Ex-Private Equity Manager turned Hedge Fund Manager
Stellus Capital : Dividend Announced
Stellus Capital announces another unchanged distribution. How sustainable is the pay-out ?
The post Stellus Capital : Dividend Announced appeared first on BDC Reporter .
“HOUSTON, Jan. 17, 2017 /PRNewswire/ — Stellus Capital Investment Corporation (the “Company”) (NYSE: SCM) announced today that on January 13, 2017, its Board of Directors declared a regular monthly dividend for each of January, February and March for an aggregate of $0.34 per share.
Summary of First Quarter 2017 Regular Monthly Dividends |
||||
Declared
|
Ex-Dividend Date
|
Record Date
|
Payment Date
|
Amount per Share
|
1/13/17 |
1/27/17 |
1/31/17 |
2/15/17 |
$0.1133 |
1/13/17 |
2/24/17 |
2/28/17 |
3/15/17 |
$0.1133 |
1/13/17 |
3/29/17 |
3/31/17 |
4/14/17 |
$0.1133 |
To view the original version on PR Newswire, visit: http://hvst.co/2iRqS69
SOURCE: Stellus Capital Investment Corporation”
The smaller sized Business Development Company ($353mn of investment assets) has announced distributions for the first 3 months of 2017.
For some unknown reason, the Company persists in claiming the quarterly distribution is $0.34 per share.
However, the BDC Credit Reporter’s basic math (re-calculated twice, just to make sure) shows $0.1133 x 3 adds up to $0.3399.
We’d say that was a $0.33 dividend, but let’s not quibble over fractions of cents.
ANNIVERSARY
More notably, SCM enters its fifth year of paying out an unchanged distribution.
SCM went public in November 2012, began paying a $0.34 quarterly pay-out in the first quarter of 2013, and switched to the $0.33/$0.34 monthly format a year later. See the Yahoo Finance dividend history .
Admittedly, the consistent pay-out has sometimes required the BDC to distribute in excess of Net Investment Income achieved.
At September 30, 2017, Distributions in Excess of Net Investment Income reached $852,791.
Moreover, SCM has also accumulated $859,809 in Realized Losses over the years, most of which which occurred in the last quarter.
KEEPS GOING AND GOING ?
Which begs the question as to whether the distribution is sustainable for a fifth year ?
LOTS OF DEBT
The BDC is already highly leveraged as of September 30, 2016, thanks to access to a Revolver, Unsecured Notes and SBIC financing.
Debt To Equity was 1.15 to 1.0.
Netting out SBIC debt from the calculation (allowed by the SEC under Exemptive Relief), Debt to Equity is high-ish at 0.77 to 1.00.
RECURRING EARNINGS VS DISTRIBUTION: KNIFE’S EDGE
In the last quarter, Net Investment Income Per Share was $0.37, comfortably above the distribution per share.
However, as management admitted on the Conference Call, and shows on the earnings release , the numbers were buoyed by above average fee income.
Just a quarter before, Net Investment Income Per Share was $0.32, just short of the $0.33/$0.34 distribution.
CREDIT SNAP
Much will probably hinge on how clean SCM is able to keep its blotter sheet in the next 12 months.
Taking a quick look at the portfolio through the BDC Credit Reporter lens, SCM’s investment portfolio is in pretty good shape after taking their lumps in 2016.
Last year, the long saga of portfolio company Binder & Binder was largely wrapped up.
The borrower had been on non-accrual from January 2014, filed for bankruptcy and SCM provided Debtor In Possession financing (which was repaid in full).
At September 30, 2016, the $13.2mn at cost in Unsecured debt to Binder & Binder was valued at $0.7mn and was on non-accrual.
LET’S GET GRANULAR
Otherwise, in the 39 company portfolio, we count 3 other Watch List names.
One is a loan to an energy company, which is fully secured and should be repaid in full. In any case, the loan balance is tiny and not a material contributor to investment income.
Otherwise, SCM has positions in two syndicated facilities to companies that have been on our credit radar for several quarters (Grupo Hima San Pablo and Hostway Corporation ).
Total exposure-all in debt-is over $14mn and investment income is roughly $1.65mn a year , which is about 4%-5% of total interest income.
Still, both borrowers are still performing and may sail on without further ado. Both have the BDC Credit Reporter’s Credit Rating of 3, which means we expect full recovery is more likely than ultimate loss.
We checked the latest value on the 2020 Hostway debt-using Advantage Data ‘s excellent system-and found the Term Loan trading at par.
Grupo Hima is not traded, so no update there.
OUTLOOK
With all the above in mind, and assuming credit remains in good shape, we’d expect that SCM will continue its current distribution level for the foreseeable future.
Every BDC manager knows not to reduce a distribution unless absolutely necessary.
With SCM’s stock price climbing back towards Net Asset Value Per Share, the BDC is probably making plans to raise new capital.
Should that occur, the price at which any new equity is raised will also effect the distribution level in the long run.
At the current price SCM is yielding 10.3%.
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