset coverage ratio(8) | |
| 2.13 | x |
| 2.01 | x | |
| 1.97 | x |
| 2.19 | x |
| (1) | Financial highlights are based on weighted average shares outstanding for the period. |
| (2) | The initial offering price of $15.00 per share less $0.23 per share of organization costs. |
| (3) | 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. |
| (4) | Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share (if any), divided by the beginning NAV per share. Total return is not annualized. |
| (5) | Net of |
| (6) | The ratios reflect an annualized amount, except in the case of non-recurring expenses (e.g., organization costs of $3,534 for the period from Commencement of Operations through |
| (7) | Portfolio turnover is calculated as the lesser of purchases or sales and proceeds from sales and repayments of investments divided by average portfolio balance and is not annualized. |
| (8) | Asset coverage ratio is equal to total assets less all liabilities and indebtedness not represented by senior securities over the aggregate amount of the senior securities. |
NOTE 9 — CREDIT FACILITIES
Commitment 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 May 5, 2022, the Company entered into a First Amendment to
3234
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
Revolving Credit and Security Agreement (the “First Amendment”) by and between the Company, as the borrower and Signature Bank as the lender. The First Amendment increased the maximum commitment amount under the Commitment Facility from $50,000,000 to $75,000,000 on a committed basis. On June 17, 2022, the Company entered into a Second Amendment to Revolving Credit and Security Agreement (the “Second Amendment”) by and between the Company, as the borrower and Signature Bank, as the lender. The Second Amendment increased the maximum commitment amount under the Commitment Facility from $75,000,000 to $100,000,000 on a committed basis. The Commitment Facility was further amended by the Third Amendment to Revolving Credit and Security Agreement, dated July 19, 2022, and the Fourth Amendment to Revolving Credit and Security Agreement, dated September 7, 2022. Borrowings under the Commitment Facility bear interest, subject to the Company’s election, on a per annum basis equal to (i) one-month Term SOFR plus 1.80% plus a credit spread adjustment of 0.10% subject to a zero percent floor (ii) daily simple SOFR plus 1.80% plus a credit spread adjustment of 0.10% or (iii) (a) an alternate base rate based on the greatest of (I) the Prime Rate, (II) Federal Funds Rate plus 0.50% and (III) one-month Term SOFR plus 1.80%, minus (b) 0.80%. Interest is payable monthly in arrears. On March 10, 2023, Signature Bank was placed into receivership by the FDIC. On March 12, 2023, the FDIC created Signature Bridge Bank, N.A. (“Signature Bridge”) to take over the operations of Signature Bank. As of March 31,June 30, 2023, the Commitment Facility remained in full force and effect and is now serviced by Signature Bridge. 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 Company's obligations to the lenders under the Commitment Facility are secured by investors' uncalled capital commitments, and the availability under the Commitment Facility is based on an advance rate for each investor's uncalled capital commitments. The Commitment Facility contains certain covenants, including but not limited to, maintaining an asset coverage ratio of at least 1.50 to 1.00. As of March 31,June 30, 2023 and December 31, 2022, the Company was in compliance with these covenants.
As of March 31,June 30, 2023 and December 31, 2022, $45,000,000 and $80,615,000, respectively, was outstanding under the Commitment Facility. The carrying amount of the amount outstanding under the Commitment Facility approximates its fair value. The fair value of the Commitment Facility is determined in accordance with ASC Topic 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Commitment Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred loan structure fees of $626,547$627,276 in connection with the current Commitment Facility, which are being amortized over the life of the facility. As of March 31,June 30, 2023 and December 31, 2022, $144,161$96,945 and $44,678, respectively, of such prepaid loan structure fees had yet to be amortized, respectively.amortized. These prepaid loan structure fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the Commitment Facility payable.
The following is a summary of the Commitment Facility, net of prepaid loan structure fees:
| | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | | June 30, 2023 | | December 31, 2022 | ||||
Commitment Facility payable | | $ | 45,000,000 | | $ | 80,615,000 | | $ | 45,000,000 | | $ | 80,615,000 |
Prepaid loan structure fees | | | (144,161) |
| | (44,678) | | | (96,945) |
| | (44,678) |
Commitment Facility payable, net of prepaid loan structure fees | | $ | 44,855,839 | | $ | 80,570,322 | | $ | 44,903,055 | | $ | 80,570,322 |
3335
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
Interest is paid monthly in arrears. The following table summarizes the interest expense and amortized financing costs on the Commitment Facility for the three and six months ended March 31,June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Six Months Ended | | ||||||||||||
|
| March 31, 2023 |
| March 31, 2022 |
|
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2023 |
| June 30, 2022 | | ||||||
Interest expense | | $ | 882,942 | | $ | 25,399 | | | $ | 786,155 | | $ | 178,110 | | $ | 1,669,097 |
| $ | 203,508 | |
Loan structure fees amortization | | | 75,607 | | | 47,368 | | | | 47,944 | | | 97,191 | | | 123,551 |
| | 144,560 | |
Total interest and other fees | | $ | 958,549 | | $ | 72,767 | | | $ | 834,099 | | $ | 275,301 | | $ | 1,792,648 |
| $ | 348,068 |
|
Weighted average interest rate | | | 6.5 | % | | 2.2 | %(1) | | | 7.0 | % | | 3.1 | %(1) | | 6.7 | % | | 3.4 | %(1) |
Effective interest rate (including fee amortization) | | | 7.1 | % | | 28.3 | %(1) | | | 7.4 | % | | 4.8 | %(1) | | 7.2 | % | | 5.8 | %(1) |
Average debt outstanding | | $ | 54,988,778 | | $ | 1,593,220 | (1) | | $ | 45,000,000 | | $ | 23,106,593 | (1) | $ | 49,966,796 | | | 14,644,667 | (1) |
Cash paid for interest and unused fees | | $ | 801,416 | | $ | — | | | $ | 1,271,798 | | $ | — | | $ | 2,073,214 |
| $ | — | |
| (1) | Calculated for the period from February 1, 2022, the date of the Commitment Facility, through |
Credit Facility
On September 30, 2022, the Company entered into a senior secured revolving credit agreement, as amended, that was amended on December 9, 2022 with Zions Bancorporation, N.A., dba Amegy Bank and various other lenders (the "Credit Facility", and together with the Commitment Facility, the "Credit Facilities"). The September 2022 Credit Facility provides for borrowings up to a maximum of $130,000,000$150,000,000 on a committed basis with an accordion feature that allows the Company to increase the aggregate commitments up to $200,000,000, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.
The Credit Facility bears interest, subject to the Company’s election, on a per annum basis equal to (i) Term SOFR plus 2.50% (or 2.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus a credit spread adjustment (0.10% for one-month Term SOFR and 0.15% for three-month Term SOFR), subject to a 0.25% floor, or (ii) 1.50% (or 1.75% during certain periods in which the Company’s asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate, which is subject to a 3.00% floor, based on the highest of (a) the Prime Rate, (b) Federal Funds Rate plus 0.50% and (c) one-month Term SOFR plus a credit spread adjustment of 0.10% (subject to a 0.25% floor), plus 1.00%. The Company pays unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on September 30, 2026, after which the Company may no longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the aggregate amount outstanding under the Credit Facility each month. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 30, 2027.
Our obligations to the lenders under the Credit Facility are secured by a first priority security interest in its portfolio of securities and cash held. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10,000,000, including cash, liquid investments, and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a certain minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of March 31,June 30, 2023 and December 31, 2022, the Company was in compliance with these covenants.
As of March 31,June 30, 2023 and December 31, 2022, there was $31,000,000$50,200,000 and $0, respectively, outstanding balance under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair value of the Credit Facility is determined in accordance with ASC Topic 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. The Company has incurred costs of $1,201,140$1,370,961 in connection with the current Credit Facility, which are being amortized over the life of the facility. As of March 31, 2023 and December 31, 2022, $1,048,006 and $1,122,188 of such prepaid loan structure fees and
3436
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2023
(unaudited)
over the life of the facility. As of June 30, 2023 and December 31, 2022, $1,123,695 and $1,122,188 of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.
