Investor Presentation
Quarter ended March 31, 2020
INVESTOR PRESENTATION
Disclaimer
THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. THE INFORMATION CONTAINED HEREIN IS NOT INTENDED TO PROVIDE,
AND SHOULD NOT BE RELIED UPON FOR, ACCOUNTING, LEGAL OR TAX ADVICE OR INVESTMENT RECOMMENDATIONS. THIS
PRESENTATION IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY STELLUS CAPITAL INVESTMENT CORPORATION
(“SCM”) SECURITIES. AN OFFERING IS ONLY MADE BY AN APPLICABLE PROSPECTUS. THIS PRESENTATION MUST BE READ IN
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NUMBER OF ASSUMPTIONS, RISKS AND UNCERTAINTIES, INCLUDING RISKS AND UNCERTAINTIES ASSOCIATED WITH THE COVID-19
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RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN ANY FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING THOSE DESCRIBED FROM TIME TO TIME IN FILINGS BY SCM WITH THE SECURITIES AND EXCHANGE COMMISSION.
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PRESENTATION, INCLUDING ANY FORWARD-LOOKING STATEMENTS, IS PRESENTED AS OF THE TIME PERIOD ON THE COVER OF THIS
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INFORMATION CONTAINED IN THIS PRESENTATION TO ACCOUNT FOR CHANGES SUBSEQUENT TO ANY DATE AS OF WHICH SUCH
INFORMATION IS GIVEN, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LAWS AND REGULATIONS.
NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION
CONTAINED HEREIN, AND NOTHING SHALL BE RELIED UPON AS A PROMISE OR REPRESENTATION AS TO THE FUTURE PERFORMANCE OF
SCM.
INVESTOR PRESENTATION
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Table of Contents
Page 4 Company Background
Page 9 Key Middle Market Relationships
Page 10 Financial Highlights
Page 12 Portfolio Overview
Page 16 Funding Sources
Page 17 Corporate Information
INVESTOR PRESENTATION
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Stellus Capital Investment Corporation (NYSE:“SCM”)
• Publicly traded business development company (NYSE: “SCM” )
Business • Investment portfolio of $610 million as of March 31, 2020
Development • Externally managed by Stellus Capital Management, LLC, a registered
Company (BDC) investment advisor with approximately $1.5 billion in AUM as of March 31,
2020 across the platform.
• First lien, second lien, unitranche, mezzanine debt and equity
Provides Direct • $10 to $30 million targeted investment size
Investment to the
• Investing in companies with EBITDA of $5 million to $50 million
Middle Market
• Investing together in middle market credit for more than a decade
• Offices in Houston, Washington, D.C. area and Charlotte
Experienced • Compliance-oriented culture and robust management
Cohesive Team infrastructure
INVESTOR PRESENTATION
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Stellus Capital Investment Corporation (NYSE:“SCM”)
• Closed over 270 direct lending transactions since 2004 with more than 155
Strong Origination different financial sponsors*
Platform and • Over 700 middle market opportunities reviewed over the last twelve months
Selective Investment and closed approximately 2% of the deals reviewed
Process
• Total of $10.10 dividends paid LTD for an IPO investor
Long Term • Incentive fee subject to a total return requirement and an 8%
Shareholder Focus hurdle rate
* Includes transactions closed by the management team prior to forming Stellus Capital Management.
INVESTOR PRESENTATION
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Established Team and Institutional Platform
Stellus Capital Investment Corporation investment committee members have over 155 years of total experience, which includes
backgrounds in private credit, private equity, corporate finance, restructuring, management consulting, and accounting.
TOTAL YEARS PAST
- - - - - - - - - - - - - - - - - 5 10 15 20 25 30 35 40
EXPERIENCE > EXPERIENCE
The D. E. Shaw group, Duke Capital Partners, Duke Energy
Robert Ladd (64) | Chairman, President & CEO 40
North America, Arthur Andersen, First City Bancorporation
The D. E. Shaw group, Allied Capital, Duke Capital
Dean D’Angelo (52) | Co-Head of Private Credit * & Director 28
Partners, Banc of America Securities, Coopers & Lybrand
The D. E. Shaw group, Duke Capital Partners, Milestone
Joshua Davis (47) | Co-Head of Private Credit * & Director 25
Merchant Partners, Arthur Andersen
The D. E. Shaw group, Duke Capital Partners, Arthur
Todd Overbergen (54) | Head of Energy * 30
Andersen
Todd Huskinson (56) | Chief Financial Officer, Chief Compliance Officer & Secretary 32 The D. E. Shaw group, Bearing Point, Arthur Andersen
* Stellus Capital Management, LLC
INVESTOR PRESENTATION
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Stellus Capital Differentiators
All partners have significant
experience in restructuring
Management team has been investing Partners have invested in excess of $6
together for over 20 years billion over the last 15 years *
Stellus Capital
Team
Relationship-driven team who has Differentiators Have made over 270 investments in
invested with over 155 sponsors * over 20 industries *
** Includes
Includes transactions
transactions closed
closed by
by the
the management
management team
team prior
prior to
to forming
forming Stellus
Stellus Capital
Capital Management
Management
INVESTOR PRESENTATION
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Product
SCM provides flexible financing for middle market companies.
