Q4 2023 Stellus Capital Investment Corp Earnings Call

Okay.

Good morning, ladies and gentlemen, and thank you for standing by at this time I would like to welcome everyone to Astellas capital Investment Corporation's Conference call to report financial results for its fourth fiscal quarter and year ended December 31 2023 at.

Operator: Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its fourth fiscal quarter and year-ended December 31, 2023. At this time, all participants are in a listen-only mode.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator: 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. This conference is being recorded today, March 5, 2024. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin. Okay. Thank you, Holly.

If anyone should require operator assistance during the conference. Please press star zero on your telephone Keypad. This conference is being recorded today March 5th 2024. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of stellar <unk> Capital Investment Corporation. Mr. Ladd you may begin.

Yeah.

Okay. Thank you Holly and good afternoon, everyone and thank you for joining the call and welcome to our conference call covering the quarter and year ended December 31 2023.

Robert T. Ladd: Good afternoon, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter and year ended December 31st, 2023. Joining me, of course, this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information. Thank you, Rob.

Joining me of course. This morning is Todd House can send our Chief Financial Officer, who will cover important information about forward looking statements as well as an overview of our financial information.

Thank you Rob.

Todd Huskinson: I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus 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 PIN provided in our press release announcing this call.

I'd like to remind everyone that today's call is being recorded. Please note that this call is the property Astellas 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 pin 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.

Todd Huskinson: 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 our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investor section or call us at 713-292-5400.

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 our forward looking statements unless required by law.

To obtain copies of our latest SEC filings. Please visit our website at Www Dot Astellas capital Dot com under the public investors link or call us at 700 329 to $5 400.

At this time I would like to turn the call back over to our Chief Executive Officer, Rob Ladd. Okay. Great. Thank you Todd will begin this afternoon by discussing our operating results followed by a life to date review.

Robert T. Ladd: At this time, I'd like to turn the call back over to our Chief Executive Officer, Rob Ladd. Okay. Thank you, Todd.

Robert T. Ladd: We'll begin this afternoon by discussing our operating results, followed by a life-to-date review, a review of the portfolio, including asset quality, and then the outcome. First, I'll cover operating results. We continue to benefit from our favorable asset-liability mix, in which 98% of our loans are floating and only 27% of our liabilities are floating. As a result, we had solid results in the fourth quarter as we more than covered our $0.40 per share dividend through core net investment income of $0.50 per share and gap net investment income of $0.49 per share. That asset value increased $0.07 per share to $13.26 per share. During the fourth quarter, we recorded a tax refund of $3 million, which was the result of recording a realized loss on previously marked down positions.

Review of the portfolio, including asset quality and then the outlook.

Rob.

First I'll cover operating results.

We continue to benefit from our favorable asset liability mix, and which 98% of our loans are floating and only 27% of our liabilities are floating.

As a result, we had solid results in the fourth quarter as we more than covered our <unk> per share dividend through core net investment income of <unk> 50 per share and GAAP net investment income of 49 per share.

Net asset value increased <unk> per share to $13 26 per share.

During the fourth quarter, we recorded a tax refund of $3 million, which was the result of recording a realized loss on previously marked down positions.

Since our.

Robert T. Ladd: Since our IPO in November 2012, we've invested approximately $2.4 billion in over 195 companies and received approximately $1.5 billion of repayments while maintaining stable asset quality. We have paid over $246 million of dividends to our investors, which represents $15.08 per share to an investor since our IPO in November 2012. Attorney to Portfolio and Asset Quality. We ended the quarter with an investment portfolio at a fair value of $874 million across 93 portfolio companies, slightly down from $886 million across 96 companies on September 30th, 2023. During the fourth quarter, we invested $40.3 million in three new and 11 existing portfolio companies, along with additional funding of $3.9 million, and received five full repayments and four full realizations totaling $39.9 million and $153 million of other repayments, resulting in a net portfolio decline at a cost of $39.5 million.

In November 2012, we've invested approximately $2 $4 billion in over 195 companies and received approximately $1 5 billion of repayments, while maintaining stable asset quality we.

We have paid over $246 million of dividends to our investors, which represents $15 eight per share to an investor in our IPO in November 2012.