The following is a summary of the Credit Facility, net of prepaid loan structure fees:
| | | | | | | | | | | | |
| | March 31, 2023 |
| December 31, 2022 | | June 30, 2023 |
| December 31, 2022 | ||||
Credit Facility payable | | $ | 31,000,000 | | $ | — | | $ | 50,200,000 | | $ | — |
Prepaid loan structure fees | | | (1,048,006) |
| | (1,122,188) | | | (1,123,695) |
| | (1,122,188) |
Credit Facility payable, net of prepaid loan structure fees | | $ | 29,951,994 | | $ | (1,122,188) | | $ | 49,076,305 | | $ | (1,122,188) |
Interest is paid monthly in arrears. The following table summarizes the interest expense and amortized financing costs on the Credit Facility for the three and six months ended March 31,June 30, 2023:
| | | | | | | | | |
| Three Months Ended | | Three Months Ended | | Six Months Ended | | |||
| March 31, 2023 |
| June 30, 2023 |
| June 30, 2023 |
| |||
Interest expense | $ | 661,928 | | $ | 893,728 | | $ | 1,555,656 | |
Loan structure fees amortization | | 81,287 | | | 94,132 | | | 175,419 | |
Total interest and other fees | $ | 743,215 | | $ | 987,860 | | $ | 1,731,075 | |
Weighted average interest rate | | 9.0 | % | | 9.1 | % | | 9.0 | % |
Effective interest rate (including fee amortization) | | 10.1 | % | | 10.0 | % | | 10.1 | % |
Average debt outstanding | $ | 29,711,111 | | $ | 39,588,462 | | $ | 34,677,072 | |
Cash paid for interest and unused fees | $ | 636,125 | | $ | 901,154 | | $ | 1,537,279 | |
NOTE 10 — SUBSEQUENT EVENTS
The Company’s management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that require recognition or disclosure in these financial statements except for the following described below.
37
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(unaudited)
Investment Portfolio
The Company invested in the following portfolio companies subsequent to March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | |
Activity Type |
| Date |
| Company Name |
| Company Description |
| Investment Amount |
| Instrument 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 | |||||||||||
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 | |||||||||||
| | | | | | | | $ | 102,981 | | Equity | | | | | | | | $ | 1,410,343 | | Delayed Draw Term Loan Commitment |
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 | |||||||||||
| | | | | | | | $ | 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 | | April 28, 2023 | | Impact Home Services, LLC | | Residential, garage door, electrical, and plumbing services provider | | $ | 2,680,423 | | Senior Secured – First Lien | | 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 |
| | | | | | | | $ | 735,885 | | Revolver commitment | | | | | | | | $ | 1,679,360 | | Revolver Commitment |
| | | | | | | | $ | 175,908 | | Equity | | | | | | | | $ | 264,885 | | Equity |
New Investment | | May 1, 2023 | | RIA Advisory, LLC | | Provider of Oracle software implementation services | | $ | 4,173,954 | | Senior Secured – First Lien | | August 8, 2023 | | Green Intermediateco II, Inc. | | Cyber-security focused value-added reseller and associated service provider | | $ | 6,361,759 | | Senior Secured – First Lien |
| | | | | | | | $ | 683,288 | | Revolver commitment | | | | | | | | $ | 2,002,253 | | Delayed Draw Term Loan Commitment |
| | | | | | | | $ | 193,866 | | Equity | | | | | | | | $ | 194,512 | | Equity |
* | Existing portfolio company |
| |
Credit FacilityFacilities
On April 26,As of August 11, 2023, the Company increased the maximum commitment amount of the Credit Facility, pursuant to the existing accordion feature, 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 $38,650,000.$73,800,000.
35
STELLUS PRIVATE CREDIT BDC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)
Sale of Unregistered Securities
Since March 31,June 30, 2023, the Company sold 339,31673,161 common shares of beneficial interest at a price of $14.68$14.98 per share for aggregate proceeds of $5,000,000,$1,095,959, which includes $18,840included $4,041 of Organizational Expense Allocation pursuant to Subscription Agreements entered into between the Immediate Share Issuance Agreement. Company and investors.
Additionally, on July 31, 2023, the Company called $10,000,000 pursuant to capital draw down subscription agreements between the Company and its shareholders. The saletransaction is expected to close on August 15, 2023 and result in the issuance of 667,557 common shares of beneficial interest was made pursuant to at a subscription agreement entered into by the Company and its shareholders. Additionally, the Company entered into a Capital Draw Down Subscription Agreement for $5,000,000 in undrawn commitments. Under the termsprice of the Capital Draw Down subscription agreements, shareholders of the Company with outstanding undrawn capital commitments 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.$14.98 per share.
Since March 31,June 30, 2023, the Company also issued 10,62911,413 common shares of beneficial interest for aggregate proceeds of $167,537 under the DRIP.
3638
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or Stellus Private Credit BDC’s (“we”, “us”, “our” and the “Company”) future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:
| ● | our future operating results; |
| ● | our business prospects and the prospects of our portfolio companies; |
| ● | the effect of investments that we expect to make; |
| ● | our contractual arrangements and relationships with third parties; |
| ● | actual and potential conflicts of interest with Stellus Private BDC Advisor, LLC (the “Advisor”) or Stellus Capital Management, LLC (“Stellus Capital”); |
| ● | the dependence of our future success on the general economy and its effect on the industries in which we invest; |
| ● | the impact of interest rate volatility, including the decommissioning of London Interbank Offered Rate ("LIBOR") and rising interest rates, on our business and our portfolio companies; |
| ● | the ability of our portfolio companies to achieve their objectives; |
| ● | the use of borrowed money to finance a portion of our investments; |
| ● | the adequacy of our financing sources and working capital; |
| ● | the timing of cash flows, if any, from the operations of our portfolio companies; |
| ● | the ability of the Advisor to locate suitable investments for us and to monitor and administer our investments; |
| ● | the ability of Stellus Capital and the Advisor to attract and retain highly talented professionals; |
| ● | our ability to maintain our qualification as a regulated investment company (“RIC”) and as a business development company (“BDC”); and |
| ● | the effect of future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to |
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law or U.S. Securities and Exchange Commission (“SEC”) rule or
37
regulation. You are advised to consult any additional disclosures that we may make directly to you or through reports
39
that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview
We were organized as a Delaware statutory trust on December 7, 2021, and formally commenced operations on February 1, 2022. Our investment objective is to maximize the total return to our shareholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies.
We are an externally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment activities are managed by our investment advisor,Advisor, Stellus Private BDC Advisor, LLC.
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets. Qualifying assets include investments in “eligible portfolio companiescompanies” (as defined in the 1940 Act).” Under the relevant SEC rules, the term “eligible portfolio company” includes all private operating companies, operating companies whose securities are not listed on a national securities exchange, and certain public operating companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250.0 million, in each case organized and with their principal of business in the United States.
We qualify and intend to elect to be treated for tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify for tax treatment as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of March 31,June 30, 2023 and December 31, 2022, we were in compliance with the RIC requirements. So long as we maintain our status as a RIC, we generally will not be subject to U.S. federal income tax on any ordinary income or capital gains that we distribute at least annually to our shareholders as dividends.
In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities (and any preferred stock that we may issue in the future) of at least 150%. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing. As of March 31,June 30, 2023 and December 31, 2022, our asset coverage ratio was 213%197% and 200%, respectively. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.
Economic Developments
Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and may continue to observe supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, economic sanctions in response to international conflicts and instances of geopolitical, economic, and financial market instability in the United States and abroad. One or more of these factors may contribute to increased market volatility and may have long- and short-term effects in the United States and worldwide financial market.
Portfolio Composition and Investment Activity
Portfolio Composition
We originate and invest primarily in privately-held 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), second lien, and unsecured debt financing, often times with a corresponding equity investment.
