Stellus Capital Investment Corporation

Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellis Capital Investment Corporation's conference call to report financial results for its third fiscal quarter ended September 30th, 2025. At this time, all participants are on a listen-only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a note, this conference is being recorded today, November 12th, 2025. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stelz Capital Investment Corporation. Mr. Ladd, you may begin your conference.

Okay. Thank you, Ellie. And good morning, everyone, and thank you for joining the call. forward-looking statements, and we'll start us off with a review of our financial information.

Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellis Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and pen provided in our press release announcing this call. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections. We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.steluscapital.com under the Public Investors link or call us at 713-292-5400. Now I'll cover our operating results for the quarter. We'd like to start with our life-to-date activity. Since our IPO in November 2012, we've invested approximately $2.8 billion in over 215 companies and received approximately $1.8 billion of repayments while maintaining stable asset quality. We've paid $318 million of dividends to our investors, which represents $17.75 per share to an investor and our IPO in November 2012, which was offered at $15 per share. In the third quarter, we generated 32 cents per share of GAAP net investment income, realized income of 42 cents per share, and core net investment income was 34 cents per share, which excludes estimated excise taxes. Net asset value per share decreased 16 cents during the quarter, which had two components. The first was 8 cents per share of dividend payments already been recorded as an unrealized gain, which was reversed in the third quarter. Finally, during the quarter, we issued approximately 531,000 shares for $7.4 million of proceeds under our ATM program. Year-to-date, we've issued approximately 1.5 million shares for $20.6 million. All issuances were above net asset value. So, turning now to portfolio and asset quality, we ended the quarter with an investment portfolio at fair value of $1.01 billion across 115 portfolio companies, up from $985.9 million across 112 companies as of June 30th, 2025. During the third quarter, we invested $51.3 million in five new portfolio companies and had $12.5 million in other investment activity at par. We also received three repayments totaling $29.8 million One equity realization totaling $2.8 million, which resulted in a realized gain of $2.8 million and received $6.4 million of other repayments, both at par. At September 30th, 98% of our loans were secured and 90% were priced at floating rates. The average loan per company is $9.2 million, and the largest overall investment is $22 million, both at fair value. 99% of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 82% of our portfolio is rated a 1 or 2 or on or ahead of plan, and 18% of the portfolio is marked in an investment category of 3 or below, meaning not meeting plan or expectations. We did not add any new loans to our non-accrual list during the quarter, and currently we have loans to five portfolio companies on non-accrual, which comprise probably 6.7% of the total cost and 3.7% of the fair value of the total loan portfolio, respectively, which represents a slight decrease in the prior quarter. Turning to capital, during the quarter, we amended and extended our revolving credit facility, which reduced the spread over the 30-day SOFR rate from 2.6% to 2.25%, and extended the maturity date by two years to September of 2030. We also upsized the total committed amount from

Apologies ladies and gentlemen, we have momentarily lost our speaker line. One moment please while we try to connect. Once again, apologies ladies and gentlemen. We are just trying to reconnect our speaker. We'll be right back with you. Thank you.

Why don't we plan to go back, and we'll restart with operating results. Okay, Todd, please, if you will.

