Stellus Capital Investment Corp
For the period ended Dec 31, 2024. Filed Mar 4, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 4, 2025
SCM$7.27+0.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-04.
0001558370-24-002368
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-04.
0001558370-25-002182
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 131 previous paragraphs and 131 current paragraphs.
62 unchanged; 60 reworded; 6 added; 6 removed; 3 previous and 3 current paragraphs rearranged.
Tables are not compared: 65 previous and 58 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
Net increase in net assets resulting from operations totaled $45.8 million, or $1.79 per common share based on weighted-average common shares of 25,596,593 outstanding for the year ended December 31, 2024.
Current report
Notes Payable
Current report
ATM Program
Current report
On November 16, 2021, we entered into the 2021 Equity Distribution Agreement with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principals thereunder. Under the 2021 Equity Distribution Agreement, as amended, we could issue and sell, from time to time, up to $50,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with our investment objective and strategies.
Current report
On August 11, 2023, we entered into the 2023 Equity Distribution Agreement with Keefe Bruyette & Woods, Inc. and Raymond James & Associates, Inc., as sales agents and/or principal thereunder. Under the 2023 Equity Distribution Agreement, we may issue and sell, from time to time, up to $100,000,000 in aggregate offering price of shares of our common stock, par value $0.001 per share, with the intention to use the net proceeds from this at-the-market sales program to repay certain outstanding indebtedness and make investments in portfolio companies in accordance with its investment objective and strategies. We refer to our issuance and sale of shares under the Equity Distribution Agreements as the “ATM Program.”
Current report
We issued 3,355,476 shares and 4,458,873 shares during the fiscal years ended December 31, 2024 and 2023 under the ATM Program, respectively, for gross proceeds of $46.5 million and $62.9 million and underwriting fees and other expenses of $1.1 million and $1.2 million, respectively. The average per share offering price of shares issued in the ATM Program during the fiscal years ended December 31, 2024 and 2023 was $13.86 and $14.10, respectively. The Advisor agreed to reimburse us for underwriting fees and expenses to the extent the per share price of the shares to the public, less underwriting fees, was less than then-net asset value per share. For the fiscal year ended December 31, 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value. For the fiscal year ended December 31, 2023, the Advisor reimbursed $0.5 million in such fees and expenses.
Removed paragraphs (6)
Previous report
outstanding. For the year ended December 31, 2021, net investment income was $19.8 million, or $1.01 per common share based on 19,489,750 weighted-average common shares outstanding.
Previous report
incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.
Previous report
Notes Offering
Previous report
On August 21, 2017, we issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due September 15, 2022 (the “2022 Notes”). On September 8, 2017, we issued an additional $6.4 million in aggregate principal amount of the 2022 Notes pursuant to a full exercise of the underwriters’ overallotment option. On January 13, 2021, we caused notices to be issued to the holders of our 2022 Notes regarding our exercise of our option to redeem all of the issued and outstanding 2022 Notes, pursuant to the Second Supplemental Indenture dated as of August 21, 2017, between us and U.S. Bank National Association, as trustee. We redeemed all $48.9 million in aggregate principal amount of the 2022 Notes on February 12, 2021. The 2022 Notes were redeemed at 100% of their principal amount, plus the accrued and unpaid interest thereon through the redemption date. As a result of the redemption, we recognized a loss on debt extinguishment of $0.5 million due to the write off of the remaining deferred financing costs on the 2022 Notes. This loss is included in the Consolidated Statement of Operations for the year ended December 31, 2021.
Previous report
The following table summarizes the interest expense and deferred financing costs on the 2022 Notes for the year ended December 31, 2021 (in millions):
Previous report
We realized an investment in following portfolio company subsequent to December 31, 2023:
Reworded paragraphs (60)
Previous wording
We were organized as a Maryland corporation on May 18, 2012 and formally commenced operations on November 7, 2012. Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related equity investments in middle-market companies.
Current wording
We were organized as a Maryland corporation on May 18, 2012 and formally commenced operations on November 7, 2012. Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related equity investments in lower middle-market companies.
Previous wording
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we must 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 companies” (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 million, in each case organized and with their principal place of business in the United States.