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As of March 31,June 30, 2023, we had $164.8$188.3 million (at fair value) invested in 2732 portfolio companies. As of March 31,June 30, 2023, our portfolio included approximately 96% of first lien debt and 4% of equity investments at fair value. The composition of our investments at cost and fair value as of March 31,June 30, 2023 was as follows:
| | | | | | | | | | | | |
|
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
Senior Secured – First Lien(1) | | $ | 159,587,588 | | $ | 158,904,780 | | $ | 179,814,011 | | $ | 180,437,624 |
Equity | |
| 5,825,826 | |
| 5,924,906 | |
| 7,273,856 | |
| 7,885,891 |
Total Investments | | $ | 165,413,414 | | $ | 164,829,686 | | $ | 187,087,867 | | $ | 188,323,515 |
| (1) | Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for |
As of December 31, 2022, we had $157.5 million (at fair value) invested in 25 portfolio companies. As of December 31, 2022, our portfolio included approximately 97% of first lien debt and 3% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2022 was as follows:
| | | | | | |
|
| Cost |
| Fair Value | ||
Senior Secured – First Lien(1) | | $ | 152,825,940 | | $ | 152,257,418 |
Equity | |
| 5,196,737 | |
| 5,247,337 |
Total Investments | | $ | 158,022,677 | | $ | 157,504,755 |
| (1) | Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for 3.9% of our portfolio at fair value. |
Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms and conditions of the underlying loan agreements. As of March 31,June 30, 2023 and December 31, 2022, we had unfunded commitments of $32.3$32.7 million and $36.3 million, respectively, to provide debt financing to 2326 and 22 portfolio companies, respectively. As of March 31,June 30, 2023, we had sufficient liquidity (through cash on hand, its ability to drawdown capital from investors, and/or available borrowings under the Credit Facilities)Facilities (as defined below)) to fund such unfunded commitments should the need arise.
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The following is a summary of geographical concentration of our investment portfolio as of March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | |
|
| |
| |
| % of Total |
|
| |
| |
| % of Total |
| ||||
| | Cost | | Fair Value | | Investments | | | Cost | | Fair Value | | Investments | | ||||
Texas | | $ | 41,357,408 | | $ | 41,312,977 |
| 25.06 | % | | $ | 46,914,981 | | $ | 47,584,275 |
| 25.26 | % |
Florida | |
| 32,556,554 | |
| 32,398,237 |
| 19.66 | % | |
| 40,551,893 | |
| 40,635,492 |
| 21.57 | % |
New York | |
| 24,427,289 | |
| 24,359,644 |
| 14.78 | % | |
| 23,611,915 | |
| 24,022,550 |
| 12.76 | % |
Illinois | |
| 14,020,948 | |
| 13,584,129 |
| 8.24 | % | |
| 14,132,446 | |
| 13,664,574 |
| 7.26 | % |
United Kingdom | |
| 10,662,258 | |
| 10,666,859 |
| 6.47 | % | |
| 11,343,545 | |
| 11,405,472 |
| 6.06 | % |
Arizona | |
| 7,923,725 | |
| 8,075,572 |
| 4.29 | % | |||||||||
Washington | |
| 6,881,121 | |
| 6,838,585 |
| 4.15 | % | |
| 7,139,165 | |
| 7,156,607 |
| 3.80 | % |
Arizona | |
| 6,535,087 | |
| 6,623,359 |
| 4.02 | % | |||||||||
Wisconsin | |
| 6,551,283 | |
| 6,828,849 |
| 3.63 | % | |||||||||
Indiana | |
| 6,389,212 | |
| 6,442,874 |
| 3.91 | % | |
| 6,394,525 | |
| 6,490,494 |
| 3.45 | % |
Maryland | |
| 5,911,696 | |
| 5,775,607 |
| 3.50 | % | |
| 5,900,960 | |
| 5,760,940 |
| 3.06 | % |
Tennessee | |
| 5,123,585 | |
| 5,123,585 |
| 3.11 | % | |
| 5,126,448 | |
| 5,165,989 |
| 2.74 | % |
Wisconsin | |
| 4,931,987 | |
| 5,071,600 |
| 3.08 | % | |||||||||
Idaho | |
| 4,335,565 | |
| 4,351,529 |
| 2.64 | % | |
| 4,067,492 | |
| 4,101,522 |
| 2.18 | % |
Pennsylvania | |
| 2,947,177 | |
| 2,947,176 |
| 1.56 | % | |||||||||
South Carolina | |
| 2,280,704 | |
| 2,280,701 |
| 1.38 | % | |
| 2,277,017 | |
| 2,278,708 |
| 1.21 | % |
Colorado | |
| 2,205,295 | |
| 2,205,295 |
| 1.17 | % | |||||||||
| | $ | 165,413,414 | | $ | 164,829,686 |
| 100.00 | % | | $ | 187,087,867 | | $ | 188,323,515 |
| 100.00 | % |
The following is a summary of geographical concentration of our investment portfolio as of December 31, 2022:
| | | | | | | | | |
|
| |
| |
| % of Total |
| ||
| | Cost | | Fair Value | | Investments | | ||
Texas | | $ | 41,689,874 | | $ | 41,670,626 |
| 26.46 | % |
Florida | |
| 25,824,710 | |
| 25,639,155 |
| 16.28 | % |
New York | |
| 23,971,538 | |
| 23,990,132 |
| 15.23 | % |
Illinois | |
| 13,199,633 | |
| 12,899,144 |
| 8.19 | % |
United Kingdom | |
| 9,977,695 | |
| 9,971,437 |
| 6.33 | % |
Michigan | |
| 9,492,362 | |
| 9,607,593 |
| 6.10 | % |
Washington | |
| 6,892,968 | |
| 6,750,961 |
| 4.29 | % |
Indiana | |
| 6,384,015 | |
| 6,339,226 |
| 4.02 | % |
Maryland | |
| 6,094,066 | |
| 5,955,848 |
| 3.78 | % |
Arizona | |
| 5,161,586 | |
| 5,259,750 |
| 3.34 | % |
Wisconsin | |
| 4,940,698 | |
| 5,031,797 |
| 3.19 | % |
Idaho | |
| 4,393,532 | |
| 4,389,086 |
| 2.79 | % |
| | $ | 158,022,677 | | $ | 157,504,755 |
| 100.00 | % |
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The following is a summary of industry concentration of our investment portfolio as of March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | |
|
| |
| |
| % of Total |
|
| |
| |
| % of Total |
| ||||
| | Cost | | Fair Value | | Investments | | | Cost | | Fair Value | | Investments | | ||||
Services: Business | | $ | 39,707,966 | | $ | 39,374,650 |
| 23.89 | % | | $ | 48,425,646 | | $ | 48,783,021 |
| 25.91 | % |
Capital Equipment | | | 22,092,697 | | | 22,222,187 |
| 13.48 | % | | | 24,490,108 | | | 24,963,290 |
| 13.26 | % |
Consumer Goods: Non-Durable | | | 18,828,629 | | | 18,803,489 |
| 11.41 | % | | | 17,838,532 | | | 18,230,376 |
| 9.68 | % |
High Tech Industries | | | 13,553,739 | | | 13,567,566 |
| 7.20 | % | |||||||||
Consumer Goods: Durable | | | 13,589,341 | | | 13,435,433 |
| 8.15 | % | | | 13,465,092 | | | 13,434,217 |
| 7.13 | % |
Healthcare & Pharmaceuticals | | | 12,130,838 | | | 12,159,870 |
| 7.38 | % | | | 12,111,614 | | | 12,193,067 |
| 6.47 | % |
Media: Diversified & Production | | | 10,662,258 | | | 10,666,859 |
| 6.47 | % | | | 11,343,545 | | | 11,405,472 |
| 6.07 | % |
Services: Consumer | | | 9,648,607 | | | 9,632,244 |
| 5.11 | % | |||||||||
Chemicals, Plastics, & Rubber | | | 8,616,550 | | | 8,446,364 |
| 5.13 | % | | | 8,603,552 | | | 8,414,083 |
| 4.47 | % |
High Tech Industries | | | 8,441,507 | | | 8,427,651 |
| 5.11 | % | |||||||||
Construction & Building | | | 7,336,462 | | | 7,317,227 |
| 4.44 | % | | | 7,594,506 | | | 7,557,771 |
| 4.01 | % |
Retail | | | 5,963,327 | | | 5,951,707 |
| 3.61 | % | | | 6,210,160 | | | 6,193,305 |
| 3.29 | % |
Beverage, Food, & Tobacco | | | 5,123,585 | | | 5,123,585 |
| 3.11 | % | | | 5,126,448 | | | 5,165,989 |
| 2.74 | % |
Media: Broadcasting & Subscription | | | 4,619,356 | | | 4,619,356 |
| 2.80 | % | | | 4,613,200 | | | 4,673,753 |
| 2.48 | % |
Services: Consumer | | | 4,190,672 | | | 4,161,464 |
| 2.52 | % | |||||||||
Software | | | 4,110,226 | | | 4,119,844 |
| 2.50 | % | | | 4,063,118 | | | 4,109,361 |
| 2.18 | % |
| | $ | 165,413,414 | | $ | 164,829,686 |
| 100.00 | % | | $ | 187,087,867 | | $ | 188,323,515 |
| 100.00 | % |