Okay, sure. In the third quarter, we generated 32 cents per share of GAAP net investment income, realized income of 42 cents per share, and core net investment income is 34 cents per share, which excludes estimated excise taxes. Net asset value per share decreased 16 cents during the quarter, which had two components. The first was $0.08 per share of dividend payments that exceeded earnings, which was necessary for us to continue to pay out the spillover balance from 2024. The second component was net unrealized losses of $0.08 per share related primarily to two debt investments. During the quarter, we had a realized gain of $2.8 million on an equity position. The realization had no impact on net asset value because it had already been recorded as an unrealized gain, which was reversed in the third quarter. During the quarter, we issued approximately 500,000 shares for $7.4 million of proceeds under our ATM program. Year-to-date, we've issued approximately 1.5 million shares for $20.6 million, all of which were issued above net asset value. We ended the quarter with an investment portfolio at fair value of slightly over $1 billion across 115 portfolio companies, up from $985.9 million across 112 companies as of June 30th. totaling $29.8 million, the equity realization I mentioned previously for $2.8 million, which as I mentioned earlier was a $2.8 million realized gain, and also received $6.4 million of other repayments, both at par. At September 30th, 98% of our loans were secured and 90% were priced at floating rates. The average loan per company is $9.2 million and the largest overall investment is $22 million, both at fair value. 99% of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 82% of our portfolio is rated a 1 or a 2 or on or ahead of plan, and 18% of the portfolio is marked in an investment category of 3 or below, meaning not meeting plan or expectations. We did not add any new loans to our non-accrual list during the quarter. Currently, we have loans to five portfolio companies on non-accrual, which comprise 6.7% of the total cost and 3.7% of the fair value of the total loan portfolio, respectively, which represents a slight decrease from the prior quarter. Turning now to capital activity, during the quarter, we amended and extended our revolving credit facility, which reduced the spread over the 30-day SOFR rate from 2.6% to 2.25%, and extended the maturity date by two years to September 2030. We also upsized the total committed amount from $315 million to $335 million. On September 25th, we issued an additional $50 million of the 7.25% 2030 notes at a premium, yielding 6.94%, bringing the total 2030 notes issued to $125 million. We'll use the proceeds to repay the 2026 notes prior to their maturity. And with that, I'll turn it back over to Rob to discuss the overall outlook. Okay. Thank you, Todd.

As we look ahead to the fourth quarter of 2025, I'll cover portfolio growth, equity realizations, and dividends. As Todd noted earlier, we now have an investment portfolio in excess of a billion dollars across 115 companies. We continue to be very active, and although we expect meaningful payoffs in Q4, we'll likely have a portfolio in excess of a billion dollars at year end. For equity realizations, we expect $5 million for Q4, and possibly another $5 million in Q1 of 26. Estimated gains associated with these realizations are $3.8 million in Q4 and $3.3 million for Q1. And with respect to dividends, we declared, as you know, a 40-cent dividend for Q4. And so, with that, you've probably heard some of this twice, so thank you for bearing with us. But at this point, Allie, let's open it up for questions.

Yes, indeed, sir. Ladies and gentlemen, at this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Eric Zwick with Lucid Capital. Your line is live.

Good morning, Eric. Thank you. Good morning. Good morning, guys. I didn't have the benefit of hearing the full presentation two times. Could you just repeat the expectation for equity realizations in fourth quarter and first quarter? I missed that. Couldn't type fast enough.

Yeah, no worries, Eric. Yeah, so... projecting $5 million of realizations in Q4, of which we've already received $1.1 million, and a similar number of $5 million for Q1 of 26. And if those come to pass, the expected gains would be $3.8 million for Q4 and $3.3 million for Q1 of next year. Perfect.

Thank you. And just you had a very active quarter in terms of new originations and a nice healthy mix between new and add-on. And I know last quarter you mentioned that you really started to see a pickup in kind of the pipelines and new activities. So just curious today, as you look at the pipeline, how it looks in terms of, you know, mix between new and add-on opportunities. And if you could maybe add some comments, too, just in terms of what you're seeing in terms of, you know, rate and structure as well.

Yeah, I'd be glad to. So with respect to, and we have had quite a few follow-ons, I'm glad you've noted that. I'd say that probably continue to see the same mix, as you may know or have identified, that we have quite a few delayed draw term loans in the portfolio that are undrawn. So those are typically the things that are funding that are follow-ons. So, we would expect the pace of both to continue, very active this quarter, and really it's picked up meaningfully since 4th of July overall for the year. So, I think that, you know, expect both to occur, but certainly the majority of the fundings will be on new investments. Relative to rate and structure, so we've not seen any change, and this would really be for the entirety of our investing in terms of, you know, meaningful capital structures. Typical equity check is at least 50% of the acquisition. Therefore, our debt is typically 50% or less. More likely in today's case, 40% debt, 60% equity. Leverage quotients are running at four times EBITDA or less. So those structures all are really strong. We continue to have important covenants across all of our loans. But we are seeing some tightness and spreads. It's a competitive market. Again, we have competition, but we're very active. So seeing some reduction in spreads, as you know, from a year ago, six over SOFR or so, and now five over SOFR, and starting to creep down just a little bit under five. But we're seeing that throughout the industry. I think you guys are observing that in other companies. But a meaningful amount of capital to invest, very active. Fortunately, we continue to obtain equity co-invests in many of the loans we make. And as you could tell from my earlier remarks, those continue to pay off for us.

