Stellus Capital Investment (NYSE:SCM) reported second-quarter 2026 net investment income of $0.26 per share on both a GAAP and core basis, while net asset value increased $0.26 per share, or 2%, from the prior quarter.
Chief Financial Officer Todd Huskinson said the NAV increase reflected $0.30 per share in net realized and unrealized gains, primarily from company-specific performance, as well as approximately $0.05 per share of accretion from share repurchases. Dividend payments exceeded earnings by $0.08 per share as the company continued distributing remaining spillover income from 2025.
Portfolio Activity and Credit Quality
At June 30, the investment portfolio had a fair value of $968 million across 116 companies, compared with $990 million across the same number of companies at the end of the first quarter. During the quarter, Stellus invested $18 million, including $8.7 million in three new portfolio companies and $9.3 million in follow-on investments.
The company received five full repayments totaling $38.7 million, $10 million of other repayments at par, and $500,000 from an equity realization that generated a $200,000 realized loss.
- All loans were secured, and 92% were priced at floating rates.
- The average loan per company was $8.9 million at fair value.
- The largest overall investment was $26 million at fair value.
- For the 98 companies in the loan portfolio, weighted average EBITDA was $15.6 million and normalized leverage for performing loans was 4.2 times.
Huskinson said 74% of the portfolio, measured at fair value, was rated one or two, meaning it was on or ahead of plan. The remaining 26% of loans were rated three or below, indicating they were not meeting expectations.
Stellus removed one loan from nonaccrual status during the quarter and added no new nonaccruals. Loans to five portfolio companies remained on nonaccrual at quarter-end, representing 8.5% of total portfolio cost and 5.4% of fair value. Management said the nonaccrual and risk-grade-three levels remain higher than it would prefer and that reducing exposure to those investments is a key priority.
During the question-and-answer session, Chief Executive Officer Robert Ladd said that, for most nonperforming investments, Stellus and other lenders now control the companies following restructurings. The focus is on working with management teams to improve operations and position businesses for exits, with limited additional capital provided where needed.
Dividend and Origination Outlook
For the third quarter, Stellus set its quarterly dividend at $0.25 per share. Ladd said the company has reduced its spillover income and expects the dividend to approximate net investment income going forward. Based on the current trajectory of net investment income, short-term rates and spreads, he said Stellus expects to be positioned to earn the $0.25 quarterly dividend or more.
As of the call date, the portfolio stood at approximately $960 million across 117 companies. Management expects repayments to modestly exceed new fundings during the remainder of the third quarter, resulting in a portfolio slightly below its then-current level.
However, Ladd said the origination pipeline has improved meaningfully since the start of the quarter. He cited the typically stronger seasonal pace of deal activity in the second half of the year, particularly in the fourth quarter, while noting that the company continues to maintain pricing discipline. He said current pipeline activity is primarily being generated through Stellus’ existing origination capabilities.
Ridgepost Integration and Growth Capital
On June 22, Stellus’ external adviser, Stellus Capital Management, joined Ridgepost Capital. Ladd described Ridgepost as an alternative investment manager with more than $50 billion in assets under management across private equity, private credit and venture strategies.
Management said integration efforts are underway across investment origination and management, investor relations, fundraising and operations. Stellus expects to benefit over time from Ridgepost’s RCP Advisors business, which has relationships with more than 200 lower-middle-market private equity firms. Ladd said the relationship could generate incremental lending opportunities, though the effort remains in its early stages and may take several quarters to develop.
Stellus also received approval from the Small Business Administration for a third SBIC license. The license permits the company to contribute up to $125 million of equity and access up to $250 million of long-term, SBA-guaranteed debentures. The SBA also increased the maximum debentures outstanding for a family of funds to $475 million from $350 million.
Ladd said these developments could support expansion of the investment portfolio by up to $100 million over time, or about 10% of the portfolio’s fair value at the time of the call. He added that the company expects leverage to rise closer to its target levels as the new SBIC license is deployed and capital is recycled into income-producing assets.
Share Repurchases
Stellus continued to repurchase stock under a $20 million authorization approved by its board on March 3. Since that date, the company has repurchased 467,000 shares for about $4 million.
Ladd said management considers buybacks an attractive use of capital while the stock trades at what he described as a significant discount to NAV. The company said repurchases have been accretive to both NAV and earnings per share.
About Stellus Capital Investment (NYSE:SCM)
Stellus Capital Investment Corporation (NYSE: SCM) is a closed-end, externally managed business development company that provides debt and equity financing to middle market companies in the United States. As an investment vehicle specializing in private credit, Stellus focuses on originating and structuring senior secured loans, unitranche facilities, mezzanine debt, and equity co-investments tailored to the unique needs of growing businesses. Its flexible capital solutions are designed to support acquisitions, recapitalizations, growth initiatives, and balance sheet refinancings.
Operating under an evergreen structure, Stellus Capital Investment partners with a diverse group of portfolio companies across industries such as manufacturing, healthcare, business services, and specialty finance.