Objective
• Provide first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments
Investment Size
• Up to $30 million
Investment Focus
• Middle market and small cap companies with EBITDA of $5 million to $50 million
• Predominantly private companies
• Numerous industry sectors including business services, energy, general industrial, government, healthcare, software, and specialty finance
• Typical transactions include providing financing for leveraged buyouts, acquisitions, recapitalizations, growth opportunities, rescue financings,
distressed or turnaround situations, and bridge loans
• Directly originated transactions rather than broadly syndicated financings
• We have developed long-term relationships with middle-market companies, management teams, financial sponsors, lending institutions, and
intermediaries, and have completed financing transactions with more than 155 equity sponsors
Geography
• United States and Canada
INVESTOR PRESENTATION
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Diverse Financial Sponsor Relationships *
Altamont Capital Arlington Capital
Audax Group The CapStreet Group
Partners Partners
Clarion Capital Partners
CenterGate Capital Graham Partners
Lee Equity Partners Milestone Partners
Parthenon Capital
Pamlico Capital Partners Prophet Equity Rhone Group
Ridgemont Equity Riverside Partners Sentinel Capital Partners
The Sterling Group
Partners
Tenex Capital
Tower Arch Capital Wind Point Partners
Summit Park Management Thoma Bravo
*Logos represent certain private equity firms that members of Stellus Capital have worked with in the past. Inclusion of a firm’s logo in this list does not imply that such firm endorses Stellus Capital, its members or advisory services or the
Fund. Stellus Capital has no formal sourcing relationships with these firms and cannot guarantee that it will receive opportunities from these firms in the future.
INVESTOR PRESENTATION
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Balance Sheet
($ in 000's except per share data) Q1 2020 FY 2019 FY 2018
Unaudited Audited Audited
Assets
Cash $ 35,025 $ 16,133 $ 17,467
Investment Portfolio (at fair value) 609,544 628,948 504,483
Other Assets 4,487 3,432 4,337
Total Assets $ 649,056 $ 648,513 $ 526,287
Liabilities
Credit Facility $ 209,111 $ 160,511 $ 98,237
Notes Payable 48,057 47,974 47,642
SBA Debentures 157,715 157,544 146,388
Total Funded Debt $ 414,883 $ 366,029 $ 292,267
Other Liabilities 9,255 11,913 9,175
Total Liabilities $ 424,138 $ 377,942 $ 301,442
Total Stockholder Equity 224,918 270,571 224,845
Total Capitalization $ 649,056 $ 648,513 $ 526,287
NAV Per Share $ 11.55 $ 14.14 $ 14.09
INVESTOR PRESENTATION
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Income Statement and Distributions
($ in 000's except ratios and share data) Q1 2020 Q1 2019 FY 2019 FY 2018
Unaudited Unaudited Audited Audited
Total Investment Income $ 15,261 $ 13,835 $ 58,912 $ 53,266
Interest expense and debt financing fees $ 4,292 $ 3,675 $ 14,976 $ 12,339
Operating Expenses $ 5,414 $ 4,651 $ 19,793 $ 17,934
Income Tax Expense $ 197 $ 13 $ 904 $ 275
Capital Gains Incentive (Reversal) Fees $ (881) $ 1,162 $ 800 $ 81
Net Investment Income $ 6,239 $ 4,334 $ 22,439 $ 22,637
Core Net Investment Income(a) $ 5,555 $ 5,509 $ 24,143 $ 22,993
Net Realized Gain $ 1,297 $ 10,246 $ 19,566 $ 5,273
Net Unrealized Loss $ (51,505) $ (4,426) $ (15,500) $ (1,647)
Benefit (Provision) for taxes $ 29 $ (12) $ (67) $ (68)
Change in Net Assets $ (43,940) $ 10,142 $ 26,438 $ 26,195
Weighted Average Shares Outstanding 19,429,480 16,351,032 18,275,696 15,953,571
Net Investment Income Per Share (NII) $ 0.32 $ 0.27 $ 1.23 $ 1.42
(a)
Core NII per Share $ 0.29 $ 0.34 $ 1.32 $ 1.44
Net Increase (Decrease) in Net Assets Per Share $ (2.26) $ 0.62 $ 1.45 $ 1.64
Realized Income Per Share $ 0.39 $ 0.89 $ 2.30 $ 1.75
Distributions Per Share (Regular) $ 0.34 $ 0.34 $ 1.36 $ 1.36