Current wording
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we must 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 companies” (as defined in the 1940 Act). Under the relevant SEC rules, the term “eligible portfolio company” includes any issuer that (i) is organized and with their principal of business in the United States, (ii) is not an investment company (other than SBICs that are wholly owned subsidiaries of a BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act, and (iii) satisfies any one of the following criteria: such company (a) has a market capitalization of less than $250 million or does not have a class of securities listed on a national securities exchange, (b) is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the company, and, as a result thereof, the BDC has an affiliated person who is a director of the company, or (c) is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
Previous wording
We have elected, qualified, and intend to continue to qualify annually to be treated for tax purposes as a RIC under Subchapter M ofthe Code. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of December 31, 2023, we were in compliance with the RIC requirements. As a RIC, we generally will nothave to pay corporate-level U.S. federal incometax on any income we distribute to our stockholders.
Current wording
We have elected to be treated, qualify, and intend to continue to qualify annually for tax purposes as a RIC under Subchapter M ofthe Code. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. As of December 31, 2024, we were in compliance with the RIC requirements. As a RIC, we generally will notbe subject to U.S. federal income taxes on any income we distribute to our stockholders.
Previous wording
Under the 1940 Act, we are allowed to incur a maximum asset coverage ratio of 150% if certain requirements are met, including the approval of a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of Board and the approval of our stockholders.
Current wording
Under the 1940 Act, we are allowed to incur a maximum asset coverage ratio of 150% if certain requirements are met, including the approval of a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) the of Board and the approval of our stockholders.
Previous wording
On April 4, 2018, the Board, including a “required majority” of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At our 2018 annual meeting of stockholders, our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio applicable to us was decreased from 200% to 150%, effective June 29, 2018, which effectively increased the amount of leverage we may incur. As of December 31, 2023, our asset coverage ratio was 223%. 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.
Current wording
On April 4, 2018, the Board, including a “required majority” of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. At our 2018 annual meeting of stockholders, our stockholders also approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the asset coverage ratio applicable to us was decreased from 200% to 150%, effective June 29, 2018, which effectively increased the amount of leverage we may incur. As of December 31, 2024, our asset coverage ratio was 234%. 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.
Previous wording
Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe supply chain interruptions, labor resource shortages, commodity inflation, rising interest rates, bank impairments and failures, 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.
Current wording
Economic activity has continued to accelerate across sectors and regions. Nonetheless, we have observed and continue to observe supply chain interruptions, labor resource shortages, commodity inflation, fluctuating interest rates, bank impairments and failures, 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.
Previous wording
We originate and invest primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, oftentimes with a corresponding equity investment.
Current wording
We originate and invest primarily in privately held lower middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA) through first lien (including unitranche), second lien, and unsecured debt financing, often with a corresponding equity investment.
Previous wording
As of December 31, 2022, we had $844.7 million (at fair value) invested in 85 companies. As of December 31, 2022, our portfolio included approximately 87% of first lien debt (including unitranche investments), 5% of second lien debt, 1% of unsecured debt and 7% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2022 was as follows:
Current wording
As of December 31, 2024, we had $953.5 million (at fair value) invested in 105 companies. As of December 31, 2024, our portfolio included approximately 90% of first lien debt (including unitranche investments), 1% of second lien debt, 1% of unsecured debt and 8% of equity investments at fair value. The composition of our investments at cost and fair value as of December 31, 2024 was as follows:
Previous wording
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 December 31, 2023 and December 31, 2022, we had unfunded commitments of $37.0 million and $27.8 million, respectively, to provide debt financing for 57 and 52 portfolio companies, respectively. As of December 31, 2023, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.
Current wording
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 December 31, 2024 and December 31, 2023, we had unfunded commitments of $41.3 million and $37.0 million, respectively, to provide financing to 71 and 57 portfolio companies, respectively. As of December 31, 2024, we had sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise.
Previous wording
At December 31, 2023, our average portfolio company investment at amortized cost and fair value was approximately $9.7 million and $9.4 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.7 million and $18.9 million, respectively. At December 31, 2022, our average portfolio company investment at amortized cost and fair value was approximately $10.3 million and $9.9 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $20.4 million and $21.1 million, respectively.
Current wording
At December 31, 2024, our average portfolio company investment at amortized cost and fair value was approximately $9.2 million and $9.2 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $23.2 million and $21.2 million, respectively. At December 31, 2023, our average portfolio company investment at amortized cost and fair value was approximately $9.7 million and $9.4 million, respectively, and our largest portfolio company investment at amortized cost and fair value was approximately $21.7 million and $18.9 million, respectively.