Now turning to portfolio and asset quality.

We ended the quarter with an investment portfolio at fair value of $874 million across 93 portfolio companies slightly down from $886 million across 96 companies at September 32023.

During the fourth quarter, we invested $43 million in three new and 11 existing portfolio companies and along with additional fundings of $3 9 million and received five full repayments and four full realizations totaling $39 $9 million and $153 million of other repayments, resulting in net portfolio net.

Portfolio decline in cost of $39 5 million.

At December 31, 99% of our loans were secured and 98% were priced at floating rates.

Robert T. Ladd: On December 31st, 99% of our loans were secured, and 98% were priced at floating rates. We're always focused on diversification. The average loan per company is $9.9 million, and the largest overall investment is $18.9 million, both at fair value. Substantially, all of the portfolio companies are backed by private equity. The average leverage of the portfolio companies is around four times an average EBITDA of approximately $19 million per

We're always focused on diversification.

The average loan per company is $9 $9 million and the largest overall investment is $18 9 million both at fair value.

Substantially all of the portfolio companies are backed by a private equity firm.

The average leverage of the portfolio companies is around four times, an average EBITDA of approximately $19 million per company.

Robert T. Ladd: Overall, our asset quality is slightly better than planned. 24% of our portfolio is rated one or ahead of plan, and 14% of the portfolio is marked at an investment category of three or below. As of year-end, we had four loans on non-accrual, which comprised 1.3% of the fair value of the total loan portfolio.

Overall, our asset quality is slightly better than plan, 24% of our portfolio is rated a one or ahead of plan and 14% of the portfolio is marked at an investment category of three or below.

As of year end, we had four loans on nonaccrual, which comprised one 3% of fair value of the total loan portfolio and with that I'll turn it back over to Rob to discuss dividends and overall outlook.

Robert T. Ladd: And with that, I'll turn it back over to Rob to discuss dividends and the overall outlook. Okay, thank you, Todd. As a reminder, part of our investment strategy has been to invest in the equity of our portfolio companies in a modest way, but in order to generate realized gains sufficient to offset losses over time. While we've had modest equity realizations more recently, we expect this activity to pick up over the next six to 12 months. To this end, we are aware of two possible equity realizations that could occur in the second quarter, with aggregate proceeds of approximately $7 million and a potential realized gain of $4 million. As of the end of the year, we have $60 million of equity investments at cost that were marked at $72 million.

Great. Thank you Todd as a reminder, part of our investment strategy has been to invest in the equity of our portfolio companies in a modest way, but in order to generate realized gains sufficient to offset losses over time.

While we had modest equity realizations more recently, we expect this activity to pick up over the next six to 12 months.

To this end we are aware of two possible equity realizations that occurred could could occur in the second quarter.

I agree with proceeds of approximately $7 million and a potential realized gain of $4 million.

As at the end of the year, we have $60 million of equity investments at cost that were marked at $72 million or historical performance would indicate that the ultimate realization for this portfolio will be greater than two times, our portfolio is cost basis.

Robert T. Ladd: Our historical performance would indicate that the ultimate realization for this portfolio would be greater than two times our portfolio's cost base. However, of course, the ultimate performance of our current equity positions will depend on a variety of factors, including, among other things, the current economic environment and the sponsor's exit strategy. Now turning to dividends. We continue to pay our dividend of 40 cents per share per quarter as a result of the greater earnings that we are generating in this higher interest rate environment. As Todd mentioned, we are well positioned to benefit from the higher interest rates as our portfolio is over 98% floating, and our liability structure is approximately 73% fixed rate. Looking forward to Q2 of this year, we expect, subject to our Board of Directors' approval, to continue our monthly dividend of approximately $0.13 per share, resulting in aggregate dividends of $0.40 per share for the second quarter. It's worth noting that based on the average price of our stock over the last 10 days and yesterday, our current dividend equates to an annual yield of about 12.4%. Now, turning to Outlook.

However of course, the ultimate performance of our current equity positions will depend on a variety of factors, including among other things the current economic environment and sponsors equity exit strategies.

Now turning to dividends, we continue to cover our dividend <unk> 40 per share per quarter. As a result of the greater earnings that we're generating in this higher interest rate environment.