The following is a summary of industry concentration of our investment portfolio as of December 31, 2022:
| | | | | | | | | |
|
| |
| |
| % of Total |
| ||
| | Cost | | Fair Value | | Investments | | ||
Services: Business | | $ | 35,188,973 | | $ | 35,046,444 |
| 22.25 | % |
Capital Equipment | | | 20,713,352 | | | 20,768,686 |
| 13.19 | % |
Consumer Goods: Non-Durable | | | 18,553,695 | | | 18,514,476 |
| 11.75 | % |
Consumer Goods: Durable | | | 13,741,132 | | | 13,680,426 |
| 8.69 | % |
Media: Diversified & Production | | | 9,977,695 | | | 9,971,437 |
| 6.33 | % |
Healthcare & Pharmaceuticals | | | 9,866,275 | | | 9,866,275 |
| 6.26 | % |
Automotive | | | 9,492,362 | | | 9,607,593 |
| 6.10 | % |
High Tech Industries | | | 8,455,439 | | | 8,399,480 |
| 5.33 | % |
Chemicals, Plastics, & Rubber | | | 7,490,771 | | | 7,351,701 |
| 4.67 | % |
Construction & Building | | | 7,348,309 | | | 7,195,856 |
| 4.57 | % |
Retail | | | 5,327,376 | | | 5,291,147 |
| 3.36 | % |
Media: Broadcasting & Subscription | | | 4,614,114 | | | 4,614,114 |
| 2.93 | % |
Software | | | 4,165,162 | | | 4,140,506 |
| 2.63 | % |
Services: Consumer | | | 3,088,022 | | | 3,056,614 |
| 1.94 | % |
| | $ | 158,022,677 | | $ | 157,504,755 |
| 100.00 | % |
At March 31,June 30, 2023, our average portfolio company investment at both amortized cost and fair value was approximately $6.1$5.8 million and $5.9 million, respectively, and our largest portfolio company investment at amortized cost and fair value was $11.0$11.3 million and $10.8$11.4 million, respectively. At December 31, 2022, our average portfolio company investment at both amortized cost and fair value was approximately $6.3 million and our largest portfolio company investment at amortized cost and fair value was $10.9 million and $10.8 million, respectively.
At both March 31,June 30, 2023 and December 31, 2022, 100% of our debt investments bore interest based on floating rates (subject to interest rate floors).
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The weighted average yield on all of our debt investments as of March 31,June 30, 2023 and December 31, 2022 was approximately 11.8%12.2% and 11.4%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of March 31,June 30, 2023 and December 31, 2022 was approximately 11.4%11.7% and 11.1%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of original issue discount. The weighted average yield of our investments is not the same as a return on investment for our shareholder, but rather relates to a portion of our investment portfolio and is calculated before the payment of our subsidiary’s fees and expenses.
As of March 31,June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $7.7$0.8 million and $15.5 million, respectively.
Investment Activity
During the threesix months ended March 31,June 30, 2023, we made an aggregate of $17.1$41.4 million of investments in threeeleven new portfolio companies and onefive existing portfolio company. companies. During the threesix months ended March 31,June 30, 2023, we received an aggregate of $9.8$12.6 million in proceeds from repayments of our investments.
Our level of investment activity can vary substantially from period to period depending on many factors, including the amount of debt and equity capital to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.
Asset Quality
In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric scale. The following is a description of the conditions associated with each investment category:
| ● | Investment Category 1 is used for investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment. |
| ● | Investment Category 2 is used for investments that are performing within expectations and whose risks remain neutral compared to the expected risk at the time of the original investment. All new loans are initially rated 2. |
| ● | Investment Category 3 is used for investments that are performing below expectations and that require closer monitoring, but where no loss of return or principal is expected. Portfolio companies with a rating of 3 may be out of compliance with financial covenants. |
| ● | Investment Category 4 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in work out. Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected. |
| ● | Investment Category 5 is used for investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in work out. Investments with a rating of 5 are those for which some loss of return and principal is expected. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| As of March 31, 2023 |
| As of December 31, 2022 |
| As of June 30, 2023 |
| As of December 31, 2022 | ||||||||||||||||||||
| | (dollars in millions) | | (dollars in millions) | | (dollars in millions) | | (dollars in millions) | ||||||||||||||||||||
| | | | | | Number of | | | | | | Number of | | | | | | Number of | | | | | | Number of | ||||
| | | | % of Total | | Portfolio | | | | % of Total | | Portfolio | | | | % of Total | | Portfolio | | | | % of Total | | Portfolio | ||||
Investment Category |
| Fair Value |
| Portfolio |
| Companies |
| Fair Value |
| Portfolio |
| Companies |
| Fair Value |
| Portfolio |
| Companies |
| Fair Value |
| Portfolio |
| Companies | ||||
1 | | $ | 11.7 | | 7 | % | 2 | | $ | 11.6 | | 7 | % | 2 | | $ | 30.8 | | 16 | % | 5 | | $ | 11.6 | | 7 | % | 2 |
2 | | | 148.7 | | 90 | % | 24 | | | 145.9 | | 93 | % | 23 | | | 152.8 | | 81 | % | 26 | | | 145.9 | | 93 | % | 23 |
3 | | $ | 4.4 | | 3 | % | 1 | | $ | — | | — | % | — | | | 4.7 | | 3 | % | 1 | | | — | | — | % | — |
Total | | $ | 164.8 | | 100 | % | 27 | | $ | 157.5 | | 100 | % | 25 | | $ | 188.3 | | 100 | % | 32 | | $ | 157.5 | | 100 | % | 25 |
Results of Operations
An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gain (loss) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed funds. Net realized gain (loss) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.
Comparison of the three and six months ended March 31,June 30, 2023 and 2022
Revenues
We generate revenue in the form of interest income on debt investments and capital gains and distributions, if any, on investment securities that we may acquire in portfolio companies. Our debt investments typically have a term of five to seven years and bear interest at a floating rate. Interest on our debt securities is generally payable quarterly. Payments of principal on our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments may pay interest in-kind, or PIK interest. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. The level of interest income we receive is directly related to the balance of interest-bearing investments multiplied by the weighted average yield of our investments. We expect that the total dollar amount of interest and any dividend income that we earn will increase as the size of our investment portfolio increases. In addition, we may generate revenue in the form of prepayment fees, commitment, loan origination, structuring or due diligence fees, fees for providing significant managerial assistance and consulting fees.
The following shows the breakdown of investment income for the three and six months ended March 31,June 30, 2023 and 2022 (in millions).