Previous wording
At December 31, 2023, 98% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as SOFR, and 2% bore interest at fixed rates. At December 31, 2022, 97% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 3% bore interest at fixed rates.
Current wording
At December 31, 2024, 94.5% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as the Secured Overnight Financing Rate (“SOFR”), and 5.5% bore interest at fixed rates. At December 31, 2023, 97.7% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as SOFR, and 2.3% bore interest at fixed rates.
Previous wording
The weighted average yield on all of our debt investments as of December 31, 2023 and December 31, 2022 was approximately 11.9% and 11.1%, respectively. The weighted average yield on all of our investments, including non-income producing equity positions, as of December 31, 2023 and December 31, 2022 was approximately 11.1% and 10.4%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of OID. The weighted average yield of our debt investments is not the same as a return on investment for our stockholders, but rather relates to a portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.
Current wording
The weighted average yield on all of our debt investments as of December 31, 2024 and December 31, 2023 was approximately 10.3% and 11.9%, respectively, including debt investments on non-accrual status. The weighted average yield on all of our investments, including non-income producing equity positions and debt investments on non-accrual status, as of December 31, 2024 and December 31, 2023 was approximately 9.7% and 11.1%, respectively. The weighted average yield was computed using the effective interest rates for all of our debt investments, including accretion of OID. The weighted average yield of our debt investments is not the same as a return on investment for our stockholders, but rather relates to a portion of our investment portfolio and is calculated before the payment of all of our subsidiaries’ fees and expenses.
Previous wording
As of December 31, 2023 and December 31, 2022, we had cash and cash equivalents of $26.1 million and $48.0 million, respectively, the majority of which was held in our SBIC subsidiaries.
Current wording
As of December 31, 2024 and December 31, 2023, we had cash and cash equivalents of $20.1 million and $26.1 million, respectively, the majority of which was held in our SBIC subsidiaries.
Previous wording
During the year ended December 31, 2022, we made $211.0 million of investments in 22 new portfolio companies and 28 existing portfolio companies. During the year ended December 31, 2022, we received an aggregate of $127.5 million in proceeds from repayments of our investments.
Current wording
During the year ended December 31, 2024, we made $221.2 million of investments in 21 new portfolio companies and 29 existing portfolio companies. During the year ended December 31, 2024, we received an aggregate of $151.8 million in proceeds from repayments of our investments.
Previous wording
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.
Current wording
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 lower 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.
Previous wording
We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of December 31, 2023, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2022, we had loans to three portfolio companies that were on non-accrual status, which represented approximately 5.2% of our loan portfolio at cost and 2.3% at fair value. As of December 31, 2023 and December 31, 2022, $7.5 million and $4.8 million of income from investments on non-accrual had not been accrued, respectively.
Current wording
We will not accrue interest on loans and debt securities if we have reason to doubt our ability to collect such interest. As of December 31, 2024, we had loans to seven portfolio companies that were on non-accrual status, which represented approximately 8.3% of our loan portfolio at cost and 5.4% at fair value. As of December 31, 2023, we had loans to four portfolio companies that were on non-accrual status, which represented approximately 4.2% of our loan portfolio at cost and 1.3% at fair value. As of December 31, 2024 and December 31, 2023, $6.5 million and $7.5 million of income from investments on non-accrual had not been accrued, respectively.
Previous wording
The increase in interest income from the year ended December 31, 2022 to the year ended December 31, 2023 was due primarily to growth in the overall investment portfolio and rising interest rates. The increase in interest income from the year ended December 31, 2021 to the year ended December 31, 2022 was due primarily to growth in the overall investment portfolio and rising interest rates.
Current wording
The decrease in interest income from the year ended December 31, 2023 to the year ended December 31, 2024 was due primarily to falling interest rates and increased loans on non-accrual, offset by growth in the overall investment portfolio. The increase in interest income from the year ended December 31, 2022 to the year ended December 31, 2023 was due primarily to growth in the overall investment portfolio and rising interest rates.
Previous wording
The increase in operating expenses for the year ended December 31,2023 as compared to the year ended December 31,2022 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as rising interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio performance. The increase in operating expenses for the year ended December 31,2022 as compared to the year ended December 31,2021 was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as rising interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio performance.