As Todd mentioned, we are well positioned to benefit from the higher interest rates as our portfolio is over 98% floating and our liability structure is approximately 73% fixed rate.

Looking forward to Q2 of this year, we expect subject to our board of directors approval to continue our monthly dividend of approximately <unk> 13 per share.

Resulting in aggregate dividends of <unk> 40 per share for the second quarter.

It's worth noting that based on the average price of our stock over the last 10 days and in yesterday, our current dividend equates to an annual yield of about 12, 4%.

Now turning to outlook.

Since year end, we have funded $4 7 million at par and seven existing portfolio companies and have received one full repayment of $16 2 million. This brings our total portfolio to approximately $863 million at fair value with 92 portfolio companies.

Robert T. Ladd: Since year-end, we have funded $4.7 million at par in seven existing portfolio companies and have received one full repayment of $16.2 million. This brings our total portfolio to approximately $863 million at fair value with 92 portfolio companies. We are experiencing a somewhat slower environment for originations than in the previous few quarters, and we expect our funding for the remainder of the quarter will be offset by expected repayments of approximately the same amount. However, it is worth noting that we do expect, for a variety of reasons, that investment activity will pick up in the second half of this year. We have substantial capacity for new investment, which, of course, would increase with likely repayment. With that, we'll open it up to questions. And, Holly, we can begin the Q&A session, please.

We are experiencing a somewhat slower environment for originations than in the previous few quarters and we expect our funding for the remainder of the quarter will be offset by expected repayments of approximately the same amount.

It is worth noting we do expect for a variety of reasons that investment activity will pick up in the second half of this year.

We have substantial capacity for new investments, which of course would increase with likely repayments.

With that we'll open it up for questions and Holly we can begin the Q&A session. Please.

Certainly at this time, we will be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question. You may press star 2 if you would like to remove your question from the..., for participants using speaker equipment. It may be necessary to pick up your handset before pressing the start key.

You May press Star two 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.

Your first question for today is from Paul Johnson with K B W.

Paul Conrad Johnson: One moment, please, while we poll for questions. Your first question for today is from Paul Johnson with KBW. Good morning.

Good morning.

Afternoon, Hey, good afternoon, thanks for taking my questions.

So just on.

Some of the remarks, you gave on the portfolio.

Robert T. Ladd: Good afternoon. Good afternoon. Thanks for taking my question. So, just on some of the remarks you gave on the portfolio, 14% or so at square value in your sort of internal risk rate of three or below, kind of setting aside the non-accrual, I think that accounts for 1% of that. Correct me if I'm wrong. I mean, how do you kind of think about those situations? think that those are, you know, situations you feel are stabilized and performing albeit below some sort of projection, or are any of these still work in progress? Yes, so Paul, as a general matter, we certainly think these are all manageable positions. They vary by company, but

14% or so at fair value and your sort of internal risks.

<unk> rated three or below.

Setting aside the non accrual I think that accounts for 1% of that.

Correct me if I'm wrong.

How do you kind of think about those situations I mean do you think that those are.

Situations, you feel are stabilized and performing albeit navy blue.

Low.

The projection or are they still are any of these films to work in progress.

Yes, so a pause as a general matter.

We will.

We certainly think these are all manageable positions they vary by company.

One attribute that would be true for substantially all of them is that they do have private equity ownership and backing and support.

Robert T. Ladd: The one attribute that would be true for substantially all of them is that they do have private equity ownership and backing and support. And so I think the way to think about our risk grade threes and below is, perhaps, you know, performing under plan, that combined, though, with private equity support. I think that the results are quite predictable. Again, ups and downs in the portfolio, but I'd say no change, no substantial change over our history. Thanks for that, Rob.

So I think the way to think about our risk grade threes and below us.

Perhaps performing under plan.

That combined though with private equity support.

We think that the results are quite predictable, but again ups and downs in the portfolio, but I would say no change substantial change over our history.

Thanks for that Rob.