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Six Months Ended | ||||||||||||
|
| March 31, 2023 |
| March 31, 2022 |
|
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2023 |
| June 30, 2022 | ||||||
Interest income(1) | | $ | 4.6 | | $ | 0.4 | | | $ | 5.1 | | $ | 1.2 | | $ | 9.7 | | $ | 1.5 |
Miscellaneous fees(1) | | | 0.3 | | | — | | | | 0.1 | | | 0.1 | | | 0.4 | | | 0.1 |
Total | | $ | 4.9 | | $ | 0.4 | | | $ | 5.2 | | $ | 1.3 | | $ | 10.1 | | $ | 1.6 |
| (1) | For the three and six months ended |
The increase in interest income from the respective periods was due primarily to growth in the overall investment portfolio, rising interest rates, and a threesix months of investment activity for the threesix months ended March 31,June 30, 2023, as compared to twofive months of investments activity for the threesix months ended March 31,June 30, 2022.
45
Expenses
Our primary operating expenses include the payment of fees to the Advisor under the investment advisory agreement, our allocable portion of overhead expenses under the administration agreement with Stellus Capital and other
43
operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, which may include:
| ● | organization and offering costs; |
| ● | valuing our assets and calculating our net asset value (including the cost and expenses of any independent valuation firm); |
| ● | fees and expenses incurred or reimbursed by Stellus Capital and the Advisor, or payable to third parties, including agents, consultants, or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating, and making investments; |
| ● | interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; |
| ● | offerings of our common shares of beneficial interest and other securities; |
| ● | base management and incentive fees; |
| ● | administration fees and expenses, if any, payable under the administration agreement (including our allocable portion of the Advisor’s overhead in performing its obligations under the administration agreement, including rent and the allocable portion of the cost of our chief compliance officer, and chief financial officer and their respective staffs; |
| ● | transfer agent and custodial fees and expenses; |
| ● | U.S. federal and state registration fees; |
| ● | all costs of registration; |
| ● | U.S. federal, state, and local taxes; |
| ● | Independent Trustees’ fees and expenses; |
| ● | costs of preparing and filing reports or other documents required by the SEC or other regulators; |
| ● | costs of any reports, proxy statements or other notices to shareholders, including printing costs; |
| ● | costs and fees associated with any fidelity bond, trustees and officers/errors and omissions liability insurance, and any other insurance premiums; |
| ● | direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors, and outside legal costs; and |
| ● | all other non-investment advisory expenses incurred by us, the Advisor or Stellus Capital in connection with administering our business. |
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The following shows the breakdown of operating expenses for the three and six months ended March 31,June 30, 2023 and 2022 (in hundreds of thousands)millions).
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Six Months Ended | ||||||||||||
|
| March 31, 2023 |
| March 31, 2022 |
|
| June 30, 2023 |
| June 30, 2022 |
| June 30, 2023 |
| June 30, 2022 | ||||||
Operating Expenses | |
| | |
| | | |
| | |
| | |
| | |
| |
Management fees | | $ | 6.0 | | $ | 0.9 | | | $ | 0.7 | | $ | 0.3 | | $ | 1.3 | | $ | 0.4 |
Income incentive fees | | | 4.4 | | | — | | | | 0.5 | | | 0.1 | | | 0.9 | | | 0.1 |
Capital gains incentive fee | | | 0.1 | | | — | | | 0.1 | | | — | |||||||
Professional fees | | | 2.1 | | | 1.1 | | | | 0.2 | | | 0.1 | | | 0.4 | | | 0.2 |
Organization costs | | | — | | | 0.9 | | ||||||||||||
Amortization of deferred offering costs | | | 0.6 | | | 0.3 | | | | — | | | 0.1 | | | 0.1 | | | 0.1 |
Administrative services expenses | | | 0.9 | | | 0.7 | | | | 0.1 | | | — | | | 0.2 | | | 0.1 |
Trustees' fees | | | 0.4 | | | 0.4 | | | | — | | | — | | | 0.1 | | | 0.1 |
Insurance expense | | | 0.2 | | | 0.2 | | ||||||||||||
Valuation fees | | | 0.2 | | | — | | ||||||||||||
Interest expense and other fees | | | 17.0 | | | 0.7 | | | | 1.8 | | | 0.3 | | | 3.5 | | | 0.4 |
Income tax expense | | | 0.1 | | | — | | ||||||||||||
Other general and administrative expenses | | | 0.5 | | | 0.2 | | | | 0.1 | | | 0.1 | | | 0.1 | | | — |
Expenses reimbursed/fees waived by Investment Advisor (Note 2) | | | (9.7) | | | (2.5) | | | | (1.0) | | | (0.4) | | | (1.9) | | | (0.6) |
Net Operating Expenses | | $ | 22.7 | | $ | 2.9 | | | $ | 2.5 | | $ | 0.6 | | $ | 4.8 | | $ | 0.9 |
The increase in operating expenses for both the three and six months ended March 31,June 30, 2023 as compared to the three and six months ended March 31,June 30, 2022 was due to (1) higher interest expense as a result of higher outstanding balances on our Credit Facilities, as well as rising interest rates, (2) higher incentive fees due to portfolio performance, (3) a full three monthssix month period of operating activity for the threesix months ended March 31,June 30, 2023, as compared to two monthsa five month period of operating activity for the threesix months ended March 31,June 30, 2022, offset by the increased expenses reimbursed/fees waived by the Advisor (See Note 2 for further details).
Net Investment Income
For the three months ended March 31,June 30, 2023, net investment income was $2.6$2.7 million, or $0.48$0.44 per common share of beneficial interest (based on 5,501,7656,037,036 weighted-average common shares of beneficial interest outstanding for the three months ended March 31,June 30, 2023).
For the three months ended March 31,June 30, 2022, net investment income was $0.1$0.7 million, or $0.03$0.23 per common share of beneficial interest (based on 2,333,3343,092,695 weighted-average common shares of beneficial interest outstanding for the three months ended March 31,June 30, 2022).
For the six months ended June 30, 2023, net investment income was $5.3 million, or $0.92 per common share of beneficial interest (based on 5,770,879 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2023).
For the six months ended June 30, 2022, net investment income was $0.8 million, or $0.28 per common share of beneficial interest (based on 2,790,962 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2022).
The increase in net investment income over the respective periods was due to higher investment income as a result of a larger investment portfolio and rising interest rates, offset by the increase in expenses as explained in the “Expenses” section above.
Net Realized Gains and Losses
We measure realized gains or losses by the difference between the net proceeds from the repayment, sale or other disposition and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized. There were no realized gains on investments for both the three and six months ended March 31,June 30, 2023 and 2022. For the three and six months ended March 31,June 30, 2023, and 2022, the Company
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realized less than $0.1 million of net realized gains related to foreign currency translations. For both the three and $0.0 million ofsix months ended June 30, 2022, the Company did not realize any net realized gains related to foreign currency translations.
Proceeds from repayments of investments and amortization of certain other investments for the three months ended March 31,June 30, 2023 and 2022 totaled $9.8$2.8 million and $0.5$0.2 million, respectively.
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TableProceeds from repayments of Contentsinvestments and amortization of certain other investments for the six months ended June 30, 2023 and 2022 totaled $12.6 million and $0.7 million, respectively.
Net Change in Unrealized Appreciation (Depreciation) of Investments
Net change in unrealized appreciation (depreciation) primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded appreciation or depreciation when gains or losses are realized.
Net change in unrealized depreciationappreciation (depreciation) on investments and cash equivalents for both the three months ended March 31,June 30, 2023 and 2022 totaled $1.8 million and ($0.1) million.million, respectively.
Net change in unrealized appreciation (depreciation) on investments and cash equivalents for the six months ended June 30, 2023 and 2022 totaled $1.7 million and ($0.2) million, respectively.