Current wording
The decrease in operating expenses for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was due tohigher income incentive fee waivers due to the total return limitation, offset in part by higher income tax expense due to increase taxable spillover income. The increase in operating expenses for the year ended December 31, 2023, as compared to the year ended December 31,2022, was due to (1) higher interest expense as a result of higher outstanding balances on our SBA-guaranteed debentures, as well as rising interest rates, (2) higher management fees due to a larger investment portfolio and (3) higher incentive fees due to portfolio performance.
Previous wording
For the year ended December 31, 2023, net investment income was $42.2 million, or $1.92 per common share based on 22,004,648 weighted-average common shares outstanding. For the year ended December 31, 2022, net investment income was $28.6 million, or $1.46 per common share based on 19,552,931 weighted-average common shares
Current wording
For the year ended December 31, 2024, net investment income was $41.9 million, or $1.64 per common share based on 25,596,593 weighted-average common shares outstanding. For the year ended December 31, 2023, net investment income was $42.2 million, or $1.92 per common share based on 22,004,648 weighted-average common shares outstanding. For the year ended December 31, 2022, net investment income was $28.6 million, or $1.46 per common share based on 19,552,931 weighted-average common shares outstanding.
Previous wording
Net investment income for the year ended December 31, 2022 increased compared to the year ended December 31, 2021 as a result of growth in the overall investment portfolio and rising interest rates, offset by higher operating expenses as explained in the “Expenses” section above.
Current wording
Net investment income for the year ended December 31, 2024 was materially similar compared to the year ended December 31, 2023 as a result of decreased interest income as explained in the “Revenues” section above, offset by lower operating expenses as explained in the “Expenses” section above.
Previous wording
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2023 totaled $141.3 million and net realized losses totaled $30.3 million. Net realized losses during the year ended December 31, 2023 resulted primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of our equity investments. Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2022 totaled $127.5 million resulting in net realized gains totaling $3.7 million, primarily from gains from the realization of our equity investments in certain portfolio companies, offset by dispositions of loans in our portfolio. Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2021 totaled $287.6 million resulting in net realized gains totaling $23.7 million, primarily from gains from the realization of our equity investments in certain portfolio companies.
Current wording
Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2024 totaled $151.8 million, net realized losses on investments totaled ($15.7) million and net realized losses on foreign currency translations of ($0.1) million. Net realized losses during the year ended December 31, 2024 resulted primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of certain equity investments. Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2023 totaled $141.3 million resulting in net realized losses on investments totaling ($30.2) million and net realized losses on foreign currency translations of ($0.1) million, primarily from losses from the realization of our debt investments in certain portfolio companies, partially offset from gains from the realization of our equity investments. Proceeds from repayments of investments and amortization of certain other investments for the year ended December 31, 2022 totaled $127.5 million resulting in net realized gains totaling $3.7 million, primarily from gains from the realization of our equity investments in certain portfolio companies, offset by dispositions of loans in our portfolio.
Previous wording
Net change in unrealized appreciation (depreciation) on investments and cash equivalents, including foreign currency translations, for the year ended December 31, 2023, 2022, and 2021 totaled $2.8 million, ($17.5) million, and ($6.9) million, respectively.
Current wording
Net change in unrealized appreciation (depreciation) on investments and cash equivalents, including foreign currency translations, for the year ended December 31, 2024, 2023, and 2022 totaled $19.6 million, $2.8 million, and ($17.5) million, respectively.
Previous wording
The change in unrealized appreciation in 2023 was primarily due to realizations on investments previously written down. The change in unrealized depreciation in 2022 was primarily due to write downs on specific investments. The change in unrealized depreciation in 2021 was primarily due to realizations on equity investments previously written up.
Current wording
The change in unrealized appreciation in 2024 was primarily due to realizations on investments previously written down. The change in unrealized appreciation in 2023 was primarily due to realizations on investments previously written down. The change in unrealized depreciation in 2022 was primarily due to write downs on specific investments.
Previous wording
(Provision) Benefit for Taxes on Unrealized (Appreciation) Depreciation on Investments
Current wording
Benefit (Provision) for Taxes on Unrealized Depreciation(Appreciation) on Investments
Previous wording
We have direct wholly owned subsidiaries that have elected to betreated as corporations for U.S. federal income tax purposes (the “Taxable Subsidiaries”), and as a result, the income of the Taxable Subsidiaries is subject to U.S. federal income tax at corporate rates. The Taxable Subsidiaries permit 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 Subsidiaries are not consolidated with us for U.S. federal income tax purposes and may generate U.S. federal income tax expense, benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. The U.S. federal income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our Consolidated Financial Statements.