Robert T. Ladd: And then, you know, kind of looking, you know, in the next year, you know, if the income, this, your other income, this, this, you know, your Robert Dodd, Paul Johnson, Erik Zwick, Christopher Nolan, Robert Ladd, Bryce Rowe, Ryan Lynch, Entertainment and Income Activity here, depending on what sort of turnover I guess you're expecting for the year. Yeah, and Paul, just in terms of, so one way to think about it, we had a little bit more than normal other income in the fourth quarter based on repayments. We think that repayments slowed in the first quarter of this year, but we see repayments picking up toward the middle and latter part of the year. So on balance, you'll see more of it, but just to flag that in the first quarter, we would expect less of that other income than we had in the fourth quarter.

Kind of looking into next year.

Yes, Ian covenants or other incomes this.

Year.

Was relatively light I mean thinking about kind of activity as you mentioned that you expect to sort of pick up in the next year.

We expect that to drive sort of.

Central for David <unk>.

The year on year.

Depending on what sort of turnover I guess youre expecting for years.

Yes.

Paul just in terms of so one way to think about it we had a little bit more than normal other income in the fourth quarter based on repayments, we think that slowed in the first quarter of this year.

But we see repayments picking up.

Towards the middle and latter part of the year so on.

On balance Youll see it more but just to flag that in the first quarter, we would expect less of that other income than we had in the fourth quarter.

Yes, thanks for the clarification, there and then last one for me just on in terms of liabilities.

Robert T. Ladd: And then last but not least, just on in terms of liabilities, I realize I think your unsecured notes are due in 2026, but there's some SBA debentures that are rolling off in the next year or so. Where are you guys in terms of SBIC licenses and current capacity on those? Yes, so as a quick recap, and then Todd will add in here, we currently have two licenses. All of the debentures have been drawn, which amount to $325 million.

I realize that your unsecured notes are due in 2026, but there are some SBA.

Devin tiers that are rolling off over the next year or so where are you guys in terms of FDIC lie.

Licenses and carrying capacity of those licenses.

Yes, so as a quick recap and then Todd will add in here.

So we have two licenses currently.

All of the debentures had been drawn which amount to $325 million.

Robert T. Ladd: We do have some debentures from the first license that come due next year in 2025, roughly $25 million. So those will be prepared to retire, certainly repaid in advance of their coming due. And then, we are looking at working with the SBA for a third license, as some of the dimensions from the first license are starting to come due, and our investment period for the second license is coming up toward the end of this year. So we'll be in discussions with the SBA to see if we can obtain a third license. Your next question is from Erik Zwick with Hovde. Good afternoon.

We do have some debentures from the first license that come due next year and 2025 roughly $25 million.

Those will be prepared to retire certainly honored in advance of their of their coming due.

And then so we are looking at.

Working with the SBA for a third license.

As we've reached some of the debentures from the FERC license is starting to come due.

And our investment period for the second license is coming up towards the end of this year. So it will be in discussions with the SBA to.

To see if we can obtain a third license.

Your next question is from Erik Zwick with Hovde group.

Good afternoon.

Erik Edward Zwick: I wanted to start just on the comments Robby made about, you know, expectations for funding to pick up in the second half of the year. And just curious if that is driven by, you know, the kind of increase in pipeline activity that you're saying, or more based on kind of broad market developments or potentially a combination of both of those. Erika, thank you for joining.

I wanted to start just on the comments Ravi made about expected expectations for funding to pick up in the second half of the year and just curious if that is driven by kind of.

Increase in pipeline activity that you are saying or more based on kind of broad market developments or potentially a combination of both of those.

Yes, it would probably have Erica. Thank you for joining so a variety of factors so.

Robert T. Ladd: So a variety of factors. So certainly, when we've been in this situation for a long time, if things are slower, they tend to pick up. So that'd be one overall observation. But more importantly, we know there's a tremendous amount of dry powder in all private equity hands, but especially in the lower middle market where we operate. We also know that there are holdings in private equity firms that are either the fund life is reaching an end or some continuation end. And there'll be some realizations that, you know, that private equity firms will start to generate. So, you know, our general impression is that things will pick up in the second half of the year. We are seeing activity, but it's not as heavy as it has been.

Certainly when we've and over time, if things are slower they tend to pick up so that'd be one overall observation.