(a) Core net investment income, as presented, exludes the impact of capital gains incentive fees and income taxes
INVESTOR PRESENTATION
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Portfolio Statistics as of March 31, 2020
Industry Concentration Geographic Concentration
PR
GA NC <1% UT
MO AR <1% <1% <1%
FL 2% 1%
IN 2% TX
MD 2%
19%
3%
PA
3%
TN
3%
SC
3%
UK
3%
NY
CA
3%
14%
WI
3%
CAD
3%
OH
7% IL
10%
NJ
8% AZ
8%
Note: Percentages are based on Market Value
INVESTOR PRESENTATION
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Portfolio Statistics as of March 31, 2020
Fixed vs. Floating Rate Debt Investments * Risk Grade
Floating
95%
Fixed
5%
* Subject to LIBOR floors. The weighted average interest rate floor on floating rate loans was 1.19% as of March 31, 2020
Risk Grade Definition:
1 - Exceeding expectations; 2 - Performing in accordance with plan; 3- Requires closer monitoring (no loss of return or principal); 4 - In workout (some loss of return; no loss of principal); 5 - In
workout (some loss of principal)
INVESTOR PRESENTATION
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Investment Portfolio Growth ($’s in 000’s)
INVESTOR PRESENTATION
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Weighted Average Yields
Debt Investment Portfolio as of March 31, 2020 New Debt Investments in the Last Four Quarters *
Note: Reflects percentage of total debt investments at accreted cost. * Includes follow-on fundings for existing portfolio companies.
INVESTOR PRESENTATION
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Diversified Funding Sources as of March 31, 2020
Div e rse so u rc e s o f lo n g -te rm , c o st-e ffic ie n t c a p ita l
(3)
FUNDING S OURCES FACILITY/IS S UANCE S IZE OUTS TANDING INTE RES T RATE MATURITY
S yndic a te d Cre dit
Fa c ility le d by $230 million $205 million LIBOR + 2.75% Oc tobe r 10, 2021
(As o f 5/ 15/ 2 0 )
Ame gy (1)
S BIC I De be nture s $150 million $150 million 3.41% Va rie d (2)
S BIC II De be nture s $20 million $11 million 2.17% Ma rc h 25, 2030
(As o f 5/ 15/ 2 0 )
Uns e c ure d Note s $48.9 million $48.9 million 5.75% S e pte mbe r 15, 2022
(1)Am e gy B a nk c re dit fa c ility c lo s e d o n Oc to be r 11, 2017, a s a m e nde d.
(2)S B A de be nture s is s ue d to S B IC I m a ture M a rc h 1, 2025 - M a rc h 1, 2029
(3)Do e s no t inc lude a m o rtiza tio n o f lo a n fe e s
INVESTOR PRESENTATION
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Corporate Information
Executive Officers Directors Research Coverage
Robert T. Ladd J. Tim Arnoult 1
Chairman, President & Janney
Bruce R. Bilger 1
Chief Executive Officer Mitchel Penn, 410-583-5976
Dean D’Angelo
W. Todd Huskinson Keefe, Bruyette & Woods
Chief Financial Officer, Robert T. Ladd, Chairman Ryan Lynch, 314-342-2194
Chief Compliance Officer, William C. Repko 1
Ladenburg Thalmann Financial Services
Treasurer and Secretary
Christopher Nolan, 212-409-2068
1
Independent Directors Oppenheimer Equity Research
Chris Kotowski, 212-667-6699
Investment Committee
Raymond James
Robert T. Ladd Robert Dodd, 901-579-4560
Chairman, President & Chief Executive Officer Service Providers National Securities Corporation
Dean D’Angelo Stock Transfer Agent- Broadridge Bryce Rowe, 212-417-8243
Co-Head of Private Credit * Corporate Issuer Solutions, Inc.
Joshua T. Davis Bond Trustee- US Bank National Securities Listing
Co-Head of Private Credit * Association
W. Todd Huskinson Auditors- Grant Thornton, LLP
Chief Financial Officer, Chief Compliance Officer, Common Stock NYSE : SCM
Counsel- Eversheds Sutherland, LLP
Treasurer and Secretary 2022 Notes NYSE: SCA
Todd A. Overbergen
Head of Energy *
* Stellus Capital Management, LLC
Corporate Headquarters
4400 Post Oak Parkway, Suite 2200
Houston, TX, 77027
Phone: 713-292-5400
INVESTOR PRESENTATION
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