Current wording
We have direct wholly owned subsidiaries that have elected to betreated as corporations for U.S. federal income tax purposes (the "Taxable Subsidiaries"), and as a result, the income of the Taxable Subsidiaries is subject to U.S. federal income tax imposed at corporate rates. The Taxable Subsidiaries permit 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 Subsidiaries are not consolidated with us for U.S. federal income tax purposes and may independently generate income, gains, deductions or losses for U.S. federal income tax purposes as a result of their ownership of certain portfolio investments. The U.S. federal income tax expense, or benefit, if any, and related tax assets and liabilities are reflected in our Consolidated Financial Statements.
Previous wording
For the years ended December 31, 2023, 2022 and 2021, we recognized a deferred tax (provision) benefit related to unrealized appreciation on certain equity investments for income tax at our Taxable Subsidiaries of approximately ($127.0) thousand, ($213.2) thousand, and $510.9 thousand, respectively.
Current wording
For the years ended December 31, 2024, 2023 and 2022, we recognized a deferred tax benefit (provision) related to unrealized depreciation (appreciation) on certain equity investments for income tax at our Taxable Subsidiaries of approximately $0.2 million, ($0.1) million, and ($0.2) million, respectively.
Previous wording
For the years ended December 31, 2023 and 2021, we recognized tax benefit (expense) related to losses (gains) realized on certain debt (equity) investments held at our Taxable Subsidiaries of $3.0 million and ($3.0) million, respectively. There was no such tax expense for the year ended December 31, 2022. As of December 31, 2023, a tax receivable related to the tax benefit on realized losses of $1.6 million was included on the Consolidated Statement of Assets and Liabilities. As of December 31, 2023 and 2022, a deferred tax liability of $188.9 thousand and $61.9 thousand, respectively, was included in Consolidated Statement of Assets and Liabilities.
Current wording
For the years ended December 31, 2024 and 2023, we recognized tax benefit related to losses realized on certain equity investments held at our Taxable Subsidiaries of less than $0.1 million and $3.0 million, respectively. There was no such tax expense for the year ended December 31, 2022. As of December 31, 2024 and 2023, a tax receivable related to the tax benefit on realized losses of $1.3 million and $1.6 million, respectively, was included on the Consolidated Statements of Assets and Liabilities. As of December 31, 2023, a deferred tax liability of $0.2 million was included in Consolidated Statements of Assets and Liabilities. As of December 31, 2024, there was no such deferred tax liability included in Consolidated Statements of Assets and Liabilities.
Previous wording
Net increase in net assets resulting from operations totaled $17.5 million, or $0.80 per common share based on weighted-average common shares of 22,004,648 outstanding for the year ended December 31, 2023, $14.5 million, or $0.74 per common share based on weighted-average common shares of 19,552,931 outstanding for the year ended December 31, 2022, and $33.6 million, or $1.72 per common share based on weighted-average common hares of 19,489,750 outstanding for the year ended December 31, 2021.
Current wording
Net increase in net assets resulting from operations totaled $17.5 million, or $0.80 per common share based on weighted-average common shares of 22,004,648 outstanding for the year ended December 31, 2023.
Previous wording
The net increase in net assets resulting from operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due toan increase in net investment income, offset byrealized losses. The net decrease in net assets resulting from operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due tounrealized losses, offset byrealized gains.
Current wording
The net increase in net assets resulting from operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to a decrease in realized losses and increase on unrealized appreciation. The net increase in net assets resulting from operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to an increase in net investment income, offset byrealized losses.
Previous wording
Our operating activities used net cash of $76.1 million for the year ended December 31, 2021, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended December 31, 2021 provided cash of $101.8 million primarily from proceeds from the 2026 Notes issuance, SBA-guaranteed debentures, and net borrowings on our Credit Facility.
Current wording
Our operating activities used net cash of $28.6 million for the year ended December 31, 2024, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended December 31, 2024 provided cash of $22.6 million primarily from our ATM Program and net borrowings on our Credit Facility, offset by stockholder distributions.
Previous wording
Our operating activities used net cash of $17.3 million for the year ended December 31, 2023, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended December 31, 2023 used cash of $4.7 million primarily from stockholder distibutions and net payments on our Credit Facility, offset by proceeds from our ATM Program.