But more importantly, we know theres, a tremendous amount of dry powder.

All of private equity hands, but especially in the lower middle market, where we operate.

We also know that.

Their holdings in private equity firms that are either the fund life is reaching an end or some continuation and.

And there'll be some realizations.

Private equity firms will start to generate so.

Our general impression is that things will pick up towards the second half of the year, we are seeing activity, but but it's not as heavy as it has been so this is a more forward looking to.

Robert T. Ladd: So this is a more forward looking view toward the end of Q2 and the third and fourth quarter. Thanks for that insight there, And then just looking at the 4Q funding activity as well as what's been done quarter to date, you know, a greater percentage of add-on new investments versus new, and wondering if that's just kind of based on the opportunities that you're seeing or if you have a preference for those, you know, certainly companies that you've already made investments in and continue to grow. I'm sure you would love to be able to So curious about that mix, you know, as we look into what it could look like as well.

Towards the end of Q2 in third and fourth quarters.

Thanks for that insight there and then just looking at the <unk>.

<unk> funding activity as well as what's been done quarter to date.

The greater percentage of add on new.

Investments versus new and wondering if thats all right.

Just kind of based on the opportunities that youre seeing or if you have a preference for those who can certainly companies that you've already made investments for and continue to grow I'm sure you would love to build to continue to support them. So curious about that mix as we look out into 'twenty for what it could look like as well.

Sure sure so I would say that.

Robert T. Ladd: Sure, sure. So I'd say that I would say we like both. We really like the new financing where it's an acquisition of a fresh company, fresh diligence, and new equity capital. So that's an ideal structure for us. But that I'd say, you know, equally as good would be an add-on where we already know the company, it's performing well, and they're expanding. This is a lot of the strategy of the companies that we back, where the private equity firm takes the platform, the initial acquisition, and then their plan is to grow it from here with add-ons or acquisitions, if you will. So, again, both are attractive to us.

I'd say, we like both.

We really like the new financing, where it's an acquisition of a brush company fresh diligence.

New equity capital.

So thats an ideal structure for us, but that I'd say you know equally as good would be add on where we already know the company is performing well.

And they are expanding this would be a lot of the strategy of the companies that we back is that the private equity firm takes the platform initial acquisition and then their plan is to grow it from here with the with add ons our acquisitions, if you will.

So so again both are attractive to us.

The add ons come more naturally and as when we're already in the credit in terms of looking forward. This year, we would expect many of our portfolio companies and their owners to be acquisitive. So you should see more activity there.

Robert T. Ladd: The add-ons come more naturally, and as when we're already in the credit. In terms of looking forward to this year, we would expect many of our portfolio companies and their owners to be acquisitive, so you should see more activity there. But I think that that comes naturally with the existing, and then, of course, we're always searching for new opportunities and new. Thanks, man.

But I think that comes naturally with the existing and then of course, we're always searching for new opportunities and new companies.

Thanks, and then last one for me and I'll step aside just looking at the.

Erik Edward Zwick: Last one for me, and I'll step aside just looking at the kind of exits and some of the restructuring that took place towards the back half of the year. Any expectations for what a pick income may look like in 24? You know, we had a little bit of an increase in 23, where we had, you know, some restructuring we've worked on. So I don't think we expect it to materially change in 24.

Kind of exits in some of the restructuring that took place towards the back half of the year any expectations for what our pick income may look like in 'twenty four.

Okay.

You know it would be we've had a little bit of an increase in 'twenty three.

Where we've had some restructuring as we worked on so.

I don't think we expect it to materially change.

In 24, we have noted in the past that when we're the only lender or just a small group of lenders and you have a company that might be struggling making their interest coverage, which most of our substantial of ours can but if you have that case, we have the flexibility as a lender to.

Christopher Whitbread Patrick Nolan: We have noted in the past that when we're the only lender or just a small group of lenders, and you have a company that might be struggling to make their interest coverage, which most of substantially a lot of ours can, but if you have that case, we have the flexibility as a lender to provide some pick interest. Ultimately, it will collect it, but this can help the cash flow. But don't expect that to materially change. Thanks for taking my questions today. So thank you. Your next question for today is from Christopher Nolan with Ladenburg-Thelma.