Thank you. That's very helpful. And just last one for me, we continue to see some mixed signs and maybe some mixed expectations for the economic trajectory as well. As you look through your portfolio and you noted, I think it's 82%. of the portfolio is a one or two. So on or ahead of schedule, just, are you seeing any increasing weakness or even signs of concern in, in any, um, segments or industries of, of your portfolio at this point?

We're really not. So the, uh, any credit issues we have had are really based on company specific issues. So, so don't see a, a trend in that way. And, uh, so, so more company specific and, And fortunately, most of the companies are doing well. I appreciate the update.

That's all for me. Thank you.

Thank you, Eric.

Thank you. As a reminder, ladies and gentlemen, if you do have questions or comments, please press star 1 on your telephone keypad. Our next question is coming from Christopher Nolan with Ladenburg Thalman. Your line is live.

Hey, guys.

Good morning. Good morning.

Todd, on the new facility, was there any change in the advance rate? What I'm really interested in is whether or not the banks are getting increasingly concerned in terms of the private credit environment.

No, no, not at all. No, there was no change in the structure of the credit facility in terms of advance rates. And in fact, you know, we have other relationships with the banks and other things and had some additional banks come into this facility as it is. And so we really were pleased with the bank group and their response to the changes. So no change at all. We didn't sense any issues.

Great. And what's the current status on the third SBA license, please?

So as we reported last quarter, we received a green light letter and are kind of in the spot where we're waiting for the third license to be issued, which, you know, we don't know exactly when it happens, but, you know, we would expect it relatively soon. So we don't have any new news on it, though.

And how much capacity would that add, Leverett?

Well, so today we have $295 million of debentures outstanding, and, you know, the total funds family – is the maximum is 350 million of debentures. So think of it as another 50 or so, a little over 50, which of course is dependent upon those loans qualifying for SBIC capital. But it would add additional capital to us. And we also have to fund that license with some equity from the parent, which we would do through payoffs of the existing debentures and other sources.

But I think in summary, 50 million more of capacity. Yeah, that's right.

Okay, and then final question. As I recall, about half of your deal origination is SBIC compliant. Is that correct?

That's correct. Okay, that's it for me. Thank you. Great. Thank you, Chris.

Thank you. As we have no further questions on the lines at this time, I would like to turn it back over to management for any closing remarks they may have. Oh, I apologize, sir. We've had a late question come in. I do apologize from Robert Dodd with Raymond James. Your line is live.

You're very welcome. A little slow on the buttons there for me. In your prepared marks, I mean, you mentioned potential for significant repayments in Q4. I mean, is that going to generate, like, any one-time income, prepayment fees, et cetera, et cetera? But could you also tell us, I mean, like, what's the drive? Obviously, some of the equity realizations. Is it repricings? You know, can you give us an idea of, like, what's the underpinning for significant repayment in Q4?

Sure. It's, I'd say, mostly sales of businesses, right? And then it could be a case where someone is refinancing, but getting down to like bank pricing where it fits for a bank. But I think it's mostly sales of companies.

Got it. Thank you. And then on the spread environment, I mean, yeah, it's kind of across the market. What do you think... Within your segment, which obviously are smaller companies in the upper market, what's the primary driver here? I mean, I've heard that it's, you know, it's not necessarily the large players coming down market, but there's new capital formation as well. I mean, what do you think is the overall driver pushing down their spread to, you said, now in some cases below 500? Do you think... Do you think they ever go back?

Yes, so great question. So certainly a competitive market, and some credit providers are willing to lend at lower rates, so I think that drives it. Will it go back up? It likely will. As you know, we've been in business for over 20 years. We've seen a number of cycles, and you can see it go the other way. But the good news is that a lot of good capital in the system, both at the private equity firms who we're supporting and in private credit. So a healthy financial system around private credit. But they can certainly go the other way.

Thank you.

Okay. Thank you, Robert.

Thank you. I am going to be very cautious here and see if we have any further questions come into queue. Okay, gentlemen, it appears we have no further questions at this time, so I'll hand it back to management for closing remarks.

Okay, very good. Well, thanks, everyone, for joining us. Thank you for the support of our company, and we look forward to giving you an update in the spring. I believe it will be in early March. We'll be reporting the results of the fourth quarter and the 10K as well. Many thanks.

Thank you. Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.