Current wording
Our operating activities used net cash of $17.3 million for the year ended December 31, 2023, primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. Our financing activities for the year ended December 31, 2023 used cash of $4.7 million primarily from stockholder distributions and net payments on our Credit Facility, offset by proceeds from our ATM Program.
Previous wording
Our liquidity and capital resources are derived from the Credit Facility, 2026 Notes, offerings of our common stock, SBA-guaranteed debentures 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 stock. 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. Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be limited
Current wording
Our liquidity and capital resources are derived from the Credit Facility, Notes Payable, SBA-guaranteed debentures and cash flows from operations, including investment sales and repayments, the ATM Program, 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 stock. We used, and expect to continue to use,
Previous wording
in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our stockholders approve such a sale and our Board makes certain determinations in connection therewith. A proposal, approved by our stockholders at our 2023 annual stockholders meeting, authorizes us to sell up to 25% of our outstanding common shares at a price equal to or below the then current net asset value per share in one or more offerings. This authorization will expire onthe earlier of June 22, 2024, the one-year anniversary of our 2023 annual stockholders meeting, or our 2024 annual stockholders meeting. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders 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 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.
Current wording
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. Although we expect to fund the growth of our investment portfolio through the net proceeds from future public and private equity offerings and issuances of senior securities or future borrowings to the extent permitted by the 1940 Act, our plans to raise capital may not be successful. In this regard, if our common stock trades at a price below our then-current net asset value per share, we may be limited in our ability to raise equity capital given that we cannot sell our common stock at a price below net asset value per share unless our stockholders approve such a sale and our Board makes certain determinations in connection therewith. A proposal approved by our stockholders at our 2024 annual stockholders meeting authorizes us to sell up to 25% of our outstanding common stock at a price equal to or below the then-current net asset value per share in one or more offerings. This authorization will expire onthe earlier of June 20, 2025, the one-year anniversary of our 2024 annual stockholders meeting, or the date of our 2025 annual stockholders meeting. We would need similar future approval from our stockholders to issue shares below the then current net asset value per share any time after the expiration of the current approval. In addition, we intend to distribute between 90% and 100% of our taxable income to our stockholders 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 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.
Previous wording
Also, as a BDC, we generally are required to meet an asset coverage coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of our senior securities, which includes all of our borrowings and any outstanding preferred stock, of at least 150% effective June 29, 2018 (at least 200% prior to June 29, 2018). This requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act. We were in compliance with the asset coverage ratio requirements at all times. As of December 31, 2023 and December 31, 2022, our asset coverage ratio was 223% and 192%, 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 shares of our common stock 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 December 31, 2023 and December 31, 2022, we had cash and cash equivalents of $26.1 million and $48.0 million, respectively.
Current wording
Also, as a BDC, we generally are required to meet an asset coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, over the aggregate amount of our senior securities, which includes all of our borrowings and any outstanding preferred stock, of at least 150% effective June 29, 2018 (at least 200% prior to June 29, 2018). This requirement limits the amount that we may borrow. We have received exemptive relief from the SEC to permit us to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from the definition of senior securities in the asset coverage test under the 1940 Act. We were in compliance with the asset coverage ratio requirement at all times. As of December 31, 2024 and December 31, 2023, our asset coverage ratio was 234% and 223%, 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 shares of our common stock 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 December 31, 2024 and December 31, 2023, we had cash and cash equivalents of $20.1 million and $26.1 million, respectively.
Previous wording
The Credit Facility provides for borrowings up to a maximum of $260.0 million on a committed basis with an accordion feature that allows us to increase the aggregate commitments up to $350.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.
Current wording
The Credit Facility provides for borrowings up to a maximum of $315.0 million on a committed basis with an accordion feature that allows us to increase the aggregate commitments up to $350.0 million, subject to new or existing lenders agreeing to participate in the increase and other customary conditions.
Previous wording
Pursuant to the Third Amendment and Commitment Increase to the Amended and Restated Senior Secured Revolving Credit Agreement, the Credit Facility will bear 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 SOFR credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR floor, or (ii) 1.50% (or 1.75% during certain periods in which the our asset coverage ratio is equal to or below 1.90 to 1.00) plus an alternate base rate based on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one-month term SOFR 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 November 21, 2027, 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 the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on November 21, 2028.