<unk> had some pick interest ultimately collected but this can help the cash flow, so but don't expect that to materially change in 2004.

Thanks for taking my questions today.

Thank you.

Your next question for today from Christopher Nolan with Ladenburg Thalmann.

Robert T. Ladd: Hey, guys. Rob, any other comments in terms of slowing deal activity? I presume that's simply because the private equity partners you work with are just seeing slower investment activity as well. Is there a correlation?

Hey, guys.

Rob your comments in terms of slowing deal activity.

<unk>.

I presume that's simply because the private equity partners you work with.

Just seeing slower investment activities wells there correlation.

Thats correct its highly correlated I'd say, it's M&A activity is down and I think you may have.

Robert T. Ladd: That's correct. It's highly correlated. I'd say its M&A activity is down, and you may have heard that from others as well. So that's the most impact, for sure. Clause for you guys, where if they reinvest in a portfolio company, you know, you need to... www.stelluscapital.com, Yeah, and Chris, do you mean when they're making a new acquisition? A follow-on acquisition to an existing portfolio?

That from others as well.

So that's the.

With the most impact for sure and then I guess in terms of the Reinvestments due to private equity firms, who have a drag along.

Clause for you guys, where if they reinvest into portfolio company you need to.

Invest as well or how does that work.

Yes, and Christy you mean, when they're making a new acquisition.

Follow on acquisition to an existing portfolio Germany.

Robert T. Ladd: Sure. Sure. In many cases, we'll have already established a delayed draw term law that they would automatically draw upon if the acquisition follow-on qualified.

Sure. So in many cases will have already established.

<unk> draw term loan.

They would automatically draw upon if the acquisition follow on qualified.

Robert T. Ladd: So this would be normal. Absent that, where there's not a preexisting commitment, any new acquisition they'd make, we'd have to re-underwrite. And then, I guess, the final question is... You know, last year you had some pretty good dividend supplements. What's the spillover income? What were your thoughts about Supply Chain?

So this would be normal.

Absent that where theres not a preexisting commitments any new acquisition they'd make we'd have to re underwrite.

And then I guess final question is.

Last year, you had some pretty good dividends supplements whats the spillover income in.

What are your thoughts about supplements these days.

Sure, Let me turn it over to Todd for that sure Chris.

Todd Huskinson: Sure. Let me turn it over to Todd for that. Okay, Chris.

So so our spillover is going to be about $37 million.

Todd Huskinson: So our spillover is going to be about $37 million, and our current dividends are $38.5. So at our current dividend level, you know, with the additional shares that we've raised or issued, we've got enough regular dividends to cover the spillover going forward. But, you know, things could change in terms of, you know, gains and losses and taxable income in the future. Okay, thank you for the detail. That's it for me

And our current dividends are our 38 five at our current dividend level.

With the additional shares that we raised our issued we've got enough regular dividend to.

To cover the spillover.

And going forward, but things could change in terms of gains and losses in taxable income in future years got it. Okay. Thank you for the detail that's it for me thanks guys.

Thank you Chris Cooper's.

Your next question is from Robert Dodd with Raymond James.

Christopher Whitbread Patrick Nolan: Thanks, guys. Thank you, Chris. Your next question is from Robert Dodd with Raymond. Hi guys. You mentioned there's going to be potential realizations in the second quarter and maybe equity realizations and realized gains and maybe more activity in the second half of the year. I mean, everything we're hearing is that private equity or LPs and private equity funds want realizations before they'll fund new funds. If there are more realizations from your private equity partners and the private equity environment as a whole, would you expect or are there going to be more equity realizations in the back half of the year? Could we accelerate that as a source of capital to be reinvested as we get later into this year? Yes, Robert. And that's a good point that you brought up that I alluded to, which is, LPs and longer-dated funds looking for realizations. So we think this will drive business.

Hi, guys.

You May you may see this is going to be.

Potentially realizations in the second quarter and may be equity realizations over the landscape and may be more activity.

In the second half of the year I mean, everything we're hearing is.

Private equity or Lps, and private equity funds one realizations.

They'll fund new funds.

If if there are more realization from your private equity partners and private equity environment as a whole would you expect.