Provision for Taxes on Unrealized Appreciation on Investments
The Taxable SubsidiaryPBDC Consolidated Blocker, LLC (the “Taxable Subsidiary”) permits us to hold equity investments in portfolio companies which are “pass through” entities for U.S. federal income tax purposes and continue to comply with the “source income” requirements contained in RIC tax provisions of the Code. The Taxable Subsidiary is not consolidated with us for U.S. federal income tax purposes and may generate income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our consolidated financial statements. For both the three and six months ended March 31,June 30, 2023 and 2022, we did not recognize a provision for income tax on unrealized investments or recognize a deferred tax position on the Consolidated Statements of Assets and Liabilities.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended March 31,June 30, 2023, net increase in net assets resulting from operations totaled $2.6$4.5 million, or $0.47$0.75 per common share of beneficial interest (based on 5,501,7656,037,036 weighted-average common shares of beneficial interest outstanding for the three months ended March 31,June 30, 2023).
For the three months ended March 31,June 30, 2022, net decreaseincrease in net assets resulting from operations totaled ($0.0)$0.6 million, or ($0.01)$0.20 per common share of beneficial interest (based on 2,333,3343,092,695 weighted-average common shares of beneficial interest outstanding for the three months ended March 31,June 30, 2022).
For the six months ended June 30, 2023, net increase in net assets resulting from operations totaled $7.1 million, or $1.23 per common share of beneficial interest (based on 5,770,879 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2023).
For the six months ended June 30, 2022, net increase in net assets resulting from operations totaled $585,915, or $0.21 per common share of beneficial interest (based on 2,790,962 weighted-average common shares of beneficial interest outstanding for the six months ended June 30, 2022).
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Financial condition, liquidity,Condition, Liquidity, and capital resourcesCapital Resources
Cash Flows from Operating and Financing Activities
Our operating activities providedused net cash of $0.6$23.7 million and $37.5$78.8 million for the threesix months ended March 31,June 30, 2023 and 2022, respectively, primarily in connection with the purchase of new portfolio investments. Our financing activities for the threesix months ended March 31,June 30, 2023 used cash of $8.3 million primarily from net paydowns on our Credit Facilities (defined below) and issuance of common shares of beneficial interest. Our financing activities for the period ended March 31, 2022 provided cash of $68.6$9.0 million primarily from proceeds from net borrowings on our Credit FacilityFacilities and short-term loan, offset by the issuance of common shares of beneficial interest, offset by short term loan repayments. Our financing activities for the six months ended June 30, 2022 provided cash of $125.9 million primarily from net borrowings on our Credit Facilities and short-term loan, as well as issuance of common shares of beneficial interest.
Liquidity and Capital Resources
Our liquidity and capital resources are derived from net proceeds of any share offering, pursuant to capital calls from investors with capital commitments to us, the Credit Facility, and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and other operating expenses we incur, as well as the payment of dividends to the holders of our common shares of beneficial interest. We used, and expect to continue to use, these capital resources as well as proceeds from turnover within our portfolio and from public and private offerings of securities to finance our investment activities.
In addition, we intend to distribute between 90% and 100% of our taxable income to our shareholders in order to satisfy the requirements applicable to RICs under Subchapter M of the Code. Consequently, we may not have the funds or the ability to fund new investments, to make additional investments in our portfolio companies, to fund our unfunded commitments to portfolio companies or to repay borrowings. In addition, the illiquidity of our portfolio investments may
46
make it difficult for us to sell these investments when desired and, if we are required to sell these investments, we may realize significantly less than their recorded value.
Also, as a BDC, we generally are required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of the senior securities, which include all of our borrowings and any outstanding preferred stock, of at least 150%. This requirement limits the amount that we may borrow. We were in compliance with the asset coverage ratios at all times. As of March 31,June 30, 2023 and December 31, 2022, our asset coverage ratio was 213%197% and 200%, respectively. The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing, such as the maturity, covenant package and rate structure of the proposed borrowings, our ability to raise funds through the issuance of common shares of beneficial interest and the risks of such borrowings within the context of our investment outlook. Ultimately, we only intend to use leverage if the expected returns from borrowing to make investments will exceed the cost of such borrowing. As of March 31,June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $7.7$0.8 million and $15.5 million.
Credit Facilities
Commitment Facility
On February 1, 2022, we entered into a revolving credit and security agreement with Signature Bank (as amended, the “Commitment Facility”). The Commitment Facility provides for borrowings up to a maximum of $100.0 million on a committed basis. Borrowings under the Commitment Facility bear interest, subject to our election, on a per annum basis equal to (i) one-month Term SOFR plus 1.80% plus a credit spread adjustment of 0.10%, subject to a zero percent floor, (ii) daily simple SOFR plus 1.80% plus a credit spread adjustment of 0.10%, or (iii) (a) an alternate base rate based on the greatest of (I) the Prime Rate, (II) Federal Funds Rate plus 0.50% and (III) one-month Term SOFR plus 1.80%, minus (b) 0.80%. We pay unused commitment fees of 0.25% per annum on the unused lender commitments. Interest is payable monthly in arrears. On March 10, 2023, Signature Bank was placed into receivership by the Federal Deposit Insurance Corporation (the “FDIC”). On March 12, 2023, the FDIC created Signature Bridge Bank, N.A. (“Signature Bridge”) to take over the operations of Signature Bank. As of March 31,June 30, 2023, the Commitment Facility remained in full
49
force and effect and is now serviced by Signature Bridge. 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.
Our obligations to the lenders under the Commitment Facility are secured by investors' uncalled capital commitments, and the availability under the Commitment Facility is based on an advance rate for each investor's uncalled capital commitments. The Commitment Facility contains certain covenants, including but not limited to, maintaining an asset coverage ratio of at least 1.50 to 1.00. As of March 31,June 30, 2023 and December 31, 2022, we were in compliance with these covenants.
As of March 31,June 30, 2023 and December 31, 2022, $45.0 million and $80.6 million was outstanding under the Commitment Facility, respectively. The carrying amount of the amount outstanding under the Commitment Facility approximates its fair value. The fair value of the Commitment Facility is determined in accordance with ASC Topic 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Commitment Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We incurred costs of $0.6 million in connection with the Commitment Facility, which are being amortized over the life of the facility. As of March 31,June 30, 2023 and December 31, 2022, $0.1 million and less than $0.1 million of such prepaid loan structure fees had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the Commitment Facility payable.
47
Interest is paid monthly in arrears. The following table summarizes the interest expense and amortized financing costs on the Commitment Facility for the three and six months ended March 31,June 30, 2023 and 2022 (in(dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Three Months Ended | | | Six Months Ended | | ||||||||||||
|
| March 31, 2023 |
| March 31, 2022 | | |
| June 30, 2023 |
| June 30, 2022 | | | June 30, 2023 |
| June 30, 2022 |
| ||||||
Interest expense | | $ | 0.9 | | $ | 0.1 | | | | $ | 0.8 | | $ | 0.2 | | | $ | 1.7 |
| $ | 0.2 |
|
Loan structure fees amortization | | | 0.1 | | | — | | | | | — | | | 0.1 | | | | 0.1 |
| | 0.1 |
|
Total interest and other fees | | $ | 1.0 | | $ | 0.1 | | | | $ | 0.8 | | $ | 0.3 | | | $ | 1.8 | | $ | 0.3 | |
Weighted average interest rate | |
| 6.5 | % |
| 2.2 | %(1) | | |
| 7.0 | % |
| 3.1 | %(1) | |
| 6.7 | % |
| 3.4 | %(1) |
Effective interest rate (including fee amortization) | |
| 7.1 | % |
| 28.3 | %(1) | | |
| 7.4 | % |
| 4.8 | %(1) | |
| 7.2 | % |
| 5.8 | %(1) |
Average debt outstanding | | $ | 55.0 | | $ | 1.6 | (1) | | | $ | 45.0 | | $ | 23.1 | (1) | | $ | 50.0 | | | 14.6 | (1) |
Cash paid for interest and unused fees | | $ | 0.8 | | $ | — | | | | $ | 1.3 | | $ | — | | | $ | 2.1 | | $ | — | |
| (1) | Calculated for the period from February 1, 2022, the date of the Commitment Facility, through |
Credit Facility
On September 30, 2022, we entered into a senior secured revolving credit agreement with Zions Bancorporation, N.A., d/b/a Amegy Bank, as administrative agent, and various other lenders party thereto (as amended on December 9, 2022, the "Credit Facility", and together with the Commitment Facility, the "Credit Facilities"). The Credit Facility provides for borrowings up to a maximum of $130.0$150.0 million on a committed basis with an accordion feature that allows us 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.