Current wording
Pursuant to the Fourth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement, the Credit Facility will bear 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 SOFR credit spread adjustment (0.10% for one-month term SOFR and 0.15% for three-month term SOFR), with a 0.25% SOFR 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 based on the highest of the prime rate (subject to a 3% floor), Federal Funds Rate plus 0.50% and one-month term SOFR 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 November 21, 2027, 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 the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable,
Previous wording
Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $10.0 million, including cash, liquid
Current wording
on November 21, 2028. Our obligations to the lenders are secured by a first priority security interest in our portfolio of securities and cash not held at the SBIC subsidiaries, but excluding short term investments. The Credit Facility contains certain covenants, including but not limited to: (i) maintaining a minimum liquidity test of at least $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 minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2024, we were in compliance with these covenants.
Previous wording
As of December 31, 2023 and December 31, 2022, the outstanding balance under the Credit Facility was $160.1 million and $199.2 million, respectively. 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 $6.6 million in connection with the current Credit Facility, which were capitalized and are being amortized over the life of the facility. Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the life of the Credit Facility. As of December 31, 2023 and 2022, $3.5 million and $1.5 million of such prepaid loan structure fees and administration fees had yet to be amortized, respectively. These prepaid loan fees are presented on our Consolidated Statement of Assets and Liabilities as a deduction from the debt liability attributable to the Credit Facility.
Current wording
As of December 31, 2024 and December 31, 2023, the outstanding balance under the Credit Facility was $175.4 million and $160.1 million, respectively. 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 $7.3 million in connection with the current Credit Facility, which were capitalized and are being amortized over the life of the facility. Additionally, $0.3 million of costs from a prior credit facility will continue to be amortized over the remaining life of the Credit Facility. As of December 31, 2024 and 2023, $3.1 million and $3.5 million 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 attributable to the Credit Facility.
Previous wording
Interest is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the years ended December 31, 2023, 2022, and 2021 (dollars in millions):
Current wording
Interest on the Credit Facility is paid monthly or quarterly in arrears. The following table summarizes the interest expense and amortized loan fees on the Credit Facility for the years ended December 31, 2024, 2023, and 2022 (dollars in millions):
Previous wording
Due to the SBIC subsidiaries’ status as licensed SBICs, we can issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding SBA-guaranteed debentures, subject to a regulatory leverage limit, up to two times the amount of regulatory capital. As of both December 31, 2023 and 2022, the SBIC I subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA. As of both December 31, 2023 and 2022, the SBIC II subsidiary had $87.5 million in regulatory capital.
Current wording
Due to the SBIC subsidiaries’ status as licensed SBICs, we can issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBICs, a single licensee can have outstanding SBA-guaranteed debentures, subject to a regulatory leverage limit, up to two times the amount of regulatory capital. As of both December 31, 2024 and 2023, the SBIC I subsidiary had $75.0 million in “regulatory capital”, as such term is defined by the SBA, and $150 million of SBA-guaranteed debentures outstanding. As of both December 31, 2024 and 2023, the SBIC II subsidiary had $87.5 million in regulatory capital and $175 million of SBA-guaranteed debentures outstanding.
Showing the first 40 of 60 pairs. Open the source sections for the rest.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
Net increase in net assets resulting from operations totaled $14.5 million, or $0.74 per common share based on weighted-average common shares of 19,552,931 outstanding for the year ended December 31, 2022.
Current report — wording carried from elsewhere
of the SBA-guaranteed debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures are also subject to certain fees payable by the SBIC subsidiaries calculated at the time such debentures are drawn. As of both December 31, 2024 and 2023, the SBIC subsidiaries had $325.0 million of the SBA-guaranteed debentures outstanding.
Current report — wording carried from elsewhere
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 December 31, 2024, our only off-balance sheet arrangements consisted
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
investments and undrawn availability, (ii) maintaining an asset coverage ratio of at least 1.67 to 1.00, (iii) maintaining a minimum stockholder’s equity, and (iv) maintaining a minimum interest coverage ratio of at least 1.75 to 1.00. As of December 31, 2023, we were in compliance with these covenants.
Previous report — wording carried elsewhere
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 stockholders.
Previous report — wording carried elsewhere
sellers in the principal market that are independent, knowledgeable and willing and able to transact. See Note 1 to the Consolidated Financial Statements contained herein for a detailed discussion of our investment portfolio valuation process and procedures.