Are they going to be more equity realizations in the back half of the year could we accelerate that.

As a source of capital.

To be reinvested as we get later into this year.

Yes, Robert and Thats, a good point that you brought out that I alluded to which is.

Lps and longer dated funds looking for realizations. So we think this will drive.

Robert James Dodd: New activity for us as these companies are sold, and we have the chance to finance them for the next owner. But, as you're pointing out, this would also result in realizations for us. So, yes, and as I said in my remarks, we do think that the equity realizations activity will pick up, and there are a few more that we know of that I didn't mention, but not as clear as the two that we're hearing about. So I think that's right. And again, we have substantial capital to invest. As a reminder, our entire platform is roughly $2.8 billion of AUM across the Stellus platform. And then within the public company, of course, quite a bit of capacity to invest given that our credit facility, we're only borrowed about $150 million currently.

New activity for us as these companies are sold and we have the chance to finance up to the next owner, but as Youre pointing out would also result in <unk>.

Realizations for us so, yes, and as I said in my remarks that.

We do think that the equity REIT.

Realizations activity will pick up.

And there are a few more that we know of.

I didn't mention but but not as clear as the two that we're hearing about so I think I think that's right.

And again, we have substantial capital to invest as a reminder, our entire platform is roughly $2 8 billion of AUM across Astellas platform. So.

And then within the public company of course quite a bit of capacity to invest given that our credit facility were only borrowed at about $150 million. Currently so again that coupled with repayments. So we'll be we'll be ready for the new deals that come in the second half of the year.

Robert T. Ladd: So again, that, coupled with repayments, so we'll be ready for the new deals that come in the second half of the year. Got it, thank you. Any particular industries that you think are increasingly attractive in this, you know, if we've got higher rates right now, but if they are going to decline, are there any particular areas you think are appealing in that kind of environment? You know, it's interesting. We haven't thought of it in those terms.

Got it thank you.

<unk>.

Any particular industries that you're.

Increasingly.

Attractive.

In this we've got higher late right now, but if they all kind of decline and then any particular areas. You think are appealing in that claim.

In violent.

It's interesting we haven't thought of it in those terms, we were looking for a handful of basic.

Robert T. Ladd: We were looking for a handful of basic requirements in companies we look at, which start with substantial free cash flow generation, as well as growth that's built into the company. You know, we avoid commodity price risk. We avoid high maintenance cutbacks. So we really look more at those factors versus any one industry sector per se. And if that's helpful, and as you've heard me say before, we also look at companies and industry sectors where there's some history of how they perform in a recession. And this is helpful in terms of resiliency if you have such a downturn. So again, I think we've approached it more that way versus specific industry sectors. I appreciate that. Thank you. Thank you, Robert. Your next question is from Bryce Rowe of Frisbee Riot. Thanks. Good afternoon. Hey Rob,

Requirements and the companies, we look at which start with <unk>.

Substantial free cash flow generation.

As well as growth that's built into the company.

We avoid commodity price risk.

We avoid high maintenance capex. So so we really look more at those factors versus any one industry sector per se.

If that's helpful and as you've heard me say before we.

We also look at companies and industry sectors that theres some history of how they perform in a recession.

This is helpful in terms of resiliency.

If you have such a downturn. So again I think we've approached it more that way versus specific.

Industry sectors.

I appreciate that thank you.

Thank you Robert.

Your next question is from Bryce Rowe with B Riley.

Thanks, Good afternoon.

Good afternoon, Brian.

Hey, Rob.

I wanted to start with.

The NAV NAV movement quarter over quarter, obviously, you covered the cover the dividend and so all of the NAV go up.

Bryce Wells Rowe: I wanted to start with the NAV movement quarter over quarter. Obviously, you covered the dividend and saw the NAV go up here over the quarter. Can you speak to maybe the mark? Within the quarter, what kind of effect did the broader market, broader credit markets, have on the fair value marks in the quarter, and then were there any kind of specific call-outs beyond the non-accruals that we've already talked about? Yeah, so please turn it over to Todd. Sure. Yeah, Bryce.

Here here over over the quarter.

Can you speak to maybe the March.