The Credit Facility bears interest, subject to our election, on a per annum basis equal to (i) Term SOFR plus 2.50% (or 2.75% during certain periods in which our asset coverage ratio is equal to or below 1.90 to 1.00) plus a credit spread adjustment (0.10% for one-month Term SOFR and 0.15% for three-month Term SOFR), subject to a 0.25% floor, or (ii) 1.50% (or 1.75% during certain periods in which our asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate, which is subject to a 3.00% floor, based on the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) one-month Term SOFR plus a credit spread adjustment of 0.10% (subject to a 0.25% floor), plus 1.00%. We pay unused commitment fees of 0.50% per annum on the unused lender commitments under the Credit Facility. Interest is payable monthly or quarterly in arrears. The commitment to fund the revolver expires on September 30, 2026, after which we may no longer borrow under the Credit Facility and must begin repaying principal equal to 1/12 of the aggregate amount outstanding under the Credit Facility each month. Any amounts borrowed under
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the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 30, 2027.
Our obligations to the lenders under the Credit Facility are secured by a first priority security interest in its portfolio of securities and cash held. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10,000,000,$10.0 million, including cash, liquid investments, and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a certain minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of March 31,June 30, 2023 and December 31, 2022, we were in compliance with these covenants.
As of March 31,June 30, 2023 and December 31, 2022, there were $31.0 million and $0.0 million outstanding borrowings under the Credit Facility. The carrying amount of the amount outstanding under the Credit Facility approximates its fair value. The fair value of the Credit Facility is determined in accordance with ASC 820, which defines fair value in terms of the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value of the Credit Facility is estimated based upon market interest rates for our own borrowings or entities with similar credit risk, adjusted for nonperformance risk, if any. We have incurred costs of $1.2$1.4 million in connection with the current Credit Facility, which are being amortized over the life of the facility. As of March 31,both June 30, 2023 and December 31, 2022, $1.0 million and $1.1 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively.amortized. These prepaid loan fees are presented on our Consolidated Statements of Assets and Liabilities as a deduction from the Credit Facility payable.
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Interest is paid monthly in arrears. The following table summarizes the interest expense and amortized financing costs on the Credit Facility for the three and six months ended March 31,June 30, 2023 (in(dollars in millions):
| | | | | | | | | | | |
| | Three Months Ended | | | Three Months Ended | | Six Months Ended | | |||
|
| March 31, 2023 |
|
| June 30, 2023 |
| June 30, 2023 |
| |||
Interest expense | | $ | 0.6 | | | $ | 0.9 | | $ | 1.5 | |
Loan structure fees amortization | | | 0.1 | | | | 0.1 | | | 0.2 | |
Total interest and other fees | | $ | 0.7 | | | $ | 1.0 | | $ | 1.7 | |
Weighted average interest rate | |
| 9.0 | % | |
| 9.1 | % |
| 9.0 | % |
Effective interest rate (including fee amortization) | |
| 10.1 | % | |
| 10.0 | % |
| 10.1 | % |
Average debt outstanding | | $ | 297.1 | | | $ | 39.6 | | $ | 34.7 | |
Cash paid for interest and unused fees | | $ | 6.4 | | | $ | 0.9 | | $ | 1.5 | |
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of March 31,June 30, 2023 and December 31, 2022, our off-balance sheet arrangements consisted of $32.3$32.7 million and $36.3 million, respectively, of unfunded commitments to provide debt and equity financings to 2326 and 22 of our portfolio companies, respectively. As of March 31,June 30, 2023, we had sufficient liquidity to fund such unfunded commitments (through cash on hand, its ability to drawdown capital from investors, and/or available borrowings under the Credit Facilities) should the need arise.
Regulated Investment Company Status and Dividends
We qualify and intend to elect to qualify annually to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. So long as we qualify as a RIC, we will not be subject to U.S. federal income tax on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to shareholders as dividends on a timely basis.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation until realized. Distributions declared and paid by us in a year may differ from taxable income for that year
51
as such dividends may include the distribution of current year taxable income or the distribution of prior year taxable income carried forward into and distributed in the current year. Distributions also may include returns of capital.
To qualify for RIC tax treatment, we must, among other things, distribute, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any). If we qualify as a RIC, we must also satisfy certain distribution requirements each calendar year in order to avoid a federal excise tax on our undistributed earnings of a RIC. As of December 31, 2022, the Company estimates that it has $0.3 million of undistributed taxable income that was carried forward toward distributions to be paid in 2023. All of the undistributed ordinary income as of December 31, 2022 will have been distributed within the required period of time such that the Company will not have to pay corporate-level U.S. federal income tax related to the year ended December 31, 2022.
We intend to distribute to our shareholders between 90% and 100% of our annual taxable income (which includes our taxable interest and fee income). However, the covenants contained in the Credit Facilities may prohibit us from making distributions to our shareholders, and, as a result, could hinder our ability to satisfy the distribution requirement. In addition, we may retain for investment some or all of our net taxable capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our shareholders. If we do this, our shareholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common shares of beneficial interest. Our shareholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal taxable year fall
49
below the total amount of our dividends for that fiscal year, a portion of those dividend distributions may be deemed a return of capital to our shareholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a business development company under the 1940 Act and due to provisions in Credit Facilities. We cannot assure shareholders that they will receive any distributions or distributions at a particular level.
In accordance with certain applicable U.S. Treasury regulations and private letter rulings issued by the Internal Revenue Service (the “IRS”), a publicly offered RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each shareholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all shareholders must be at least 20% of the aggregate declared distribution. If too many shareholders elect to receive cash, each shareholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any shareholder electing to receive cash, receive less than 20% of his or her entire distribution in cash.
If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these U.S. Treasury regulations or private letter rulings. However, we continue to monitor our liquidity position and the overall economy and will continue to assess whether it would be in our and our shareholders’ best interest to take advantage of the IRS rulings.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements contained herein for a description of recent accounting pronouncements, if any, including the expected dates of adoption and the anticipated impact on the financial statements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets,
52
liabilities, revenues, and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
We consider the most significant accounting policies related to estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses to be those related to investment valuation.
Subsequent Events
The Company’s management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that require recognition or disclosure in these financial statements except for the following described below.
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Investment Portfolio
The Company invested in the following portfolio companies subsequent to March 31,June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | |
Activity Type |
| Date |
| Company Name |
| Company Description |
| Investment Amount |
| Instrument 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 | |||||||||||
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 | |||||||||||
| | | | | | | | $ | 102,981 | | Equity | | | | | | | | $ | 1,410,343 | | Delayed Draw Term Loan Commitment |
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 | |||||||||||
| | | | | | | | $ | 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 | | April 28, 2023 | | Impact Home Services, LLC | | Residential, garage door, electrical, and plumbing services provider | | $ | 2,680,423 | | Senior Secured – First Lien | | 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 |
| | | | | | | | $ | 735,885 | | Revolver commitment | | | | | | | | $ | 1,679,360 | | Revolver Commitment |
| | | | | | | | $ | 175,908 | | Equity | | | | | | | | $ | 264,885 | | Equity |
New Investment | | May 1, 2023 | | RIA Advisory, LLC | | Provider of Oracle software implementation services | | $ | 4,173,954 | | Senior Secured – First Lien | | August 8, 2023 | | Green Intermediateco II, Inc. | | Cyber-security focused value-added reseller and associated service provider | | $ | 6,361,759 | | Senior Secured – First Lien |
| | | | | | | | $ | 683,288 | | Revolver commitment | | | | | | | | $ | 2,002,253 | | Delayed Draw Term Loan Commitment |
| | | | | | | | $ | 193,866 | | Equity | | | | | | | | $ | 194,512 | | Equity |
* | Existing portfolio company |
Credit Facility
On April 26,As of August 11, 2023, the Company increased the maximum commitment amount of the Credit Facility, pursuant to the existing accordion feature, from $130.0 million to $150.0 million on a committed basis.
