Business Context and Reporting Period
Stellus Capital Investment Corp, a Maryland corporation and emerging growth company, filed this Form 8-K on October 13, 2017, reporting events occurring on October 11, 2017. The filing details the entry into a new material definitive agreement regarding its debt financing structure.
Key Financial Metrics and Debt Structure
The Company entered into a Senior Secured Revolving Credit Agreement with a syndicate of lenders including Amegy Bank, Cadence Bank, and Frost Bank. Key terms include:
- Commitment Amount: $140.0 million committed, with an accordion feature allowing increases up to $195.0 million subject to lender agreement.
- Interest Rates: LIBOR plus 2.50% (with a zero floor) or an alternate base rate plus 1.50%.
- Fees: 0.50% per annum on unused commitments.
- Maturity: Availability period expires October 10, 2020, with a final maturity date of October 10, 2021.
- Currency: Borrowings in U.S. dollars or permitted currencies (non-USD limited to $30 million aggregate).
- Collateral: Secured by a first-priority security interest in substantially all assets and portfolio investments, excluding SBIC subsidiary interests.
Material Changes Versus Prior Period
Concurrent with the new agreement, the Company terminated its prior senior secured revolving credit facility with SunTrust Bank. This represents a complete refinancing of the Company's primary revolving credit line.
Covenants, Risks, and Contingencies
The new Credit Agreement imposes specific financial covenants and risks:
- Financial Covenants: The Company must maintain an asset coverage ratio of at least 2.0 to 1.0, an interest coverage ratio of 2.0 to 1.0, minimum liquidity, and minimum shareholder's equity.
- Limitations: Restrictions on incurring additional indebtedness and liens.
- Events of Default: Include nonpayment, material misrepresentation, breach of covenant, cross-default, bankruptcy, and change in control.
- Related Party Transactions: Lenders and affiliates may receive fees for investment banking or advisory services. The Company intends to enter a custody agreement with Amegy Bank pending board approval.
Note: This filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period.
Investor Verification Checklist
- Verify the Company's current asset coverage and interest coverage ratios to ensure compliance with the new 2.0 to 1.0 covenants.
- Confirm the status of the proposed custody agreement with Amegy Bank.
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of the borrowing base and asset eligibility.
- Monitor the Company's ability to utilize the accordion feature to increase commitments to $195.0 million if needed.