Within the quarter, what maybe what kind of effect did broader market broader credit markets.

Have on.

The fair value marks in the quarter and then were there any any kind of specific callouts beyond beyond the non accruals that we've already talked about.

So please turn it over to Tom sure Yeah, Brian So.

Todd Huskinson: So we did we did have, you know, we had the realized loss that was reversed. We had, I'd say, in general. You know, there was a general decline from an unrealized loss perspective, but we also had a few specific write-downs on specific companies, and you can tell from that, from the SOI, one of them was J.R. Watkins, where we had written that down some as well. So that was the primary difference, you know, offsetting the taxes.

So we did we did have we had the realized loss that was reversed we had I'd say in general.

There was there was a general decline from an unrealized loss perspective, but we also had.

A few specific write downs on specific companies you can tell from the.

From the Soi one of them was Gerald Watkins, where we had had written that down some as well so that was the primary difference between.

Offsetting the taxes and the dividend.

Todd Huskinson: And maybe just add to what Todd said. So, so no general market decline, right? These were just as in previous quarters, except during COVID. This was company specific.

And maybe just add to what Todd said, so so no general market decline rate was these were just be as in previous quarters, except during COVID-19.

<unk> was company specific.

Robert T. Ladd: Yeah. Okay, okay. And I mean, on J.R. Watkins in particular, Todd, I know it's just one investment, but it looks like it's marked below 50% of cost. I mean, what's the comfort level there?

Okay, Okay and.

On a on a Jr. Watkins and particular, Todd I know, it's just one investment, but it looks like its mark.

Below 50% at cost I mean, what whats the comfort level. There how do you think about that staying on on accrual versus putting it on non accrual or maybe asked a different way is there a certain threshold, where you need to wear where even if it's still accruing interest paying interest.

Robert T. Ladd: How do you think about, you know, that staying on accrual versus putting it on non-accrual or maybe asked another way? Is there a certain threshold where even if it's still accruing interest, paying interest, you know, even if it's marked at a certain level, you'd consider putting it on non-accrual versus keeping it on accrual? And I might just jump in here. So I think that's definitely the right choice. And as an example, this one will be looked at this quarter.

Even if it's marked at a certain level yield youll consider putting it on non accrual versus keeping it on accrual.

Yes, I might just jump in here, so I think thats definitely.

It's definitely right and as an example, this one will be looked at in this quarter.

Okay. That's helpful Robyn.

Robert T. Ladd: Okay, that's helpful, Robin. And last one for me, you know, in terms of kind of balance sheet leverage and managing the balance sheet, no ATM activity in the quarter, you know, after a few quarters of some activity. Any reason for that? Is that more driven by repayment activity outpacing originations? Or is there some other way to think about it?

Last one for me in terms of kind of balance sheet leverage and.

Managing the balance sheet.

No no no ATM activity in.

In the quarter after a few quarters of some activity any reason for that is that more driven by repayment activity outpacing originations or is there something some other way to think about it. Thanks.

Yes, so no I think thats right we had.

Robert T. Ladd: Yes, so no, I think that's right. We had, you know, a very fortunate, successful year for the ATM coming into the fourth quarter. And, as I said earlier, substantial capital invested. So we're, we're focused on investing what we've raised at this point.

Very fortunate and successful year.

Year for for the ATM coming into the fourth quarter and as I said earlier of substantial capital invest so we're we're focused on investing what we've raised at this point.

Robert T. Ladd: Got it. Okay, I think that's it for me. Appreciate the time. Okay, thank you, Bryce. We have reached the end of the question and answer session, and I will now turn the call over to Robert Ladd for closing remarks. All right. Very good.

Got it.

Okay.

I think thats it for me appreciate the time.

Okay. Thank you Bryce.

We have reached the end of our question and answer session and I will now turn the call over to Robert Ladd for closing remarks.

Alright very good. Thank you. Thank you everyone for being on thank you for your support and we look forward to updating you again for the first quarter, which will our call will be in early may.

Robert T. Ladd: Thank you, everyone, for being on. Thank you for your support. And we look forward to updating you again for the first quarter, whose call will be in early May. Thanks again. This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.

Thanks again.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.