The outstanding balance under the Commitment Facility as of May 11, 2023 was $45.0 million and the outstanding balance under the Credit Facility was $38.7$73.8 million.
Sale of Unregistered Securities
Since March 31,June 30, 2023, the Company sold 339,31673,161 common shares of beneficial interest at a price of $14.68$14.98 per share for aggregate proceeds of $5.0$1.1 million, which includesincluded less than $0.1 million of Organizational Expense Allocation pursuant to Subscription Agreements entered into between the Immediate Share Issuance Agreement. 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 saletransaction is expected to close on August 15, 2023 and result in the issuance of 667,557 common shares of beneficial interest was made pursuant to at a subscription agreement entered into by the Company and its shareholders. Additionally, the Company entered into a Capital Draw Down Subscription Agreement for $5.0 million in undrawn commitments. Under the termsprice of the Capital Draw Down subscription agreements, shareholders of the Company with outstanding undrawn capital commitments 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.$14.98 per share.
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Since March 31,June 30, 2023, the Company also issued 10,62911,413 common shares of beneficial interest for aggregate proceeds of $0.2 million under the DRIP.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. In connection with the COVID-19 pandemic, the U.S. Federal Reserve (the "Federal Reserve") and other central banks had reduced certain interest rates. However, in March 2022, the Federal Reserve raised interest rates for the first time since December 2018, and subsequently raised interest rates several times, most recently in May 2023, bringing the target for the federal funds rate to 5.00%5.25% - 5.25%5.50%, the highest since August 2007.January 2001. As of both March 31,June 30, 2023 and December 31, 2022, 100% of the loans in our portfolio bore interest at floating rates. These floating rate loans typically bear interest in reference to LIBOR and SOFR, which are indexed to 30-day or 90-day LIBOR and SOFR rates, subject to interest rate floors. As of March 31,June 30, 2023 and December 31, 2022, the weighted average interest rate floor on our floating rate loans was 1.22%1.26% and 1.14%, respectively.
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Assuming that the Statements of Assets and Liabilities as of March 31,June 30, 2023 and December 31, 2022 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, the following table shows the annual impact on net income of changes in interest rates:
| | | | | | | | | | | | | | | | | | |
($in millions) | ||||||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||||
Change in Basis Points(2) |
| Interest Income |
| Interest Expense(3) |
| Net Interest Income(1) |
| Interest Income |
| Interest Expense(3) |
| Net Interest Income(1) | ||||||
Up 200 basis points | | $ | 3.2 | | $ | (1.5) | | $ | 1.7 | | $ | 3.6 | | $ | (1.9) | | $ | 1.7 |
Up 150 basis points | |
| 2.4 | | | (1.1) | |
| 1.3 | |
| 2.7 | | | (1.4) | |
| 1.3 |
Up 100 basis points | |
| 1.6 | | | (0.8) | |
| 0.8 | |
| 1.8 | | | (1.0) | |
| 0.8 |
Up 50 basis points | |
| 0.8 | | | (0.4) | |
| 0.4 | |
| 0.9 | | | (0.5) | |
| 0.4 |
Down 50 basis points | |
| (0.8) | | | 0.4 | |
| (0.4) | |
| (0.9) | | | 0.5 | |
| (0.4) |
Down 100 basis points | |
| (1.6) | | | 0.8 | |
| (0.8) | |
| (1.8) | | | 1.0 | |
| (0.8) |
Down 150 basis points | |
| (2.4) | | | 1.1 | |
| (1.3) | |
| (2.7) | | | 1.4 | |
| (1.3) |
Down 200 basis points | |
| (3.2) | | | 1.5 | |
| (1.7) | |
| (3.6) | | | 1.9 | |
| (1.7) |
| (1) | Excludes the impact of incentive fees based on pre-incentive fee net investment income. See Note 2 for more information on the incentive fee. |
| (2) | As of |
| (3) | Includes the impact of the 0 bps and 25 bps SOFR floors pursuant to the Commitment Facility and Credit Facility agreements, respectively. |
Although we believe that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet and other business or economic developments that could affect net increase in net assets resulting from operations. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options, and forward contacts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. For the three and six months ended March 31,June 30, 2023 and 2022, we did not engage in hedging activities.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of various members of management, including its Chief Executive Officer and its Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as
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amended (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting
The Company’s management did not identify any change in the Company’s internal control over financial reporting that occurred during the period ended March 31,June 30, 2023 that has materially affected, or is reasonable likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Neither we nor the Advisor are currently subject to any material pending legal proceedings. To our knowledge, there is no material legal proceeding threatened against us or the Advisor. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
You should carefully consider the risks described below and all other information contained in this quarterly report on Form 10-Q, including our interim financial statements and the related notes thereto, before making a decision to purchase our securities. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, you may lose all or part of your investment. Other than as set forth below, there have been no material changes known to us during the period ended March 31,June 30, 2023 to the risk factors discussed in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 3, 2023.
Our business and our portfolio companies may be susceptible to economic slowdowns or recessions and to risks related to bank impairments or failures
Many of the portfolio companies in which we have invested or expect to make investments are likely to be susceptible to economic slowdowns or recessions and may be unable to repay our loans during such periods. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm business, financial condition, operating results and prospects. In March 2023, the Federal Deposit Insurance Corporation (“FDIC”) took control of Silicon Valley Bank and Signature Bank and subsequently in May 2023 of First Republic Bank due to liquidity concerns and concerns have arisen regarding the stability of other banks and financial institutions. Also, the impairment or failure of one or more banks with whom the Company, its portfolio companies, and/or the Adviser transact may inhibit the ability of the Company or its portfolio companies to access depository accounts. In such cases, the Company may be forced to delay or forgo investments, resulting in lower Company performance. In the event of such a failure of a banking institution where the Company or one or more of its portfolio companies holds depository accounts, access to such accounts could be restricted and FDIC protection may not be available for balances in excess of amounts insured by the FDIC. In such instances, the Company and its affected portfolio companies would not recover such excess, uninsured amounts. To the extent that the Company or the portfolio companies are impacted, their ability to access existing cash, cash equivalents and investments, or to access existing or enter into new banking arrangements or facilities to service our portfolio companies, may be threatened.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
For the threesix months ended March 31,June 30, 2023, pursuant to capital commitments received, the Company issued 341,529680,845 common shares of beneficial interest at a price of $14.64$14.69 for total proceeds of $5,000,000.$10,000,000.
The Company issued 8,01718,646 common shares of beneficial interest under the distribution reinvestment program (“DRIP”) during the threesix months ended March 31, 2023.June 30, 2023 for total proceeds of $275,068.
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Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.Rule 10b5-1 Trading Plans
During the fiscal quarter ended June 30, 2023, none of the Company's trustees or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement.
Item 6. EXHIBITS.Exhibits.
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits filed with the SEC:
| | |
Exhibit |
| Description |
3.1 | | |
3.2 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS* | | XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File — The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
* | Filed herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
Dated: | STELLUS PRIVATE CREDIT BDC | ||
| | | |
| By: | /s/ Robert T. Ladd | |
| | Name: | Robert T. Ladd |
| | Title: | Chief Executive Officer and President |
| | | |
| By: | /s/ W. Todd Huskinson | |
| | Name: | W. Todd Huskinson |
| | Title: | Chief Financial Officer |
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